Home Builders’ Latest Strategy: Building Houses
Given the state of housing, it seems like builders wouldn’t start a home without a signed buyer. But that is exactly what they’re doing: They’re ramping up speculative construction to attract last-minute home buyers who want to tap the soon-to-expire tax credit.
As I write in today’s Journal, it is filled with risk, a move that comes as builders appear to be healing from their worst downturn in generations. If these buyers don’t materialize, builders could be saddled with unsold homes that will require heavy discounting to sell, hurting profits and slowing the housing recovery.
These new homes may also continue to lose market share to lower-priced foreclosed addresses that continue tempting consumers. Indeed, some economists expect an avalanche of foreclosures in the months ahead as lenders release homes they have been keeping off the market.
“Too much construction now would leave excess inventory and price pressure once the tax credit expires,” said Credit Suisse analyst Dan Oppenheim.
Builders also know buyers want to touch and feel what will likely be their biggest investment. But the industry is watching the calendar. The extended – and expanded – tax credit applies to contracts inked by April 30 and closed in June. After that, sales could weaken significantly, given unemployment remains a stubborn problem. Read: They’ll take the deals now and worry about the consequences later.
“We know that we’re going to have more people out now,” says Lance Wright, co-owner of CastleRock Communities in Houston. “Buying is an emotional decision. Seeing the actual product that you’re moving into will certainly make it easier.”
via Home Builders’ Latest Strategy: Building Houses – Developments – WSJ.