How are our Spec Builders Weathering the Storm?

[Dick Seibert]

I've seen very little about the mortgage crisis here, I've withheld saying anything myself waiting to see how it all turns out. But I can't help wonder how guys like Randy in Arizona, J. in Chicago, and Derrell who was starting to build specs in Florida. Florida has been hit particularly hard, even the vultures won't pay 70¢ on the dollar:

Huhn added that the smart money -- the real vulture money -- is waiting for banks to seize properties from developers and builders.

"They don't want to buy property for 70 cents on the dollar," Huhn said. "They want to buy for 25 to 30 cents on the dollar. They really want to feed on the dead carcass,"

At first the the lower end of the market was hit with the subprime crisis, now the high end is shut down as well, even the wealthy are on this sidelines waiting to see how far prices will come down.

The banks that are still making jumbo loans are charging substantially higher rates to compensate for the lack of investor demand. Borrowers who could have gotten rates as low as 6.5 percent in June are now having to pay as much as 9 percent.

But aside from the financial impact of higher rates, in certain high-priced real estate markets, the effect of the suddenly tighter lending environment is more psychological, mortgage bankers and real estate agents say, as buyers and sellers alike don't want to plunge into an uncertain future.

I got out of real estate, but didn't factor in the effect on the stock market, I don't think they should have allowed those financial products to be publicly traded. The Democrats are now blaming the mortgage brokers.

[BULLHART]

I've got one big house not moving and killing me here in Ohio. Other than that have a two customs going, and 2 new smaller specs in foundation stage. (a lot for me) Things are tight, but I have to keep the machine rolling...ya know?



BULL

[Harringtonjason]

I've got one moving toward final in about two weeks and two more permits already approved. I am not currently planning on starting either permitted houses. I think when I get a buyer that will be the last spec for a while. My market is not really trashed but I am doing a little more advertising than normal and have had open houses for the last two weekends. I have been asked by a friend to build a few specs on some of their property but am currently declining the offer. I have some commercial projects in the pipe and have no interest in tempting fate. I am just going to slow down a little and let the good projects come at a natural pace. I have been thinking about a nice long winter vacation. I have not taken more than an extra day off on a business trip in three years I currently am going seven days a week, so I'm ready for the world to stop for a bit.

Jason

[Dick Seibert]

This crisis will pass, like all others have, there should be some great opportunities presenting themselves, the question is when? Bull: Why don't you freeze the specs at foundation and wait it out? Don't worry about keeping men, you can always get them back, and with foundations in the ground you will be the first to market when things come back.

[Derrell Day]

I've currently got 2 customs and three specs under construction. The specs were all on lots that I got below market value and the $300K and below market has continued to putt along. The condos are beginning to move again on the beach, up nearly 35%, and we moved several $1M plus specs during our May Parade of Homes. I moved a $600K spec also. I was out of inventory when I started my 3 specs and I feel I will be able to move them, also.
CNN Money reported Panama City as the the place where most real estate appreciation will occur during the next five years.
I think the correction is reaching the end, interest rates will be reduced, but the biggest problem we have in Florida is the *&%^$^&* property taxes and insurance. Mostly property taxes because new homes are much less expensive to insure than current homes because of more stringent building codes.

[BULLHART]

This crisis will pass, like all others have, there should be some great opportunities presenting themselves, the question is when? Bull: Why don't you freeze the specs at foundation and wait it out? Don't worry about keeping men, you can always get them back, and with foundations in the ground you will be the first to market when things come back.

Thats a good idea Dick. I think they'll move though. You see, the house that I'm sitting on is about 450k. I know that prices are different everywhere, so to put it into perspective, the average 2500 sq. ft new const. goes 220ish here. It is an expensive house for my area. The 2 new specs are smaller, and more affordable and I'm already having site visitors. Sooo, Im gonna give em a shot.

However, I may need to pick your brain down the road.



BULL

[Derrell Day]

$220K will get you about 1400 sqft. of living area around here.

[Toolwhore]

$220K will get you a dilapidated 1984 motor home here, but you won't find any place to park it. :)

[BULLHART]

$220K will get you a dilapidated 1984 motor home here, but you won't find any place to park it. :)

That sucks...lol



I need to find a way to build a house at my cost here, and drag it to the Cali line....lol

[Derrell Day]

It's not the 2x4's.
It's land prices and *(&^%$%^& government exactions.
Some of our counties have exceeded $34K in impact fees alone.
A 70x120 lot is $90k. With permits, impact fees, and utility hook-ups, closing costs and other misc.,.... we are at about $150K before ANY work is begun.
The same government that bleeds the fees from us and controls the densities want to know why we can't build "affordable" housing.

It's time to start shootin'.........

[David Meiland]

The war's got to be paid for somehow...

[Allan Edwards]

In over 30+ years my business has never been better as it is now. I have 2 years worth of sold homes in front of me. My biggest problem is finding high quality building sites at any price.

I only have one spec under construction, everything else is sold. Had it on the market for 2.9 million$, had an almost full price offer. I turned it down and removed the house for sale and expect to re-list it next spring for 3.5 million$. I don't need or want to sell it now.

Like I’ve always said, I’ve done well in bad markets and no so well in good markets. It is really more a function of your own program and your ability to run all aspects of a business that determines your success. I think seasoned builders anticipate slow downs and use those periods to re-load for the upturns that always come.

As to prices here, out in the sticks you can buy new homes for $250,000. In the neighborhood I build in new homes start at about 2.5 million and go up to 8 million$.

[dmwyatt]

I've got one spec just about complete. Lots of interest in it. I'm confident it will sell soon. About to start another spec.

The one I've just about finished is 2400 sqft and it's going to go for $185,000. I could probably get close to 200k, but I want to get out of there. Mainly because I have relatives living across the street and they're driving me crazy!

The coasts almost always seem to get harder by the financial swings. But I always try to build "custom specs" which are price competitive. Market research lets me stay ahead of my competitors.

[Bill Lacey]

Allan, it must be nice when your customers aren't affected by the monetary limitations that 90% of the population experiences. Unfortunately, most of us have to deal with the penny pinching tightwads that won't spend a few bucks more for a better product. As long as it's cheap and built within a couple months, they are happy. I remember a guy who was so overjoyed that the drywall hangers he hired for cash under the table came into his 5,000sqf house and hung it all in one day. 1" gaps were included in the price.

[Dick Seibert]

I have been frequenting an appraisers' forum since I am involved in getting some appraisals, after asking a question I found it interesting and have returned to see their take since appraisals seem to dictate sales prices, even though it's the tail wagging the dog.

These guys and gals are really on the defensive, most fear getting sued for over-valuing property during the height of the bubble, of course they are caught in a real bind because the mortgage lenders and realtors want high appraisals, and if they don't come up with them they won't get hired anymore.

There was an interesting thread started way back on March 24th about the bubble, and it's still running with 4188 posts so far, you think we are crazy!

If builders here have the time, I would start by going to the end of the thread and reading a couple of the last pages to see the situation as of now, then go back to the beginning the thread and follow it all the way through, paying particular attention to appraisers' comments located in the areas you build in, their opinions of the market and where it's going are very valuable information for builders.

Appraisers on the Housing Bubble.