Builder - August 2008 - (Page 30)

INSIDE STORY LUBRICATING SALES: A robust economy caused existing-home prices in Utah and Idaho to skyrocket. That’s left the door open for local builder Timberhawk Homes, which attracts buyers with its 1,400-square-foot multifamily houses that are selling for $150,000 per unit. It expects to sell 200 units in 2008. FORECLOSURES CHANGE EVERYTHING When the S&P/Case-Shiller Index, which tracks existing-home prices in 20 markets, took its steepest dip ever, 15.3 percent, in April, some industry watchers inferred that owners selling houses might be facing reality and lowering prices. The National Association of Realtors lent credence to that belief when it estimated the median price for existing homes fell by 6.3 percent, to $208,600, in May from a year ago. (Sales, though, dropped 15.9 percent to an annualized rate of 4.99 million.) But the more obvious and overwhelming factor contributing to this trend is the sheer number of foreclosed homes coming back onto the market at signiﬁcantly reduced prices. “There are incredible changes in the combination of homes being sold today, and one can see a weakness at the lower end of the price scale because of all the foreclosures,” says Jim Diffley, an economist with Global Insight. In Merced, Calif., 95 percent of resales in May were foreclosures, and a buyer could purchase a 1,600-squarefoot house for $86,000, versus the high $200s it sold for during the market’s peak. Greg Paquin, president of the Folsom, Calif.–based market research ﬁrm The Gregory Group, says that while new-home buyers in Northern California sit on the fence, “people are buying [foreclosed homes] like crazy.” He adds that virtually all foreclosures are being priced at or below $500,000, which inﬂuences how builders market new homes. Paquin told Builder in June that in Sacramento County—where foreclosures contributed to a 30.8 percent sales increase in May, but where new-home sales that month were down 32.8 percent, according to DataQuick Information Systems—JTS Communities advertised “foreclosure prices” at one of its new-home subdivisions. SMALLER MARKETS, MORE AFFORDABLE HOUSES notes that builders and analysts too often use the wrong measuring sticks to predict where home prices might be headed when they compare prices today against “unrealistic and unsustainable” peak values. A more meaningful comparison, in his estimation, would gauge today’s prices against 2003 numbers. A return to their pasts might be where many builders are headed. San Diego, for example, could come out of the downturn “a very different market,” predicts Donna Morafcik, a spokeswoman for the builders association there. She foresees annual permits, which hit 16,000 in 2002, eventually receding to around 5,000. Where it competes with foreclosed resales, Orlando, Fla.–based Park Square Homes showcases its affordable Cottage Collection that, in St. Cloud, Fla., starts at $164,900 for a 1,170-square-foot, threebedroom house. In all of its communities, Park Square adjusted its standing inventory to target buyers in central Florida whose household incomes average $65,000, which means its houses are priced below $225,000. That new tack seems to be guiding this builder to some light at the end of the tunnel, says CEO Suresh Gupta. “We had a pretty good May, and June looks like it would be good, too.”—J.C. Foreclosures aren’t a negative, says Seay, if they bring market prices back to equilibrium by pushing existinghome prices down. “Foreclosures are changing everything,” adds Russ Valone, president of MarketPointe Realty Advisors, which tracks San Diego’s housing market. “But what I’d like to see is more segmenting of the sales data,” which would provide details, by market or even community, about the composition and physical condition of foreclosed homes, their selling price, and buyer preferences. That statistics rarely tell the full story has long been a complaint by builders and analysts who have little trouble ﬁnding contradictions around every local corner. Brown photos: top: courtesy timberhawk homes; bottom: courtesy park square homes ECONOMICAL ALTERNATIVE: Park Square Homes developed its Cottage Collection, which starts below $140,000, to compete with foreclosures that have sprouted in several of its 13 communities. GOT AN INSIDE STORY? E-MAIL JOHN CAULFIELD AT: jcaulﬁeld@hanleywood.com 30 ■ 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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