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PerryChase.
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February 14, 2007 at 11:31 AM #8399February 14, 2007 at 12:12 PM #45380
surveyor
Participantcurrently
I can’t tell you what happened in the last cycle (I wasn’t here) but from my meetings with the builders, they are still building houses, and they are building whatever they have that is along far enough. The reaction I have seen to this slowing market is that they will stretch out their phase releases – releasing only 3-5 homes per phase as opposed to 5-10 homes per phase.
Most of the talk I hear is that they hope things get better in the summer (sales-wise).
February 14, 2007 at 12:21 PM #45383Bugs
ParticipantThe farther along in the development process a property is, the more money that’s been invested in it. After a certain point, a developer reaches the point of no return. They and their lenders have no choice but to follow through and hope the market recovers in the interim. It bears repeating that there are still a lot of developer-affiliated economists who are toeing the NAR line that the worst is behind us. A developer who’s listening to their economist might truly believe this downturn is over and we’re headed for better days.
Still, for every project that’s still in motion there are a couple others where the developers have already forfeited those land options that they could walk away from, and a number of other projects that were going to be built that are now on hold.
February 14, 2007 at 1:02 PM #45389Cow_tipping
ParticipantDevelopers will do whatever it takes. Swaps between builders, start undercutting with pseudo names (fox and jacobs and centex is a classic double speak example)
The basis for this I use is a development called Poplar woods in charlotte NC.
Started by David Weekley in 1996 who built a few 2-3K sqft houses at ~125 a sqft. Very very high end.
Then in 1998 they bailed and sold out to Shea, who promply shafted the old owners by building larger houses which were almost identical looking for ~ the same $$$ … like a 2K sqft DW will have cost the same as a 2.5K sqft Shea 3 years later.
Then Shea bailed in 2000 (charlotte had some serious price deflation from 96-02) selling out to beazer. Beazer first built ~$80-100 a sqft. Then in 2002-03 the last 6 lots were built by beazer for $50 a sqft or so. 2625 sqft with a base price of 135 or so.
If you want to see the neighborhood’s progression check it on the GIS system.
Its in Cabarrus county North carolina, near concord and the house I built (but didn’t move into) was 101 poplar woods drive. Check out all the rest of the neighborhood.
Falling real estate demand = lower prices for materials, land, labor and everything. I see it all dropping to 1/2 the peak and the builders still making $$$ hand over fist.
Cool.
Cow_tipping.February 14, 2007 at 1:12 PM #45392(former)FormerSanDiegan
ParticipantIf you were building widgets and the market for widgets dropped would you:
a. Stop making widgets and take in zero revenue so that supply would work its way out and order would be restored to the marketplace
OR
b. Cut your prices to undercut the next guy, get him out of business so that you can have a larger percentage of a smaller pie, make payroll and survive the next few years.
I don’t think they will stop building houses, so most will choose b.
February 14, 2007 at 1:14 PM #45393PerryChase
ParticipantTo me, the business of building houses should be managed like any other manufacturing business. When business is slow, you retrench and layoff while trying to maintain profitability. Good management will anticipate the rainy days.
In the 1990s we didn’t have the large national builders in San Diego we have today. Pardee and Fieldstone were major builders. They continued building, lowered prices and built smaller houses. McMillan and Standard Pacific retrenched. Many small local builders went out of business.
Today, lumber costs are already way down, labor cost are coming down. We now need builders, land speculators and lenders to go bankrupt so land gets recycled at a lower price points. Only when that happens will we see meaningful price drop in new developments.
February 14, 2007 at 1:21 PM #45396gn
Participant>> I see it all dropping to 1/2 the peak and the builders still making $$$ hand over fist
You are absolutely right. You confirmed my suspicion, that, home builders will continue to build b/c it’s still possible to be profitable.
February 14, 2007 at 1:38 PM #45401PerryChase
Participant… that’s how capitalism is supposed to work. Bankruptcy reallocates resources to more efficient managers who aren’t saddled with debt and can still turn a profit. Isn’t life wonderful?
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