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Old 11-19-2009, 09:18 AM
 
4,010 posts, read 8,923,688 times
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Quote:
Originally Posted by nckeith View Post
.... The reality is the supply of new homes is at the lowest level ever when adjusted per capita.....
This seems like an irrelevant statistic. As mentioned above and I will add to 'Jacks post, the only statistic that matters is supply vs demand AND ability to pay.

The Charlotte area is way overbuilt and these price reductions are coming simply because the builders need to squeeze the last of the home buyers left in the market. The ones that are still signing up for loans that are now being guaranteed by the FHA which has taken over as the maintainer of the credit bubble.
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Old 11-19-2009, 09:59 AM
 
7,104 posts, read 9,697,599 times
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Quote:
Originally Posted by dez181 View Post
Not hard to trim $40,000 dollars off of building a house, hate to break it to you but that house does not cost $400,000 to build. It's this thing called mark up, and I think a builder would know more than the consumer......becuase he builds the house and sees what it actually costs.

Brillante! Why didn't I think of that?
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Old 11-19-2009, 10:05 AM
 
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Quote:
Originally Posted by nckeith View Post
To answer Pink Caddy directly. Let me explain how you knock 40k off a house without making it look materially different. First you ask all the tradespeople to take a price reduction. Then you ask the developer to take less for a lot, then you lay off more in house staff so that each individual superintendant is building more homes.(you could debate that all these reduction are good for a buyer) However, then you start substituting stuff that the average homeowner would never notice until later. Would you notice if they changed the gauge of the gutters to a thinner gauge metal. Would you notice if they switched from 30 year to 20 year shingle. Would you notice unless you worked in HVAC that they eliminated dual zoning in your house but instead dampered the system. What if they switched stud spacing from 16"oc to 24" oc on interior walls would you or a realtor know. How about if the upstairs studs went from 9' to 8', would the house from outside look much different then the neighbors. What if you make overhead light boxes optional and wall outlet plugs standard. How about eliminating the garage door openers could you tell from driving down the street. They would also shrink the vanity height in the master bath, make toilet paper and towel bars optional and eliminate shower doors to be substituted for shower rods. Many builders are eliminating fireplaces which alone save 3k(who needs them in the south to begin with). I also know for a fact that many of the plans had bathrooms removed and made optional etc. I have been in this business a long time. My thoughts are not opinions but based on experiences working for and against these guys. My point is that the house is not the same. It may look the same on the surface, but as I stated in my earlier post, the final price is simply all costs plus profit. You can look up profit margins in annual reports and the National Association of Homebuilders annual profit survey. You would see that most builder make between 15-20% which is in line with other industries. Why buy a house from an unprofitable builder, will they be around when the roof leaks? By the same token it is not in their interest to advertise what they are taking out. The oldest adage in new homes is sell the sizzle not the steak. Remember most sales agents are left in the dark as well. In fact I just visited a neighborhood i was considering buying and when I visited the sales office the on site agent did not even know her company was pulling out of the neighborhood.
If it's so easy then why did the builder in Bibit's posting above elect to build a smaller house and not be consistent with the community?
And the other poster that indicated there was a price cut with another builder with no downgrading or change in building specs?

Personally I think the price cut is a way of bailing, and in the long run might be the wiser decision.
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Old 11-19-2009, 10:34 AM
 
Location: Moon Over Palmettos
5,975 posts, read 17,554,806 times
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Quote:
Originally Posted by pink caddy View Post
If it's so easy then why did the builder in Bibit's posting above elect to build a smaller house and not be consistent with the community?
And the other poster that indicated there was a price cut with another builder with no downgrading or change in building specs?

Personally I think the price cut is a way of bailing, and in the long run might be the wiser decision.
I'm sure all kinds of cost benefit analysis was done by the builder in my case. Everyone has a different business model so Pulte vs Standard Pacific would be different. SP's strategy was to sell the lot but make the home features still distinguishable to the buyers so that it would not affect the comps for the rest of the 85% already built. There would be a market for buyers who want to live in the community but wouldn't mind smaller rooms, lower vanities, lower ceilings (ours is standard 10' on first floor and 9' on second), etc. The newer models would not have the brick facade ($10K extra), probably less expensive appliances, less number of trees and so forth.
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Old 11-19-2009, 11:32 AM
 
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you are right about supply vs demand. but a per capita adjustment is always relevant. the level of new homes in america is less then when there where nearly half as many americans. What that means is that we have twice as many people with the same number of homes around. Currently we are building just north of 500k units a year. the attrition rate for homes is roughly around 500k units a years which are outdated, burned termites natural disaster etc. So if you think builder are out there building houses for spec right now you are crazy. What you see in new construction is homes built on contract. So what I am saying is now if people want to pay less they are getting less. Less in ways I tried to spell out. Why the builder decided to build smaller homes was to make a margin at a lower price. If I plan on selling houses for 240k with 40 k in profit and people can now only afford 200k houses, do you think i will continue to build with my cost budget for 200k. if people only want or can afford to pay 200k i will drop my cost to 160k. Now for 160k i will have build a smaller less appointed home. My whole point in all of this, is that if you buy the former 240 for a discounted 200k dont ever believe the neighbor who is now buying his house for 200k from scratch is getting the "same" house. They will and do hide the changes.
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Old 11-19-2009, 11:47 AM
 
Location: Wouldn't you like to know?
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nckeith, i'm not a builder, but I really do think builders' profits have come down on avg over the past couple of years. Heck, I work in construction (electrical) and guys right now are bidding work just to work! (no profit). So maybe you are not making 40K on a smaller house?

Also, say we do have twice as many homes as people, the problem is that the # of QUALIFIED buyers has dropped like crazy over the past couple of years....
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Old 11-19-2009, 12:06 PM
 
99 posts, read 155,359 times
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correct jack profits have come down. But I work with a number of these builders and I can tell you that profits were beaten down mercilessly from 2007 until this past winter. But as I keep stating, they are not building unless its sold and its not sold unless they can generate a margin. Why would Toll Brothers build something to lose money or expose themselves to liability when they have 2.2 billion with a "b" in cash. Read this article which does a great job explaining how builders are adapting. You are equating companies with fixed overhead the same as a national builder. However, with the relatively low number of employees who are salaried, if they don't build at the price they want, its the vendors and subs who sit home. Heck Ryan homes doesn't even own the lots its builds on until its under contract. Which explains why they are still making money. The bottom line is if you wanted something for nothing you should have bought last year spec maxed out to gills. Nowadays you will truly get what you pay for. Note- I am only talking about buying a new home, not the multitude of foreclosures. This article on John Weiland does a great job expalning the transition.
Builders Downsize the Dream Home - WSJ.com
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Old 11-19-2009, 12:22 PM
 
2,341 posts, read 4,045,152 times
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I know some are knocking your comments, but I think you are dead on.

I've seen this myself in an "executive" Ryan community. Houses are starting lower than they were when the community first opened BUT
the houses are smaller, some of the standards are now options and the construction process looks different to my naked eye. What was taking 3-4 months to go from foundation to finised now seems to take less than 2 months. The exterior seems more "modular" than the original houses in that community.

I would believe that they have lowered the prices but also lowered some of the features so that they keep their profit.

Quote:
Originally Posted by nckeith View Post
First of all I am a builder here in charlotte. Pulte did not reduce the price of the home by 40k. They have dropped the starting price of the house by 40k and have no doubt removed 40k worth of expenses associated with the house.
What that means is you will not buy the identical house for 40k less. They have probably installed a cheaper and less efficiend HVAC system, they have probably decided to install cheaper flooring, they have probably decided to install cheaper cabinets, remove trim etc. The process of determining the price of a new house is simply. You add up all your costs plus overhead plus a margin. The reality is that the best bargains per features are long gone. If you bought a house said builder thought they could sell for 450k and now they knock off 80k you probably got a "bargain" if that is what you wanted to spend. Once the builder determined buyers only wanted to spend 370k they have to remove content and features to then make a profit at the new lower price. If you look at permits on year over year and even go back two years we are off by 50-70 percent. That means the majority of spec stuff is gone. I am sure if you go to chimneys today, you will have to wait for your house to be built. The reality is the supply of new homes is at the lowest level ever when adjusted per capita. Just realize that after nearly 3 years of poor activity a builder is not going to build a house from scratch for no profit. Spec houses are an entirely different animal but I dont really know of anyone who had the means or heaven forbid the financing to start a spec house in nearly 2 years with the exception of a few national builders who know there is always a need for move in ready properties. In some cases the few empty COMPLETED homes that are saleable and titleable are now going to be 3 years old in the next month or so. Hardly what would be considered a new house. The chances of finding an empty completed new home as you go lower in price becomes even more scarce.
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Old 11-19-2009, 12:27 PM
 
Location: Union County
5,783 posts, read 8,410,081 times
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What is disconcerting is the hidden "cuts"... the things that the less reputable builders were doing in the past. I see no issue with a builder cutting back on aesthetics /trim or obvious upgrades. No SS appliances, no tray ceilings, mouldings, carpets, fireplace, etc. The question is which builders will be up front about it and which will cut corners behind the scenes. One hopes that the reputable builders come out and explain how they can cut $40k off a base price before you buy one pre-built.

Honestly, it's a whole new game for the builders with all the resale on the market now v. unfinished communities... I just don't know who's in the worst position - the developer who owns the land, the GC, or the tradesmen doing the actual work. Why should the builder maintain the exact same profit margin when everyone else is taking cuts for their piece?
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Old 11-19-2009, 12:42 PM
 
Location: Wouldn't you like to know?
9,114 posts, read 15,638,426 times
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Quote:
Originally Posted by baybook View Post
I know some are knocking your comments, but I think you are dead on.

.
Baybook, sorry if you misunderstood me, but I'm not knocking him. I actually appreciate his knowledge on this subject. This is an example of why this site rocks....
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