Builder - August 2008 - (Page 28)

INSIDE STORY “We predicted, wrongly it turned out, that price reductions on new homes would tip the scale,” and put buyers back in play, says W. Scott Simon, managing director with PIMCO, the Newport Beach, Calif.–based income management ﬁrm. “But sales keep going in the wrong direction. It’s almost counterintuitive.” THE NEW BARGAINS What, then, has kept existing-home prices from surpassing new homes, especially when many owners still won’t sacriﬁce equity unless they absolutely must sell? In Phoenix, for example, inventory on multiple listing services has hovered around 57,000 homes for several months. But of that total, “there are maybe 20,000 to 25,000 [homes] that will never sell at the price they are listed for, so they may not actually be for sale,” observes RL Brown, an analyst who publishes a well-read monthly housing report on that market. COPING WITH But one can ﬁnd existing homes that are pricier than new homes in Phoenix, as well as Las Vegas, Southern California, and parts of Florida, observes Larry Seay, CFO for Meritage Homes in Scottsdale, Ariz. These are the markets where production builders, burdened by unsold inventories, have brought prices down so low that a comparable resale is no longer the bargain. This phenomenon can also be found occurring in less-distressed places, such as Northeast Utah and Southeast Idaho, where energy-related industries have thrived as oil prices have spiked, producing “humongous” appreciation in existing-home prices, says Trever Einerson, project manager for Timberhawk Homes. Timberhawk specializes in attached townhouses that average 1,400 square feet and sell for around $150,000. By controlling its construction costs, this builder keeps its prices low and expects to sell 200 units this year, versus 50 in 2007. On the other hand, in markets such as Charlotte, N.C., where economic forces aren’t as great a factor, the gap separating new from existing prices has widened over the past year, notes Blair Kendall, a representative for C.P. Morgan Communities. Michael Castleman Sr., chairman and CEO of the research ﬁrm Metrostudy, says he’d be “surprised” if comparable existing homes cost more than new houses in most metro markets. Any price advantages builders might enjoy now will be lost unless they continue lowering their prices, which Castleman and several economists believe must happen for builders to reduce their huge inventory overhangs. But some production builders with loads of unsold homes are reaching a point where further price slashing is counterproductive. New-home prices are “pretty close to the bottom,” asserts Seay, because “no one is going to build if you can’t get some cash out of your land and a (see page 30) nominal return.” CANCELLATIONS Mile-High Matchmaking A Denver builder pairs investors and renters at one of its projects. T his month, Infinity Home Collection expects the rental occupancy at Moda Lofts to be at or near capacity. And the success of this project, after a ﬁtful start, is an unusual example of what the builder’s owner, Paul Schmergel, calls “turning lemons into lemonade.” Moda Lofts is a 64-unit building located in the town center of the sprawling Stapleton master planned community, about 15 minutes outside of downtown Denver, where Inﬁnity is also based. Inﬁnity initially marketed the lofts as for-sale condos. But by the time it had completed the building in July 2007, half of the presales had backed out of their contracts. So Schmergel took an unconventional route to salvaging the project. Inﬁnity kept 30 of the 64 units under its ownership and sold the rest to investors with which it had done business in Denver previously. Simultaneously, Inﬁnity offered all of the units at Moda Lofts for rent. (Investors bought packages of ﬁve or six leased units.) The average selling price for the units to investors, which range from 827 to 1,146 square feet and are mostly one-bedrooms DELUXE ACCOMMODATIONS: Inﬁnity, a luxury builder, with dens, has been brings some of that ﬂair to the interiors of Moda Lofts, where six $278,403. The units are of seven ﬂoor plans are one-bedroom apartments with dens. being rented for an aver- MARRIAGE OF CONVENIENCE: When buyers started cancelling last year, Inﬁnity marketed the 64 units in Moda Lofts to renters and then sold half of the apartments, in clusters, to investors. age of $1,331 per month. Schmergel says Stapleton’s developer, Forest City Enterprises, allowed Inﬁnity to set up on-site signage to promote the rentals. Schmergel, though, doesn’t expect that Moda Lofts will become an alternative business model for his company. Inﬁnity, which celebrated its 10th anniversary last year, isn’t giving up its day job building around 100 luxury detached houses per year, which sell for $700,000 and up. It is one of three builders at Solterra, the master planned community in Lakewood, Colo., where Inﬁnity has 10 presales at an average price of $800,000. So far, at least, rentals aren’t being offered there.—J.C. photos: Courtesy Infinity Home Collection 28 ■ B U I LD E R augus t 2 0 0 8 W W W.BUILDERONLINE.COM http://www.builderonline.com

Table of Contents Feed for the Digital Edition of Builder - August 2008

Builder - August 2008 Contents Editor’s Notes Bmail Book It Inside Story Success Stories Top Shelf Green House Sales Strategies Products Digital Home National Beat Seiders' Economy Trade Secrets: Staying Afloat Sign of the Times Missing Links Ad Index Last Word

Builder - August 2008

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