Courtesy of Mish.
Thanks to ultra-low interest rates, massive all-cash purchases by private equity funds, and Fed-sponsored financial speculation, home prices are now back in bubble territory.
Yet, builders that had an easy time of things for a few years now offer Freebies as U.S. Housing Markets Cool.
Joseph Beben wasn’t in the market for a house until he heard about a year-old community in suburban Phoenix where 10 homebuilders are offering buyers incentives such as swimming pools, built-in barbecues and subsidized mortgage rates.
Beben, a 33-year-old general manager at Best Buy Co. (BBY), visited three of the sales offices flanking the main corridor of The Bridges at Gilbert, whose 17 subdivisions are among the about 200 locally that have opened since early last year. He settled on Woodside Homes’ community within The Bridges after the builder agreed to cover as much as $10,000 of his closing costs, and throw in another extra he liked.
“When I saw this deal, it looked like a good business decision,” said Beben, who will pay $332,000 for a 3,000-square-foot.
Not a Business Decision at All
It may, or may not turn out to be a good speculative move, but Beben is seriously misguided if he equates personal decisions as "business decisions" unless asset speculation is his business (which it clearly isn't).
Major City Sales Slowdown
“Phoenix is very slow, Sacramento is spotty,” said John Burns, a housing consultant based in Irvine, California. “The investors came in and pushed prices a little too high. And then FHA rocked the new-home market really hard.”
“Phoenix is a cautionary tale about raising prices too aggressively and opening up communities too aggressively,” said Alex Barron, senior research analyst at Housing Research Center LLC in El Paso, Texas. “It’s a bad combination where affordability got out of control and the FHA limit went down. Homes are unaffordable now, and all of a sudden there’s a ton of supply.”
FHA Reduced Limits
In January, the federal government, which is reducing its share of the mortgage market to lure back private capital, cut FHA loan sizes in 652 high-cost U.S. counties. In Phoenix, the limit dropped to $271,050 — about $24,000 below the median prices of a new home — from the previous maximum of $346,250. The limit shrunk by 28 percent in the Las Vegas region, and 18 percent in the Sacramento area.
“We were having a nice robust recovery and then that happened,” said Buddy Satterfield, president of the Arizona division for Shea Homes, which has two communities in The Bridges and is opening one in Eastmark. “When you take the FHA limit down to $271,000, you hit us right in our sweet spot.”
After jumping 32 percent in 2013, new-home sales in the Las Vegas area in the first eight months of this year fell 26 percent from a year earlier, he said. Smith said he recently spoke with a builder who lost a sale in the Las Vegas area to a competitor who cut the price by $17,000 and covered closing costs.
“It’s a big adjustment,” Smith said. “It’s hard for builders to cut their pace when they’ve been trying to rejuvenate their numbers over the past five years.” …
Picture from Pixabay.
