Discounted Homes And Foreclosures Depressing Existing Home Sales
If the current foreclosure crisis wasn’t enough, big builders selling their new homes at discounted prices are driving prices lower making it much more difficult to sell existing homes available in many markets. Many builders of new home mega-developments have over-built to the point where they are making major price concessions to move their products. This further compounds the already-serious situation of homeowners pending and already-in foreclosure that have been desperately trying to sell their homes before the lenders take over.
The facts are that existing homeowners dominate the market by sheer numbers, but their fate may be significantly influenced by what both big builders and bankers are doing. As a result of having excess new home inventory, builders are now undercutting the sale prices of existing homes in the area because they represent serious competition. In some cases they are slashing prices by as much as 30% in order to make a sale. Moreover, some are also utilizing both upgrades and financing incentives sweeten the pot for prospective buyers. One reason for the problem is that the ability to get a loan approved is based on comparable prices – or ‘comps’ in the same area. When builders slash prices, the comps go down, making the existing homes harder to refinance and harder to sell. This becomes a real problem, especially to a homeowner in default with only a small equity, in his efforts to escape before an auction sale.
Even sellers who are not facing foreclosure feel this pain and leaving an empty home for sale for lengthy periods invites vandalism and damage. Moreover, even if the sellers are not right next door to a new development of homes for sale, the prices are still influenced by area comps, which make it difficult for prospective buyers to obtain affordable mortgages with which to close on existing homes.
There are several possible programs under discussion in Congress and at state levels that, if ever implemented, could serve to provide relief from foreclosure. In addition, several of the nation’s biggest banks have put their heads together and are working out how to implement similar plans. If this should become reality in the near term, and large numbers of defaults and foreclosures are cured, prices may stabilize somewhat and ease the problems. Regrettably, “If” is such a big word! In the interim, the mortgage crisis is being projected to last well into 2009 and the financial fallout is affecting entire communities
So, at least in the foreseeable future, the situation remains static. Big builders will, from necessity, continue to discount their inventories of new homes in order to attract buyers to their offerings and not area resale’s. Neighborhood ‘comps’ will also continue a slow decline and asking prices will too. And most regrettable of all, mortgage foreclosures are also predicted to escalate into 2009. It appears that the only possible solution to the problem lies with the banks and the government actually taking steps to alleviate the pain. It’s not a rosy picture at all!
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- What is There to Gain from Foreclosures?
- Foreclosures Papers
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