Tuesday, October 03, 2006

Must Resist Price Drops

I went to visit a development of a well known publicly traded home builder whose name rhymes with mole mothers over the weekend. What impressed me was the lack of information the sales person was willing to voluntarily disclose. When I asked how many “units” were left, the sales person said he didn’t know. When I asked how many units were going to be built and then asked how many units were actually sold, I was able to use an extremely complex “subtraction” algorithm and deduced that a little less then half of this particular development had been sold.

The more interesting part of my discussion with the salesperson was prices. He said that he would be more than happy to negotiate any sort of upgrade that they had available. Basically, if the upgrade existed, it would be thrown in for free if I bought the place. When I asked why not just drop the price, the sales person said that because this was a Fortune 400 company, its investors do not like to see price reductions. Basically, at this point in the cycle, this builder would rather take a hit to its gross margin then actually lower the asking price.

10 Comments:

Anonymous Anonymous said...

sales and # of units sold are the two key metrics ...margins are less important right now because most of these companies are trading near book...sales numbers feed to overall economic numbers which are closely watched by wall st...also, you can always not offer incentives. if you lower a single home price, once that print hits the tape you just repriced your entire inventory...

Tuesday, October 03, 2006 9:39:00 PM  
Anonymous Anonymous said...

The same builder that is mentioned in this post is building a development in a nice little town in Ocean County on the site of an old school. They are cramming 19 homes onto a piece of property that should rightfully contain about 10 homes. The houses are right on top of one another and have little to no yards in back. On top of this, the site had to be cleaned up because of oil leaks from the underground oil tanks when the school was there. They are asking mid $600 - 700's for the houses. I don't know how many have sold, but I haven't seen any price reductions there.

Tuesday, October 03, 2006 9:47:00 PM  
Anonymous Anonymous said...

I also have seen a ton of new construction, some from builders, a lot of condos and houses new to the market this past month. They are all wildly over priced. The sellers still think their 2 bdrm/1 bath shack is worth 650k plus some. The builders still are listing condos at sky high prices.
I do not know if they are selling, or if they sell for asking price, but I have not seen any major price cuts. A 10-20k reduction on an house/condo 250k over priced is peanuts.
My observation is the market may have slowed, but prices are still very high, and have no idea when to expect a turn around.

Wednesday, October 04, 2006 8:22:00 AM  
Anonymous AndyS said...

In that case ask for a buy one get two free deal and you might consider it (with all upgrades in all 3).

Wednesday, October 04, 2006 11:13:00 AM  
Blogger gio1 said...

My husband and I have been looking in the Wall township area for some time. Should have purchased anything we could afford three years ago, but who knew. NOW,I see a stand off builders holding prices high & hoping that free upgrades makes buyers think thet are getting a value. Existing home owners not lowering enough and when they don't get the price they want they pull the house off the market. This will reduce inventory
and level prices. Do you think the will fall another 20%, we do not think so. South Carolina is looking better. Hate to leave but will they fall????????

Wednesday, October 04, 2006 4:18:00 PM  
Blogger gio1 said...

My husband and I have been looking in the Wall township area for some time. Should have purchased anything we could afford three years ago, but who knew. NOW,I see a stand off builders holding prices high & hoping that free upgrades makes buyers think thet are getting a value. Existing home owners not lowering enough and when they don't get the price they want they pull the house off the market. This will reduce inventory
and level prices. Do you think the will fall another 20%, we do not think so. South Carolina is looking better. Hate to leave but will they fall????????

Wednesday, October 04, 2006 4:18:00 PM  
Anonymous Anonymous said...

gio1 - I don't think prices will fall. I was hoping they would too, but seems like this stand-off is not helping. Sellers are still pricing sky high, but I don't see as many buyers. I would like to see more realistic prices too, but so far I still see 500k + homes that are crap and worth less than half of what the sellers are asking.

Wednesday, October 04, 2006 5:39:00 PM  
Anonymous Anonymous said...

I disagree. You have to be patient. It took seven years for the 150% run-up in prices in NJ. It will take some time before prices fall to realistic levels that first time buyers can afford. Add to this all the houses that will eventually be foreclosed on due to the toxic ARM loans of the past three years. If it were not for those toxic loans and investor/flippers who played the r.e.market like the stock market, the ridiculous price escalation never would have occured. I am waiting this out and hopefully by 2008 or 2009 the market will be normal again. Leaving NJ for one of the southern states is tempting especially when I think of the money I would be saving on living expenses every year. NJ is too expensive for the middle class to survive and getting worse everyday.

Wednesday, October 04, 2006 9:55:00 PM  
Anonymous Anonymous said...

Its a tough nut to think through- prices drop or stay high. I *think* the mortgage rates will contiue to slide- its simple economics (Supply and Demand). The demand for these loans are down- stock market up, housing costs sky high. So the lower of the rates begins, allowing the ARMies to refinance & people to buy more house then they could when the prices were high. So, says the seeler- why lower my price......

Wednesday, October 11, 2006 2:10:00 PM  
Anonymous Anonymous said...

Its a tough nut to think through- prices drop or stay high. I *think* the mortgage rates will contiue to slide- its simple economics (Supply and Demand). The demand for these loans are down- stock market up, housing costs sky high. So the lower of the rates begins, allowing the ARMies to refinance & people to buy more house then they could when the prices were high. So, says the seeler- why lower my price......

Wednesday, October 11, 2006 2:10:00 PM  

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