Why do homebuilders have such high margins?

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Hi graphix, I appreciate the well wishes! I think I'll just sit back awhile and monitor the market for the time being. If the market depreciates like 20% in 2007 (not holding my breath), I might get serious again. Either that or my father tells me it's time to buy, damned the price. I spend way too much time on ziprealty as it is...





The housing market in Tustin. Well, from what I saw, the listings for "preowned" homes are ridiculous. Fuggedaboutit. The sellers are living eternally in their 2004 dreamworld. The one where Iraq had WMDs.





The builders seem to give pretty good haircuts in the prices recently. And I have first-hand knowledge that they are settling for decently below those listed prices. I just have problems with the areas the new developments are located in and the size of the lots. In some neighborhoods, it seems like if I can stand where the fence is separating two houses and stretch out my arms to the sides, I can almost touch both houses. Million dollar houses. Bah Humbug.





It's funny, my co-worker (the one that just bought a 3000+ sq ft house in Villages of Columbus) and I were arguing about the direction the Tustin housing market is headed today. He says that based on his anecdotal evidence of seeing large amounts of people that go to take a look at the houses in his development, there is no way the housing market could take a continuing dip because there was so much interest from potential buyers. Of course he is a housing bull - he just bought a million dollar plus McMansion.





His argument: "You think that many people have nothing to do other than just look at houses? Those people constantly showing up at those model homes are mostly all potential buyers - there is still so much demand..." Well, I guess your little tidbit about the shills might explain some of that...





Personally, when I was looking at the new developments, I was seeing older (50-ish) Asian couples; they didn't look like shills. Unless your homebuilders are really smart and got shills that reflect their targeted demographics. Uh oh, don't want to give you guys ideas. =)
 
>>You think that many people have nothing to do other than just look at houses?





**Slumps down in chair, raises hand slowly and looks around the room**





Um... me.
 
IIIrvine, I think there has been both increased traffic and sales in Voc and PS recently. Last Oct/Nov/Dec, both traffic and sales were pretty much dead. Many cancelation, inventory pretty much stayed constant for 2-3 months and most builders stopped building. Now after 10-15% price cut, they are *slowly* building and releasing new phases. I think the resale market has picked up some as well alhough I have not been observing personally. I am not too surprised if this turns out to be a dead-cat bounce but let's just see the next few months.
 
@_@





Um... I withdraw my recommendation for Anaheim Hills! XD





It's too bad about the fires. Those homes are really nice and decent-sized yard too. :(
 
Red - I work for a lender and for me, my experience has been the opposite of what you are saying. Sales picked up towards the end of last year as builders were pushing more price concessions, free upgrades and other incentives, which helped move some of the inventories. With the warmer-than-usual weather of late, the traffic has been good and builders are sounding the drum as "the bottom of the downturn". What remains to be seen is whether Nov and Dec were just anomalies, not the beginning of any trend.





I am betting from my own portfolio that there will be more bad news ahead...
 
IIIrvine,





My personal observation is limited mostly to new home market. We have some experience with resale homes recently, and what we found is the ones that are priced right i.e 10% less are sold fairly quickly.





Back to new home. I think in Nov, sales started to pick up in VoC as they started lowering price and giving incentive. We actualy tried negotiating and were able to get good deal ona couple inventory homes, for ex: Cantara Plan1 at $840k (appx $325 per sqft) with $35k incentive for lender fees. But we hesistated at the time and other buyers snapped them.





But in PS, Oct/Nov was pretty much dead. We were there on weekends and only a handful of people even showed up to check on model homes. I think Jan was when PS started lowering the price and thus increase in traffic and sales.





We initially thought buyers would need more than 10-15% before started jumping in.





I dont know what will happen with the resale market. It seems interesting to see how it will react with the wave of foreclosures. Will the demand quickly pick up also after 10-15% drop? I guess it depends on how massive is the foreclosure and how long.
 
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