A financial analyst fresh from a tour of construction sites in the Inland Empire is warning Wall Street of a "ghost town" where finished homes sit vacant and additional homes are still under construction.
"At several properties, there were a significant number of fully built homes sitting vacant along with a large number of additional homes still under construction," Sandler O'Neill & Partners analyst Aaron Deer wrote today after touring developments in Corona and Ontario. "At one master plan community, the entire development appeared to be vacant -- with the exception of crews working on new construction, it was a ghost town."
Median home prices in both communities have dropped sharply over the last year, declining 33.6% in Corona and 30.3% in Ontario, according to DataQuick Information Systems. In Corona, the median sales price fell nearly $200,000 from May 2007 to May 2008, dropping from $565,000 to $375,000.
More from Deer's note: "The homes all appeared to be empty, and there were no prospective buyers anywhere to be found. Surprisingly, the sales office was open ... but the woman working there had questionable English fluency. When asked how many homes had been sold in the past month she simply responded, 'Uh huh. Thank you. Yes!' and handed us some additional literature on the property."
More: "Perhaps the most interesting aspect to the development was what it revealed about the nature of the housing boom: that at the peak even the most undesirable and remote locations were worthy of expensive, high-end homes."
While I don't agree the IE will become a ghost town I do expect some of the new unfinished devlopments to end with a ghost town feel. The Preserve in Chino, Riverwalk Vista in Riverside and to a lesser extent Lake Hills, Sycamore Creek and parts of Eastvale. If the tracts are built out or mostly built out then they should have less of a ghost town feel. I would be very, very worried about buying in new tracts especially that Riverwalk Vista.
I've noticed quite a few builders are now selling the models on tracts that are no where near built out. They have not said that they are going to stop building, but when they sell the models it's a pretty good indication ( And by selling the models I mean selling them, pulling down the fancy fences, tearing out the sales offices etc.).
There is a simple solution to finished homes sitting vacant and I'm sure they builders or the banks know what it is and will use it. There are prospective buyers, just not at the silly prices most builders are still asking. Most builders are still trying to get at least $100k more than comparable REOs are listed for. Lake hills has dozens of REOs in the mid $400s yet the builders are trying to get $500k to $700k for new homes. Victoria Grove is busting at the seams with REOs, most in the mid $300s, yet the last builder is asking high $400s to $500s for the last few homes. The thing I find amazing is that they actually still manage to sell one or two. Where are they finding these people??
They won't sit vacant for long once they cut the price enough. Many builders/banks in NorCal, Florida and other place are already auctioning new homes are steep discounts. Poor wall street will lose a ton of money for sure but there aren't going to be tracts of finished vacant homes, at least not for very long anyway. (This may not hold true for far flung places like Adelanto, Barstow or some hell hole east of Pheonix. There is a possibility of entire tracts of homes remaining vacant.)