Home : Blogs : Bob Mitchell - Realtor St. Louis : Mitchell - St. Louis Real Estate

Are Builders Being Stupid or What?

The figures on new home starts came in today 9% below a month ago. Available inventory of new homes also went Building A New Home up. This last factoid got me to thinking....What the hell are the builders thinking? Are there still some builders out there building spec homes? Did that many deals die, leaving the building holding the bag with a 2/3rd's done house? Why would inventories still be rising in this market?

Have the builders not been paying attention?

With the current credit and housing crises going on there is a glut of properties on the market. The laws of supply and demand require that when the supply of something is in excess of the demand for a product, that prices fall. I've never really been afraid of this fact because I figured that if this were to happen that builders would stop building.

Builders not building along with the all of the other ways that houses leave the market (existing sellers deciding to remove their homes from the market, fires, earthquakes, demolition, etc.) would cause the supply curve to shift and the real estate market would once again find an equilibrium point. But, I can't figure out why available inventory of new homes would be rising this far into the game?

Anybody have any theories?

Maybe the builders aren't being stupid and continuing to build. Maybe the number of buyers has dropped, but the number of available new homes has stayed the same? This would account for the inventory number increasing.

Does anybody know? What's your opinion? Do you still see builders in your neck of the woods building on the if/come? Let me know.

R.B. "Bob" Mitchell

ValueList Real Estate Services, Inc.

Bob Mitchell is the president of ValueList Real Estate Services, Inc., St. Louis' largest discount/full-service real estate and mortgage company. To find out more about Bob, ValueList or our flat-fee listing program please feel free to visit our web page, valuelistre.com

Posted by Bob Mitchell - Realtor St. Louis on 12/28/2007 11:11 AM

Comments (9)

st louis real estate thoughts, new home construction figures, housing inventory

This post has been included in Missouri Information Saint Louis County, MO Information

9 Comments on Are Builders Being Stupid or What?

Every market is diffrent and the numbers are national average some parts of the country builders are still doing ok

12/28/2007 11:19 AM

by Raj Rajpal (Wells Fargo Home Mortgage)

Raj: Thanks for the comment....I keep hearing this.....but have only seen figures for something like 3 or 4 regions where prices aren't down. In the markets that are up, I can understand builders building spec homes, but how about in the down markets? What accounts for the available inventories rising?

Bob Mitchell

ValueList Real Estate Services, Inc.

12/28/2007 11:53 AM

by ValueList Real Estate Services, Inc.

Bob, Builders in my area also have lots of spec homes. Most from buyers that backed out or could no longer get financing. Also, many times builders have financing on their subdivisions and they have to have so many homes in the ground to get their next draw of funding. So they build.

12/28/2007 02:48 PM

by Bryant Tutas-Tutas Towne Realty, Inc

Bryant: Isn't that scary! You would think that the banks would put a stop to that!

Bob Mitchell

ValueList Real Estate Services, Inc.

12/28/2007 03:41 PM

by ValueList Real Estate Services, Inc.

Hi Bob, "Did that many deals die, leaving the building holding the bag with a 2/3rd's done house?" Yep.. The CAN (cancellation) rate for the builders is extremely high. They accept a contingency, the "buyer" isn't able to sell their home, the sale gets canned..

They build because they 'have" to.. They are builders that have no other way to make money or to get rid of all of the land they gobbled up during the boom. Many of these builders got greedy and are "stuck" with tons of inventory and tons of developments that should not have started.

Even with the discounts and incentives, it's going to be a while before we get inventories under control.

12/30/2007 08:10 AM

by Nick Bastian - Tempe, AZ Real Estate Agent (Realty Executives)

Nick: That is scary! I realize that home building is a cash flow business and that in a way that many builders are like sharks in that if they stop swimming, they sink....but to me it looks like the first step towards getting out of the hole, would be to stop digging!

Bob Mitchell

ValueList Real Estate Services, Inc.

12/30/2007 01:16 PM

by ValueList Real Estate Services, Inc.

Bob,

Here's one for ya. In my area home sales dropped another 22%. Home prices dropped 18%. Builders are auctioning off properties because no one is buying them. Bulding permists went up 9% over last year at this time.

12/30/2007 04:21 PM

by Scott Dovala Santa Rosa Mortgage and Home Loans (Ascent Home Loans)

Lots more builders are now starting to come around to understanding that they really do need us real estate agents to help them SELL THEIR HOMES!

12/30/2007 09:02 PM

by Michael Klijanowicz - Relocation Specialist - Baltimore & Harford County (Baltimore & Harford County Maryland - Long and Foster )

Scott: That is wild! Makes you wonder what they are thinking.

Michael: I'll admit, I've never been one to fault the builders for wanting to sell their own listings, as long as they were fair to the agents who brought them buyers (Not all were or are). Now that market has slowed down, I do think that they will appreciate us more.

Thanks for the comments!

Bob Mitchell

ValueList Real Estate Services, Inc.

12/31/2007 09:51 AM

by ValueList Real Estate Services, Inc.

Leave a response…

Name:

Notify me of new comments:

Comment:

What does the graphic say?