This has been perplexing me, how can they lose money with only a slight to moderate price reduction over the last two years despite still being priced higher than after inflation adjustments over the last ten years? Many of them secured the land before the bubble.
One development in my area of about 2000 homes and 10 builders had the land in 1998 when a 2500 sq ft house sold for 180-200k. They got hung up in some environmental concerns over a butterfly for a few years and then some nimby delays from the neighbors. They start building in about 2003 and as recently as 2005 when I looked at them they were selling for about 500k, plus or minus for larger or smaller. Now they are only about 2/3 done and are discounting to 350k to 450k and they are posting stock losses. Big builders that are represented there (lennar, centex, standard pacific, woodside, lyon, etc.) are posting stock losses and blaming Southern California as the reason they are losing money. How? In 8-9 from the time they managed to sell a home for a profit at 180k now they are losing money selling at 400k, normal appreciation and inflation of materials and labor did not rise at 10% a year and even if it did, 360k would be a profit. What other industry does this. In 1998 I bought a car for about 24k, today that car is 35k, that company wouldn’t lose money at 48k per unit. And if they had priced it at double what it was 8 years ago they could lower the price and the first 13k wouldn’t hurt them, just bring them in line with inflation.
