Everyone knows that sales of new and current homes have hit an all time low and even though this is true some people still need to purchase homes today.
This is what you would call a buyers market but in fact buyers are unable to complete deals due to homes they contracted for losing value before closing. This happens when a prior contract for a new home is delayed significantly but it is occurring at a much faster pace today.
The National Home Builders Association recently testified before congress stating banks are unwilling to complete deals when the contract price of the home no longer meets the appraisal price. In this case any down payment can be lost by the customer including any special order addons that may have been agreed to separately from the main contract.
Although this is a limiting factor for the industry the fact is many homes have been overpriced for the past decade.
Availability of inappropriate loans has left the market with relatively new homes that are competing with brand new homes.
The Home Builders Association has asked congress to help home buyers with supplemental loans to offset the price that the bank appraisal will not cover. This may push homes into the hands of people that originally wanted to make the purchase but there is really no upside for the Tax Payer backing loans for homes that can not be resold at these higher prices should the buyer lose their job and the bank foreclose.
In reality Home Builders are going to have to Eat their profits just to get rid of inventory that will sit for extended periods of time losing value and possibly becoming targets for criminals.
Whole subdivisions in Southern California have been targeted by Illegal Aliens and Police are unable to remove the squaters due to limited man power and safe harbor regulations set by local officials.
If you find that you are about to purchase into a development where your contract price is well over the current value and the builder has not turned over the management of streets and waste to local officials because the development is not completed you should consider very strongly renegotiating the contract for a price that will cover your total loss plus an amount for future problems that will arise if your builder goes bankrupt.
Remember although times are tough markups allow the builder an average of 40% profit but not making the sale … even if it is at a loss ties the builder to the cost of materials and labor to date.
If the builder is not willing to make a dollar amount adjustment because they need the money to pay for their accounts maybe as an offset you can get the vacant lot next to your home that is yet unbuilt or contracted.