Maybe local home builders should thank county government...
...for keeping them solvent. Amidst the ugly rhetoric and threatening diatribes aimed at the county’s Community Development Services Department for controlling growth, lost is the sad news that home builders in California are going bankrupt because they can’t sell the homes they’ve built in the past few years.
A major Sacramento-area home builder, Dunmore Homes, in business for more than 50 years, is going under, liquidating it assets. It soon will cease to exist, stranding those who bought new houses from Dunmore without anybody to honor the warranties on their homes. Last year Dunmore sold one-sixth the number of houses it sold in 2004. One-sixth.
My brother, who works at the state Capitol, recently bought a sparkling new home in this north Sacramento subdivision. He laments that the same model he bought can now be had for approximately $100,000 less than he paid a year ago, and that the builder is throwing in free interior decoration and landscaping incentives. Still, the homes aren’t selling.
“But the building has pretty much stopped everywhere. And the builder who built our home? One step away from bankruptcy. In fact, I wouldn't be surprised to see them file for credit protection later this spring. They're on half-staff anyway. And they have so many finished homes that aren't occupied,” my brother wrote to me in an email yesterday.
On top of this, according to my brother, his other home, which he bought new nearly six years ago and is now unable to sell, is worth less today than the price he paid for it in 2002. He’s basing this on the recent sale of a neighboring home, same model as his, that listed for $15,000 less than it cost new.
A home that today can’t fetch the price it sold for new in 2002. This is astonishing, given where the market was just a few years ago.
If you need more convincing the home-building industry would benefit from a little constraint, there’s this:
The National Association of Home Builders is demanding that Congress include a provision in the economic stimulus plan that would grant a $10,000 tax credit to people who purchase newly built homes. Not existing homes. But a new home that builders can’t sell. And remember, a tax credit is worth a lot more than a tax deduction, because it is a dollar-for-dollar reimbursement from the government. The building industry wants those who buy their homes to get an extra $10,000 from the government when buyers file their tax returns next year.
Think about how unjust this would be to home owners trying to sell their existing homes in this market, and to the Realtors who represent them.
The NAHB is so desperate for this outrageously narcissistic piece of legislation, which Congress has basically laughed at, it is withholding campaign contributions to members of the House of Representatives seeking re-election.
"The home builders have already cut their prices to subsistence levels," NAHB chief executive Jerry Howard told the San Francisco Chronicle.
The local home-builder lobbying groups complain incessantly, and have for years, about being held in check by county government regulators. But if you know people involved in local real estate circles, you know about the glut of homes on the local market that just won’t sell, and aren’t likely to anytime soon.
Imagine if local developers had been able to steamroll county officials and got their way, building unchecked, and right now there were hundreds, perhaps thousands, of additional new homes on the local market? With the exception of Danco – which is in a league of its own – how many local home builders would be over-extended right now, bankrupt or about to be?
Though the resistance within the County Community Development Services Department to opening up natural resource lands for housing development comes from a desire to prevent the urban sprawl that has ruined other once-pastoral Northern California counties, perhaps an unintended benefit has been to protect developers from themselves.
Comments
Great point. But I doubt Kirk Girard will get a thank you card any time soon.
Ouch. That's bad.
Posted by: Heraldo | February 29, 2008 11:45 AM
I just love it when someone who bought a home in 2002, and then used the equity to buy ANOTHER home in 2006, is now whining that the market is hurting them. Just think how many people could not enter the housing market because of market speculators exactly like this poor sap. I have absolutely no sympathy. The Community Development Department is not responsible for the housing crisis. Legislation intended to encourage the "flipping" of homes, irresponsible private developers, and speculators are all to blame.
Posted by: Native | March 1, 2008 12:43 PM
Well, I'd hardly call my brother a speculator or home flipper. He lived in the first home for five years. He and his wife are prolific backyard gardeners. He's the founder and president of an heirloom tomato club in Sac. They decided to take the plunge on a new home because this particular lot has a huge backyard with a great exposure. His intention was to to sell his old home. But it hit the market just at the time everything went south. Rather than take a loss, he found a good renter and will ride it out for a few more years.
Posted by: Andrew Bird | March 1, 2008 03:01 PM
Corrections happen all the time in markets andrew. this is just another one. the weak get weeded out. same thing here, you'll see the over-extended ones fall apart and the good ones pick up the pieces.
Posted by: Anonymous | March 3, 2008 08:03 AM
Sorry Andrew, regardless of how genteel his hobbies are, your brother IS a speculator. He bought on the speculation of selling his old house at a profit.
And now he's collecting rent, anticipating future appreciation. That's speculating too. And BTW, he's making his old neighborhood less owner occupied.
Do you feel that a neighborhood with a lot of renters is desirable for an owner to live in? Would you feel a landlord renting out next door was making a positive contribution to your neighborhood stability?
Posted by: Not a Native | March 3, 2008 11:01 PM