So the home building business is slow in many areas of the country yet in my area, some of the medium builders are going at it full speed. One is building a 200 home subdivison while another is doing a 400 unit town home development. A few others are doing 30-50 unit single family developments. All are being built as specs or pretty close to it. None are custom…all are tract. And these are not national builders, just ones in our area.
Any thoughts as to why guys would still do this? I mean materials haven’t gotten any cheaper and I am guessing most subs haven’t either. Is it just the idea to get homes in the ground for whenever the economy bounces back?
There are alot of homes for sale in our area but maybe they figure folks would rather spend $250k on a new home than $200k on an older one? I probably would too as you would know its built to the stronger code at least and likley more energy efficient.
Its just surprising as before we closed, I couldn’t get my phone to ring but I guess these guys know something I don’t as far as forecasting.
Edited 6/14/2008 4:50 pm ET by Oak River Mike
Replies
They are building smaller houses for the people who are gouing to bail out of the mcmansions.
"Put your creed in your deed." Emerson
"When asked if you can do something, tell'em "Why certainly I can", then get busy and find a way to do it." T. Roosevelt
Might be true but these are still $250-300k homes. Not real small ones.
Unless they figure the folks who have the $600k ones now will need places to live once they get foreclosed?!
Any thoughts as to why guys would still do this?(quote)
There have always been builders who don't know they are in Indian country till they get an arrow in the back.....
What else would they do?
If you're a medium size builder (let's say 200 units in a good year) what else could you do if the market slows down?
An operation that size cannot likely change course and start remodeling, so that option is out.
A builder builds houses. That is how they operate. Maybe things are slow and they scale down to 50 houses a year, but if they don't do anything, what are they going to do?
Jon Blakemore
RappahannockINC.com Fredericksburg, VA
Hopefully, they will adapt to the new conditions even if it means changing the course of a substantial business. The alternative is gambling, i.e. the new homes sell or you go bankrupt.
"Doubt is not a pleasant condition, but certainty is absurd."
~ Voltaire
I just looked at a document put out by the Census Bureau.http://www.census.gov/const/newressales.pdfNew home sales are selling at an average rate of 551,000 per year over the first four months of 2008. This is not as good as years prior, but some of those years were also record setting years.If a builder needs to sell 200 homes that he is building, he's still a far cry off from 551k. That's barely a dent.As always, local conditions are a huge factor. Some areas are still growing, some areas have remained relatively flat over the past decade. One should certainly not look at 551k new home sales and believe that anything they build will be snatched right up- that would be bad business.Still, good builders typically do well no matter what the market conditions are. They should respond to the market and revise their product accordingly. That IS easier said than done.
Jon Blakemore RappahannockINC.com Fredericksburg, VA
I have watched some people ride a problem right into the ground. I hate to see it happen. That's what caused me to comment. I totally agree that a specific business may do well enough, and better than it's competition, during tougher economic times and that some areas, for various sometimes non-obvious reasons, will be sailing right through the economic squalls of the country.
"Doubt is not a pleasant condition, but certainty is absurd."
~ Voltaire
exactly where are they building these houses?
what is the expected date of completion?
i am just curious to know, especially when they are expecting the last phase to be nearing completion, ought to be able to get them for about $100,000 by then.
i have been looking at florida really hard. your posts i pay particular attention to, you live there and are a builder. i think you probably have better instincts for this area than even the local realtors.
MLS listings in port st lucie for instance, there are over 4000 of them. absolutely dozens of what look like nice homes in nice neighborhoods. low end fixers 70K, move in ready 1500 sq ft 120K. less than $100 per sq ft, you can't build them for that.
Have a look at this article.
http://www.tampabay.com/news/growth/article616915.ece
Its the County I live in which is where Tampa is.
Its still far from good here and yes you are right, great to buy as there is no way you could build some of these homes for the price you can buy them!
Still can't figure why they would still build?
Edited 6/14/2008 11:13 pm ET by Oak River Mike
The Topps were similarly analytical when they decided to move from State College, Pa. They found two similar houses and initially offered $405,000 for their second choice, Topp said. The counteroffer was $430,000.Then they turned to their first choice, priced at $680,000. "It was a corporate relo that had sat empty for two years," Topp said.They offered $415,000, plus an argument: If you don't sell at this price, we will buy the twin house nearby and instantly reset the market price for your house.It worked, Topp said. "They responded the same day."<<<<<<<<<. yikes
yikes, exactly!
So why would anyone build any more new homes? I just don't get it....but then again I am out of business so don't hold my business insight for much value. ;)
you did the right thing, its time to change gears.
you can always get back into building when its profitable again.
yeah i was amazed at that article too, someone got a nice house for 415K
it looks more and more that we should put off buying for at least another year, if i were to make an offer today it would have to be ridiculously embarrasingly low, and then i would hope the bottom doesnt drop out.
"if i were to make an offer today it would have to be ridiculously embarrasingly low"THATS WHAT I'VE BEEN TELLING YOU! Bob's next test date: 12/10/07
see i have been listening after all, thanks dad!
Go ahead and make the ridiculously low offer now. It may work!
"Doubt is not a pleasant condition, but certainty is absurd."
~ Voltaire
The Topps were similarly analytical when they decided to move from State College, Pa.
It worked, Topp said. "They responded the same day."<<<<<<<<<.
yikes
I said Yikes too.
Having lived in and around both places? Why would anyone leave Happy Valley for Tampa?
robert,
I thought the same thing as I have relatives in that area and would love to be able to live there over Tampa. Its a beautiful region!
Mike
Want another Yikes? Look at this linked article about property taxes.
http://www.tampabay.com/news/localgovernment/article623995.ece ""Investors purchase tax certificates — essentially the right to collect the amount of taxes due — by paying the tax bills themselves.
The property owner then has two years to pay the investor back the tax owed, plus interest of 0 to 18 percent. To protect homeowners, Florida law awards the tax certificate to the bidder who offers the lowest interest rate.
If property owners pay the tax bill plus interest within two years, they're in the clear. If not, the investor can call for the property itself to be auctioned off at what's called a tax deed sale.""
They can't get your Goat if you don't tell them where it is hidden.
i was looking into florida law on these same property auctions and if i understand it correctly it says that if the property is called to auction by the person holding the tax lien that the property will be auctioned at a public auction.
i don't think the person holding the tax lien has any special rights to bid on the property at public auction over anyone else, its just that the person holding the tax lien has already paid for the taxes and interest.
if i am incorrect in my understanding i would appreciate someone correcting the above statement.
what it means is that you can't buy properties in FL for pennies on the dollar like the late night infomercials say, just by buying the tax liens, you still have to show up and compete with the other buyers at the public auction.
that is not to say you won't get a killer deal at the public auction.
Yea, I understand it the same way. here the auctions don't happen for 5 years and are sheriffs auctions. What was of interest to me was that investor groups are buying up these back tax deals.
Wonder if they can bundle the better ones with some worse ones, find a bank to buy the bundles, that bank of course will need to buy more bundles until they find themselves able to rebundle them ....
They can't get your Goat if you don't tell them where it is hidden.
with the interest rates the banks are offering these days not very much for savings they are probably making 10% or more on the tax liens.
the tax liens are probably a pretty safe investment, although not very liquid. these days you can sell anything, but you probably have your money locked up for a couple of years.
Guys, yeah thats how it works. Once the property gets that far along with back taxes unpaid, it goes for sale literally on the courthouse steps via a good ole fashioned open bid auction. You can get properties for deals (not pennies on the dollar) but maybe a $200k house for $115k depending on who is bidding against you.
The hold back for me ever participating is you have to pay for it with a cashiers check, certified check or cash right then and there.
I have never had $100k+ that I can use as disposable income like that.
I have been reading and hearing that the market in fla. is changing for the better finally. How true for your area, I don't know.
The people reporting said that florida typically leads us out of housing slump! Hope it is true.
....I guess these guys know something I don't as far as forecasting.
When the 1929 crash happened... there were those that thought it was a fluke and went back into the market...then lost their's, too.
Then, there's the country tune with lyrics saying to effect..."When you find yourself walking in "Hell", you've got to keep walking to get out...." So, the builders and Car Dealerships keep on building....
Somewhere in between those two views is where I see we are....
I'd gamble on the safe side and get my debts paid, some gas with Stabiel mixed in it, and my can goods well stocked until six months after the coming Election... If it crashes, you can eat...in peace...and get to the Doctor Office or Hospital. If things go well, your debts smaller or gone, and gas and can goods are cheaper than they'll cost this time next year..
;>) Bill
Mike,
sitting here in Ohio---this is what it looks like to me
EVERY day there is a new crop of 65 year olds that retire--that process is relentless-----so there is a steady supply of people from Ohio, PA, NJ, NY that want to retire and move to FLA.
current situation---is a blip---but long term nothing is going to change the fact that a lot of older people want to move to FLA.
so--those units may not move today-or next year--but they ARE gonna move.
speaking of older people
THERE is a market for you.-retro-fitting homes with accessibility issues.
first off--it's not a market that I am interested in----but I think,businesswise, it has HUGE potential for the right operation.
ther is a big need for it-----and what a lot of people don't know--is that there are ways to have the government or veterans groups pick up the tab for the homeowner
example--my dad passed away a year or so ago--had a stroke-----major mobility issues. this is in Ohio,mind you---a veterans group was going to pay a contractor based in Virginia to come and build a wheelchair ramp on the front of the house in Ohio.( my dad died--and the order was canceled before the ramp was built)
I bet---if someone did some research----there are a LOT of similar programs available from various organizations----I bet there is a huge-untapped market out there for grab-bars, ramps, wider doorways-----all sorts of mobility issues I don't even think of.
it's not a market I am remotely interested in---but i bet it would be perfect for someone.
stephen
There has always been a very lucrative market for these that product. Back in the early 80's I did a whole house renovation for a guy who was getting everything paid for, for life, from a traffic accident. If I remember correctly, I charged 7k. When I was picking up the check from the insurance agent, he wondered why I was so "competitive". I found out from him that he normally paid 12k for that type of installation and his other contractor normally would have done that job but the customer had requested me because he knew me. So, why didn't I charge 12k? I didn't know about business and markups! I sold that job at my cost....just like every carpenter does that "doesn't want to cheat or gouge" anybody! When you look at those numbers, it makes perfect sense today. If I applied my normal markup to achieve a 40% gross profit markup, I'd have written the estimate for $11,690 and still got the job! These type of jobs fall into the category of "somebody else is footing the bill" which often takes the emotional aspect out of the decision to buy and the clients then make their choice based upon the most professional of the companies offering the services. So, I agree Stephen that there is, and will be, a huge market in these type services. The key to success in this area is the same keys that you ar already practicing in your business: charge enough to do a topnotch professional job, then deliver more than you promised. Bob's next test date: 12/10/07
blue,
it's not a type of work that interests mebut I can easily see a huge potential for it----for someone to set up an operation with a PROFESSIONAL salesperson--some one who educated them self to handicapped issues, accessiblilty codes and various government and private programs---plus a couple of "technicians" to do the actual installs.
i think it could be very lucrative if handled the right way----and I betch a dozen donuts it is a GROWING market.Ever see ads for those handicapped scooters on TV?---where they imply they might be able to get you the scooter for free-------same thing.
who knows how much stuff the VA, medicare/medicaid, SS. pays for, plus insurance???
stephen
It may also be that the builders are in a "damned if you do, damned if you don't" situation.
Developments can sometimes take years before actual site work begins. Property aquisition, zoning issues, infrastructure design (streets, utilities, etc), and financing (to name a few things) have to be settled before the first shovel hits the ground. Those builders may be so heavily invested that they have to keep going - or totally lose their arses.
Dave,
Thats probably true as I bet they did the initial submittals for site permitting about 2-3 years ago and are now just starting to build.
What a scary felling that must be to know you are comitted yet unsure if its going to pay off? I hate to make assumptions but I would be scared that those homes are going to be built with MAR (Miinimal Acceptance Required) quality just to get them done cheap and fast.
MIke
there is always a market.... price location ect... i'm not yet finished with my condo loft project... but i'm not worried.... I'm within walking or trolly distance to 30k+ jobs (very low figure) most of them medical & legal... many of these people drive 50-150mile round trips to... at this point i'm not sure that the note on one of my units wouldn't be smaller than their current fuel bill....
I've talked to suppliers and they have told me the guys who have always paid their bills and have always stayed busy... are still doing so... the guys who were day labor 5yrs ago and became "builders" are already gone... cheap easy money is also gone...
these are interesting times... but in all times no matter how interesting.... someone is still make'n money
p
p
it seems that you are positioned well for a coupla reasons but some of us got bit hard. you can tell if you read blues posts that he took a hard hit. i know my attitude has been affected by what happened.
i hope it doesn't hit your area like it did in some. you would survive but it is still a hit to take.
it will take some time to shake out....
around here you had a huge number of people who had never paid a bill on time able to buy a 300k home???? I rented to several mortage brokers who were drive'n big cars and make'n "deals" they are all gone as are the companies whos products/loans they sold...
the other side to that is you had builders who were rip'n & roaring to meet demand and raise'n the prices of their homes to meet the highest end of what it'd appraise for... they were also push'n a huge buy'n bonus... all it took was one resale (without the bonus the 1st buyer got) and the comps dropped 30k overnight.... all this was market driven and many now have fallen buy the wayside.... but harvested a killer crop while it lasted....
there are many forces at work... of which we are all aware .... and are feeling in our person budgets.... I'm not sure we have seen the bottom or the worst... i'm in the hope that we have....
my commercial rentals are doing well but my office space is B space... and I'm getting the people who don't and never did need to be in A space... by move'n 3 miles i can save people over 50% on their office space and give them better access to the major interstate (I-40) is 500yds away... likewise my retails space is strong... I know a few tenants are hurting... but all in all most are service related or fast food... and are pretty strong... I'm also seeing more people looking to go into a small business... maybe forced by need? or the loss of a job? or early retirement?
yep these are interesting times...
p
Ponytl, what is your target selling price for each condo unit? Bob's next test date: 12/10/07
I know this sounds bad... but i have no "target price" at finish out I'll be into em for under $60sf and 5 years of labor... i have 20 units... one of which is mine... but if someone wants it they can have it... I just have area folks wonder in and look around... many are renting have have told me they are waiting on me to finish ... I have 9 ground level units ... 5 of which are one bedroom... and these smaller units seem to draw the most interest... as they are larger than the normal 1br apt in the area all have washer/dryer hookups and nice sized outdoor living area (realtor speak for fenced in patios) and all have covered secured access controled parking.... 2 smallest are 575sf and in this market could sell for 100k or 129k depending on finish out and how bad someone wants em... there are very few units of this small size anywhere around here (that aren't rental these would rent for $800+) I'm mainly interested in selling enough units to pay off my construction loan... then can rent or lease purchase the remaining units... perfect world i'd sell everything except my unit and one other...pocket the cash and sell my unit when i've had it long enough for tax reasons... let the remaining held unit pay my expenses of ownership as a rental... use it as a "trade" home for vacations... who knows... comps in this area have remained strong... showing sales slow down but price increases... go figure??? average sf price is $200+ ....
we'll see
p
I think that explains what I was wondering about. I was really geeked to put together those loft units back in MI. At this point, I'm still not sure that it would be a bad deal, even in the face of the incredible challenges there. I think if I was still there, I'd be half way done on that project and it would have worked because I'd have adjusted the selling prices downward enough to make them investor friendly properties. The project would have been a slam dunk if MI wasn't so far behind in their state budget. The current owner is still trying to raise some government dollars for that project but MI is so broke that every tax dollar has huge demands on it. A little bit of HUD money would have made that project a slam dunk for many reasons. I'm still open to revisiting that project at the first uptick in MI's economy. Bob's next test date: 12/10/07
They are still building because they will market them to the retirees from the north. $250k to $350k might be pricey for that county but where I am, you might be able to get a lot for that in an existing neighborhood. And that's in the mid tier towns, in the expensive towns, you could not buy a two car garage for that.
The building is slower here than a few years ago, but picking up. The typical new house is 3000 sq and going for $700k to $900k. In NJ, NY and CT its going to be the same, maybe higher. So you have people that are retiring who will be more than happy to buy for those prices.