Wednesday, June 9, 2010

Delusional builders





With the shortage of homes and the competition to buy the good ones a few builders are throwing up sticks again. The prices they are asking leave me scratching my head wondering how they will sell any. But remarkably enough people seem to be buying them. How they are getting loans is beyond me.

Pacific Homes has started building again in Moreno Valley. They had folded this tract up for a couple of years but I noticed they were building again when I was over playing golf at The Ranch GC. They were asking nearly $700k for these at the peak. Now they are asking just over $400k. But that is still nearly $100 s/f (in MoVal?). The average price in this area is closer to $80 s/f. So purchasing one of these new homes puts you about 20% underwater the minute you take the keys. It's like buying a new car.

26891 Cimarron Canyon is a new home and it's mini McMansion in this tract. Not done just yet but the builder has it listed for $409k or $97 s/f



Or you can buy 26991 Cimarron Canyon. This home was built in 2007 and sold for $571k, which was a good deal at the time because they were asking a lot more for these just a few months prior to that. But this one has already gone back to the bank and is offered as an REO for $312k or $75 s/f. The house looks nice, it's not thrashed it's just priced in line with most of the other stuff in MoVal.



So how do builders figure they can get 20% more for the same house? How to people get loans on these things? There's no way a legitimate appraisal will come in at those new home prices. And what the hell are they doing building more 4000 s/f homes?

6 comments:

Neudi said...

Here is another that sold around the same size for 250k. Might need paint, carpet and some updating but way cheaper. Building 400k homes in Moreno Valley is doomed for failure.

http://www.redfin.com/CA/Moreno-Valley/26850-Storrie-Lake-Dr-92555/home/6614171

Same deal here in Eastvale. You can pick up a home around 330k or so. New construction for a much smaller home is coming in at 400k. Good luck.

Oldtimer said...

X, it is like buying a new car. People aren't economically rational. They pay premiums for cars and houses that have never been used.

A few Sunday's ago, the NY Times had an interesting take on new homes being built in Vegas. It contrasted a 2005 neighborhood where investors had bought all the foreclosures and rented to anyone (riff-raff). The remaining homeowners were pissed and screwed. The guys buying in the brand new neighborhood were buying with the expectation that all their neighbors would be fellow homeowners (less riff-raff).

FairEconomist said...

"There's a sucker born every minute"

Construction levels are still very low. The builders just need to find enough suckers to buy what they build. There are still a lot of people convinced real estate is the road to riches (including some in my own family, shoveling money into the black hole of deeply underwater properties). As Oldtimer points out, some people see "new" houses in "new" neighborhoods as special, and the newness helps with the delusion that there are enough people willing to pay half a million or more to live in these white elephants to build a functioning community.

I'm starting to wonder if this is going to go on until all American cities are ringed with sluburbs with Detroitish collapsing societies. Only when even people like the readers of this blog don't want big houses in the suburbs will people stop believing they'll get rich making the suburban home desirers happy.

Rudi said...

Have you been following discussions on the proposed high speed rail routes down through the lower IE?

I haven't been paying attention to this project for the last few months, so verify for yourself, but it appears that the 215 route won out over the highway 15 option, with a rail stop in Murrieta at the 15 & 215 split.

It's just a thought, but this project do have bearing on RE pricing at least along proposed rail lines, which would now include MoVal.

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