Some builders are going to be in real trouble, but other builders, who may have bought their vacant land or vacant finished lots in 2004 or earlier, are going to be just fine. Their sales will be slower, and they will most likely be giving big sales concessions, but some will still be profitable.
Let’s say you are a builder in San Diego, and you bought a large vacant parcel in 2002 or 2003, intending to build in 2005 or 2006. Even at todays’ lower prices, you may still turn a profit. You won’t make as much money as you would have if you had sold your homes 12-18 months ago, but you can still sell your homes at much higher prices than you could have gotten in 2002/2003.
Think about a company like Pardee Homes, who owned property in Carmel Valley back to the 1970’s. Their cost basis is so low that they can’t lose money no matter what they sell homes for today.
In the early to mid 1990’s, there were still new homes being sold, even though there was a housing recession in Southern California. The builders who went broke were those who had bought their land just before the market went in the toilet. The builders who will be in trouble this time will be those who purchased vacant land/lots around 2005.
