Thread: Falling prices trap new homebuyers

Neighbors in a new Garden Grove tract say a developer's plan to slash prices by about $140,000 has left them owing more for their homes than they're now worth.

By JEFF COLLINS
The Orange County Register

GARDEN GROVE – David Dunn felt as if Christmas were stolen from him when prices for neighboring homes in his new subdivision fell by about $140,000.

Now, he says, his home is worth less than he owes, making it next to impossible to refinance before his $3,000-a-month payment doubles. Eleven neighbors who bought before the price cuts are in the same boat.

"They put us in a bad financial situation by lowering the price," said Dunn, 33. "Some of (the buyers) did 100 percent financing, so they're completely over their head right now."

Brandywine Homes, developer of the 42-home Heritage subdivision in Garden Grove, is one of many homebuilders that's had to cut prices lately.

Dave Barisic, Brandywine's vice president of sales and marketing, said in an e-mail that his firm recently held what he thought was a successful meeting with homeowners.

"As such, I don't think you'll be contacted again and there probably isn't much of a story there," he wrote.

But homeowners say the matter remains unresolved, and an attorney says he's still waiting for a response to a letter he sent the developer on behalf of buyers who hired him.

Meanwhile, ads offering big discounts and concessions on new homes have been rolling off the press for weeks as builders race to clear inventory before the end of the year:

•"It's a homebuyer's market, and now is the time to take advantage of it," said a Richmond American Homes ad several weeks ago that offered buyers free stainless-steel appliances, free washers and dryers, plus 3 percent toward paying closing costs.

•"Ask about our Serious Incentives for Serious Buyers," Taylor Woodrow Homes said in another ad.

•The only thing that's not negotiable, added a Standard Pacific Homes ad, is the quality of the houses – implying that the price is negotiable. Year-end incentives include below-market loan rates, no-loan payments for six months and free upgrades.

At Tustin's Columbus Grove, sales reps for William Lyon Homes, Lennar and KB Home touted plans that included help paying off closing costs and loans, flooring upgrades worth up to $20,000 or – in the case of one KB Home development – up to $70,000 off the purchase price.

Wally Welter, an Irvine home shopper, said salesmen for several builders at Ladera Ranch offered concessions worth $100,000 or more.

"I've had salespeople say, 'Make an offer,' which you never hear the builder say," said Welter, 60. "Now, they're willing to listen."

The reason builders now are listening is a housing slump that's caused new home orders to tumble and homebuilder profits to fall.

Standard Pacific Corp., for example, reported that its net income fell by $66 million in the third quarter, a 68 percent drop; Toll Brothers reported a 44 percent decline in quarterly profits; William Lyon Homes reported that its net income fell 72 percent from the third quarter of 2005.

Most homebuilders are reporting that 40 percent or more of their buyers are canceling this year. Often, cancellations result in the builder getting stuck with an empty home that's already under construction.

The closer the home gets to being finished, said KB Home's Irvine-based regional manager, Jay Moss, "the more anxious the homebuilder gets to make the deal."

Concessions, said housing consultant John Burns, are "the talk of the industry."

"On a completed home, it can be substantial."

But residents of Garden Grove's Heritage subdivision maintain that there's more to their story than mere concessions. They maintain that their builder, Brandywine Homes of Irvine, has cut prices well below market values, regardless of how that affects the earlier buyers.

At the very least, their story shows that the pain caused by falling prices isn't borne by the developers alone.

The homeowners said that the price cuts began in November, just months after the first dozen buyers closed escrow, paying from $770,000 to $888,500 for their homes. The average price was $825,000, property records show.

After the builder dropped prices by more than $100,000, all but five of the homes sold in a matter of weeks.

"Usually builders keep their prices up. They try to keep their buyers happy," said Christie Vu, 27, who paid almost $870,000 for the home she and her husband, Philip Luu, share with their two young sons. "In this case, it's just the opposite."

The builder's representatives said during a recent meeting that they are being forced to price the homes to sell and maintain they are getting "zero profit" from the project, homeowners said.

Keyvan Samini, an attorney for some of the buyers, said the purchasers relied on the lender and its appraiser to confirm the homes' $800,000-plus price tags.

But appraisers ended up using homes about three miles away as a guide for the first appraisal, and subsequent loan appraisals were based on the first one, Samini said.

The appraisals "were way too high," Samini said. "I believe that the builder knew they were too high, or should have known. And it's not the fault of the buyers. They rely on the expertise of those appraisers."

Barisic, Brandywine's sales VP, said he doesn't know anything about the comparable homes used in the appraisals.

"The appraisers are not hired by Brandywine Homes," Barisic said. "They're hired by the lenders, which the homebuyers chose themselves."

One of Samini's clients said he's facing the possibility of foreclosure because of the price cuts.

Dunn said he's in a financial bind because he's using an exotic mortgage called an Option ARM, an adjustable-rate loan in which the homeowner can pick his monthly payment from a variety of options.

Eventually, he'll be responsible for making full payments of $6,000 a month, he said, adding, "I don't know how we'll be able to pay that."

"It's not just the financial aspect. It's the emotional," Dunn said. "We can't eat, can't sleep. I can't concentrate on work. This is all I think about."

http://www.ocregister.com/ocregister/mo ... 381194.php

David Dunn felt as if Christmas were stolen from him when prices for neighboring homes in his new subdivision fell by about $140,000.

Proof that these homebuilders are making too much profit and laughing all the way to the bank.

Originally Posted by JohnB2012

David Dunn felt as if Christmas were stolen from him when prices for neighboring homes in his new subdivision fell by about $140,000.

Proof that these homebuilders are making too much profit and laughing all the way to the bank.

Proof someone bought too much house.

Real estate is like any other investment...sometimes you win, sometimes you lose. The bank isn't at fault, they want an accurate appraisal too because they don't want the house, they want your payment. Chances are, the houses being built were not typical for the area, and they used the most current comps for the area. We've been spoiled with great rates for a long time now and some people used poor judgement maxing out their credit and/or getting rates that will go up. People need to stop blaming everyone else for their problems and use their heads, especially with large purchases. By the sounds of it, the builder is taking a beating too, so what are they to do?

Boo hoo. The beauty of a free market economy is that a boom in a given market can make you a millionaire overnight. The risk of a free market economy is that a slip in a given market can leave investors who do not exercise sufficient caution holding a bag of crap. Caveat emptor.

BTW - With today's lending rates, I can afford to drive a new luxury car and live in a 4000 sf house. Instead, I buy my cars used and I live in a house that's a little under 2000 sf. Just because you can afford the mortgage or loan payments doesn't mean that you should. It's just foolish to eat the multithousand dollar "drive off" depreciation on a new car and the fact is that most housing is grossly overpriced given the underlying value of the land it sits on (assuming that you are smart enough to realize that buying a condo or any other structure without owning the land underneath it is like starting a pig farm with 100 pigs and no farm) and the sum of the structure's parts. I don't want to be indebted to anyone and I sure as hell don't want to be a few paychecks removed from losing the roof over my head. Sadly, most Americans are spoiled rotten and believe that just because they want something they should go deeply into indentured servitude to get it, and that's the underlying reason for most of our problems.