I have a gut feeling that many previously hot market seems to have hit the bottom in recent months and weeks. Many builders have cut the price to the bare bone, from 20% to even 50%. Noticably, Florida may be the best place to find great deals. Rather than going to Auctions or looting for foreclosures, why not go to the new home builders and really negotiate the deals. A lot of the builders are in such pressure that they are willing to negotiate the price down to just “cost” level, meaning a 20-40% price cut to you. However, these deals can only be had on “quick sales” inventory. Florida is the worst casualty area, I am tempting to go there and harvest great deals.

One reason you want to hunt for them now, not 1 or 2 years later, is that most builders will do anything to clear out the sitting inventories. Once these inventories are gone, builders will resume to normal sales. They have the option of not building any more units on existing lots. So, they can take time and in no need to sell at “cost”. Some builders may even stop marketing the community as long as they see that profit cannot be realized. A lot of the builders have bought the land outright, they don’t have carrying cost on owning the land. Their biggest cost burden is the cancelation from previous investor buyers, leaving them with huge withdrawed contracts and empty new homes. Once quick delivery inventories are taken care of, their biggest pain will be cured.

The conclusion? The best deal may be now from the builder’s effort to clear out inventories, not later. There will not be too many opportunities in the future to buy a house at or below builder’s cost.

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Fence sitters, wake up! Some markets have bottomed
Existing inventory can be had below cost

By Denny Grimes
Originally posted on May 20, 2007

One of the most-asked questions in town, other than how Paris Hilton will look in stripes, would have to be “Is our market improving?” It’s a fair question, but I have a feeling that many people expect our downturn to be over as quickly as one of our summer thunderstorms. Our skies may go from black to blue in 10 minutes, but the evidence of our recovery will not be that abrupt.

If you fall and break your leg, doesn’t it begin to heal immediately after the break? It may hurt like the dickens, but theoretically it should get better every day. The noticeable results are gradual. You won’t wake up one morning and all of a sudden feel like running a 5K when a more realistic goal would be making it to the bathroom by yourself.

Likewise, our residential market isn’t ready to compete in a race either, but we are moving forward. Our market suffered its fall almost two years ago, and it has been painful for property owners to see their values plummet. Yet, the market is coming back, but not in unison. It is coming back in segments. Two segments are at or near the bottom already.

Fence sitters, this is your wake up call! You are being put on notice that the bottom is approaching in the speculative inventory segment, both in entry level markets in Lehigh and Cape Coral and in developments that have unwanted inventory.

Let’s first look at the entry level market, which includes price points below $200,000. It is now possible to purchase a new home in Lehigh or Cape Coral for well below $200,000. Some have sold in the $160,000 range! That is roughly 50 percent less than a similar home would have sold for at the peak of the market. Which sounds better to you: “1/2 off sale” or “Buy one, get one free”?

These attractive prices are a result of lot prices falling more than 80 percent in the past 20 months, construction costs becoming more competitive, heavy inventory, and in some cases short sales offered by sellers trying to avoid the foreclosure process. Currently, Lehigh has more than 300 homes for sale that are 2006 or newer and priced under $200,000, and there are only 87 in Cape Coral. It’s still a buyer’s market in Lehigh, as there are 19 months of inventory in this price range. However, the Cape’s sub-200 market is definitely a seller’s market, as there are only five months of inventory for sale. (It’s nice to see that return.)

Will prices get better in this price range? Yes, they might. Lot inventory is still high, so land prices will soften some, but the bulk of the correction is behind us. The cost of building materials isn’t expected to change much, but labor is getting more competitive. So, you can expect to see some downward pressure on the cost of building a new home.

OK, then why act now? Because you can buy existing inventory below replacement cost! Hello, McFly! …. This opportunity does not come around very often, so you fence sitters should take advantage of it while you can. Forget about buying wholesale because for a limited time you can buy below cost! How much better can it get?

The same opportunity exists with existing inventory in the dozens of new developments around town. The developers’ backlog of sales is turning into a backache as many initial buyers are walking from their deposits and leaving the developer with unwanted homes for sale. Unlike a homeowner, developers have no emotional attachment to these homes, and the buyers are taking full advantage by getting discounts as much as 30 percent off the sticker price as well as other attractive goodies such as special financing. In some cases the sale prices have been rolled back to pre-boom prices. This opportunity is only good until the last home is sold.

Timing is everything in real estate. Builders will discount inventory, even if it means selling it at a loss. However, they will not enter into a building contract to build a home knowing it will be for a loss. Therefore, this will be your best opportunity to own new construction at a price that we may never see again.

So, is our market improving? Yes, at least a couple segments are because prices are falling to points that cannot be duplicated. When other segments follow suit, they too will hit bottom, and our market will continue to recover.