Sunday, December 30, 2007

The danger in buying new

As the housing market continues to decline more and more builders will start to offer discounts and incentives to move their homes. Many of these deals will surely entice buyers to take the plunge and purchase a home. Buying a new home does seem like a great way to go. After all, everything is new. You don't have to worry about the water heater exploding or a termite infestation. But don't get all googley-eyed, a new home purchase can be just as risky and in today's market it can be far more risky than buying an existing home.

Home builders will do whatever makes financial sense for the company. If that means packing up and leaving a development 1/2 built then that's what they will do. When that happens you can find yourself surrounded by empty weed filled lots and half finished streets (or worse).

Smaller builders might not make it. If your builder goes belly up, you can find yourself with a worthless warranty. Any problems with the home are now your problem. If you're home is half finished when the builder goes BK you could lose your deposit money.

Builders can change the home mix in a development. They might start off building 3000 s/f mini mansions in a supposed "upscale" development but if those stop selling you might find that they suddenly start building 1200 s/f starter homes. They can turn a townhome or condo block into apartments.

All of the above scenarios happened in the 90's bust. In fact the tract right across the street from me saw the builder go bankrupt and leave about a dozen homes 1/2 built. If you are looking to buy new I would stick with a larger builder. Try to find a development that is in it's final phase or close to being finished. I would avoid any new, large developments like the plague.

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