The production builders are starting to gear up in the Northwest, sometimes in unexpected places. Only a few projects have new web sites up, but it interesting to get a glimpse of what the new product is going to be. Smaller, cheaper, downgraded, and stripped of all the detail and froo-froo we had come to expect as normal. In fact, the original working name of this post was "The Naked House".
– Ryder’s Breckenridge (formerly Meritage’s) has their models almost completed, as well as a couple inventory homes. The plans are pretty square, very little exterior trim or stonework. From the low to mid $200s, these look like ultimate in SSBs.
– Lennar has purchased the remaining lots in the Silverwing’s Grand Summit project. These were already pretty stripped down, and selling at close out prices starting at $248K. Lennar also looks to have bought the remainder of Bailey & Dutton’s Laurel Ridge project, which was pretty nice. Lennar’s web site hasn’t been updated yet to show what they plan to do, but they are starting out with $30K finished lots instead of $100K lots.
– DR Horton’s Villa Tuscana project of 240 triplex units at the corner of Sharlands and Mae Anne died in preconstruction, and was either sold or went back to the lender. It is now proposed as 83 single family detached units, and was scheduled for the Planning Commission next week before being postponed. It sound like they are trying to salvage a lot of the infrastructure already there.
– It looks like Lewis Homes closed on a bunch of finished lots in Somersett, where Back Nine Train meet Del Webb Parkway. No news on what is planned.
– Centex recorded an ownership change on the 76 remaining lots in the Vue. This is most likely just a bookkeeping change connected with their merger with Pulte, but they have already applied to have their property taxes reduced.
– Sierra Canyon is cranking along at a pace I haven’t seen in a couple years, as construction proceeds clockwise along Del Web Parkway. The Assessor’s site has been slow lately, but they seem to be moving units. Some are inventory homes that have been showing up on the MLS, and some are presales. If you are looking at this project, some of the new construction is at the fringes of the project, meaning lots of open space behind you home. Great for views, bad for wildfires.
– In an interesting move, Woodland Village has RAISED the price of their entry level offering from $149K to $169K. I’m not sure if they have discontinued the cheapest unit or raised prices.
So things are happening, though whether it is a good or bad thing is yet to be decided. The boys are back. It is a bit cautionary that the discounted $1M Toll home that you got for $700K in an "exclusive" neighborhood, may end up with a $250K Lennar house literally on the next lot. There goes the neighborhood.
BanteringBear
This is what happens when, as a city, you whore yourselves out to national builders. These people have zero interest in the long term health of the area, and are attempting to squeeze every last penny out of it before they disappear, leaving the carnage for residents to deal with.
Given the economic depression which is unfolding in the greater Reno/Sparks area, there is absolutely zero justification for these new homes. When one considers the massive shadow inventory on top of the current for sale homes, and then factors in the huge number of potential sellers “waiting for the market to turn around”, this new home building is absolute insanity. It will, however, work nicely in the favor of those waiting for rock bottom prices. These new homes will help to drive prices through the floor.
Reno Ignoramus
The real story here will be what kind of financing will the builders come up with. If you tell me that prospective buyers of these $250K houses are going to have to come up with $75K down, I will laugh out loud. Any bets on what the builders come up with to enable the unqualified to buy these places? How about $8500 down, and a $1500 “builders incentive” back to the buyers that can be used to offset closings costs? On 5 year adjustables.
BanteringBear
Exactly, RI. Who is going to qualify for these homes? $200k+ is WAY too expensive for an area like Reno. Given the economic environment, the under $100k segment looks to be the sweet spot.
smarten
What’s the “justification for these new homes?”
Are builders simply supposed to close their doors; allow their construction lenders to foreclose; and, go out of business?
Building is their business and they’re sitting on inventory. The justification is to unload it [preferably, voluntarily].
The question for me isn’t where are perspective buyers going to find the down payment/purchase money financing to buy these homes? Rather it’s why haven’t lenders pulled the construction financing to build out these homes “given the economic depression which is unfolding in the greater Reno/Sparks area?”
DownButNotOut
Smarten,
I believe that’s how builders and banks are justifying building, as a calculated gamble. If they believe a bottom has been reached or is close, then by the time these houses come online – voila – the recession is over and there first in line.
The alternative is to give up on the project, which is a sure loss for both the bank and the builder.
These houses currently being built will be blog topics two years from now for how cheap they’re selling for compared to original asking prices.
And the bank will be looking for government bailout money that no longer exists.
SkrapGuy
Are these considered entry level houses?
First time buyers?
How many first time buyers got $50K, or more, to put down?
Here’s the problem. A $250K house is no longer an entry level house. That’s bubble thinking. Prior to the bubble, a $250K house was a fairly expensive house. It was a move-up house.
Today, there are hardly any move-up buyers. There are NO first time buyers who can afford to buy these houses unless, as RI notes, they get the 2010 version of a voodoo loan.
We are a long way from returning to sanity. With one half of all houses now selling for below $170K, a $250K house is a too expensive for most buyers.
CommercialLender
The Lennar/Silverwing deal has at its cheapest a $248K “closeout” with 1,590 sqft for $156 psf. Not happenin’. Ryder is pricing theirs at $122 psf. These are not prices where actual sales will be occuring anytime soon, correct me if I’m wrong.
What I would believe, however, is that Lennar or Ryder bought inventory so cheap that their cost would be around $80 psf, thus a sale at $100 to $125 psf would make their trouble worthwhile. In that model, they’d keep dumping units on the market to make $20 to $40 psf, and if they don’t sell they can mothball the community for a few years and then sell them off later at a basis far lower than actual production builders who have not written off or sold off their inventory at a huge loss.
As for Woodland Village, could this be their bank telling them they can’t sell for so low, thus they are forced to raise their prices just like Diane was on her short sale?
Feel free to correct me.
billddrummer
To CL,
All of your premises make sense to me. From the standpoint of Lennar/Silverwing, Lennar bought 169 finished and tentative lots from Bailey/Dutton for $4.7 million on 12/18/09. The per-lot cost is less than $30,000. The deal included finished lots with foundations, tentative mapped lots, streets and infrastructure. It doesn’t take a lot of thought to figure that even if the project sits for awhile, they got into the lots at a great price, and are prepared to ride out the market until it improves–a classic buy and hold.
I would venture that the other builders now active were able to swing similar deals on the lots they are building on now.
Just like selling cars: If you’re in the cars right, you’ll make money regardless of how clueless your salesmen are.
In this case, Lennar is in the lots right, so they don’t need to push the market to make a profit.
skeptical
Great, experienced minds on this site inform the rest of us into the possible angle for the builders in the developments Mike has taken the trouble to research above.
Big picture view: We are nowhere near bottom if these delusional builders, who have lost hundreds of millions of dollars in the last few years are attempting to purchase, finish, and market hundreds of homes. All this in a community that averaged 80% distressed sales last month and sits below 2002 levels of median sales price. In other words, in the worst market for real estate in this nation, regarding the general trend.
As DBNO insightfully states, we’ll be talking about these places on the blog in two years, and looking at how much these builders lost.
Derrick
Why don’t the banks just turn property developers? It’s what Barclays is doing as we speak in London!
yea yea I bought Barclays back when it was 5/share, but that’s besides the point!
cheers!
Derrick
Why don’t the banks just turn property developers? It’s what Barclays is doing as we speak in London!
yea yea I bought Barclays back when it was 15/share, but that’s besides the point!
cheers!
inclinejj
Why don’t the banks just turn property developers? It’s what Barclays is doing as we speak in London!
We see how well they are handling Loan Modifications, Foreclosures, Short Sales, and Reo Sales..
<>
skeptical
More job losses in Washoe County on the way:
http://www.rgj.com/article/20100228/NEWS07/100228014
In short, teachers are going to get laid off. Many formerly two income families are now relying upon the salary of a teaching spouse. Note this one down on the shadow, shadow inventory.
So, with declining enrollment, and declining local revenue…will any laid off teachers ever be hired back??
Very, very sad. This is the destruction that bubbles make. This is why Greenspan should be treated like a war criminal. I don’t see much outrage out there, though. Everyone must be happy with their food stamps…
DonC
skeptical — Greenspan may not have helped but he wasn’t the main cause. Recycled dollars from Asia were the biggest issue. The ridiculous tax cuts just added to the problem. And obviously the big problem were derivatives. Speaking of which, as of today, Congress seems to be set on doing absolutely nothing to preclude a repeat of the debacle.
How hard would it be to treat an insurance produce like an insurance product?
People are confusing the symptom (housing bubble) with the disease (too much liquidity). Short of inducing a recession there wasn’t much the federal reserve could do. However, the dismaying thing is that Bernanke is still saying things like “I’m sure the SEC will address derivatives”. Right.
skeptical
DonC:
In 1997 he referenced “irrational exhuberance” and then did absolutely nothing about it (outside of LOWERING interest rates coming into 2000).
In 2005 he praised the wonders of subprime financing, saying it opened home ownership to hundreds of thousands. He also championed financial engineering (read CDOs, MBS, derivatives, etc…) for all the good they were doing in the world, and cautioned against any regulation thereof.
Most recently, he’s expressed shock and dismay that all his grand theories were wrong — chief among them that banks were best at taking care of their own interests, unhindered by regulation.
Please, DonC, read “Greenspan’s Bubbles” or “End the Fed” or “Bailout Nation” before you champion the cause of this criminal. Those books, by the way were written by people with credibility like Barry Ritholz and Bill Fleckenstein.
Bubbles are extremely destructive. Reno is living proof. Don’t defend the bubble maker in chief. He should be pilloried.
billddrummer
As I stand on the precipice of my first novel, I’m awed by the hubris exhibited by the leaders of our country. It shouldn’t take so much effort to say “we fucked up, and we’re sorry. Mail in your keys.”
Sane Economist
Skeptical, you are correct.
Alan Greenspan, more so than anybody else, bears responsibity for this current financial crisis.
Recycled dollars etc. were consequences of his actions, not the cause of the financial meltdown.
And lets not forget his adamant opposition to legislating derivatives.
I’m not sure his actions are tantamount to criminal acts, but his actions serve to remind us the power the Fed yields, and how devastating an incompetent Fed governor can be on the well being of society.
DonC
sane economist — I have doubts that you’re an economist. (No idea if you’re sane). If you were an economist you would know that Greenspan was more a proponent rather than a architect of the “efficient market hypothesis.” That hypothesis held that free financial markets were self organizing and self regulating and, if the government left them alone, they would produce optimal results.
If you believe in the efficient market hypothesis then Greenspan did exactly the right thing — he stayed out of the way and let the market do its thing. In this regard, skeptical, since you think Greenspan should have done something, perhaps you can tell me what someone who subscribes to the efficient market hypothesis should do when the market starts to drive up the price of assets beyond historical levels?
In fact it’s unlikely Greenspan would have been appointed if he had wanted a different approach. Exhibit A would have to be the fact that House Republicans forced Donaldson, who was eminently qualified, to resign as SEC Chairman because he, gasp, wanted firms to make some simple disclosures. The House Republicans had him replaced by Cox whose main qualification was that he wouldn’t do anything. And you think Alan Greenspan was the problem?
The Greenspan appointment probably didn’t matter, however. Empirically, when you compare different countries and their central bank policies, it turns out that central bank policies had much less effect on the bubble than the number or recycled dollars. So your claim that Greenspan caused the recycling is factually incorrect. (It would be interesting to have you explain how this worked — usually low interest rates would attract fewer rather than more investment dollars).
Best to simply admit that the theory is wrong and to move on and to fix the problems than to cling to the belief that the theory is fine and that the problem was, in James Bond fashion, created by a sole rogue wrongdoer.
Sully
As a side note, time magazine published a list of the 25 people responsible for this crisis.
http://www.time.com/time/specials/packages/completelist/0,29569,1877351,00.html
Please note the person ranked #5.
Sane Economist
DonC,
I am not quite sure what your point is.
FWIW, you are correct in saying that Greenspan was a proponent of EMH, which was exactly his undoing. Very few economists take the notion of EMH seriously, especially since EMH is widely considered to be a major factor in this current financial crisis. James Montier says that the “efficient market hypothesis is the financial equivalent of Monty Python’s dead parrot. No matter how many times you point out it is dead, believers insist it is just resting. Even the most ardent capitalists recognize that markets require legislative oversight. Or as Adam Smith put it, banking regulations are needed just as much as public buildings need fire codes.
Greenspan also declared that it was only possible to recognize bubbles after the fact – again complete BS – just another attempt to abdicate responsibility
Sully
Pointing fingers at who knew what and when they knew it doesn’t un-ring the bell. More importantly, is what they are doing now, to prevent this from happening again. Which, BTW, is nothing. Dodd (a lame duck) is trying to push a string uphill with his banking regulations.
In Reid’s run for re-election all he talks about is the jobs he created in Nevada, which no one can find or the billions in fed aid sent here, which the Governor and mayors can’t find either.
In a nut shell, it’s up to the voters in this country to quit believing in Santa Claus and elect a responsible representative come November and take back the country.
DownButNot Out
Sully,
Different subject but if I recall you have some experience with this – how much can an average house be built for excluding land? $135/sf was discussed at one time, but with labor prices at rock bottom and material prices low, can it now be done for $90? Or is that too big a stretch?
I’m curious at what price point these builders Mike wrote about will be at when they’re homes are completed for them to break even.
Sully
DBNO, I heard the 80/ft figure mentioned in an article about Las Vegas. So, 90/ft might be very possible right now.
billddrummer
Excluding land, I’ve seen estimates at $95-$115/s.f. for ‘regular’ houses without a lot of frills. You can go higher, but it’s not worth it.
skeptical
Sully,
I have seen plenty of listings lately for <$100/sq.ft. in good neighborhoods. Reality is slowly seeping in.
Why do you ask? Are you considering building? Checking for current market values?
Even for a fully loaded house in a good neighborhood with all the trimmings, I’d be loathe to pay more than $125/sqft in this environment. FWIW….
Sully
skeptical, building price and selling price are not one and the same. A while back, we discussed cost per foot to build. At that time 135/ft was the consensus for a mid range (average) house, in a tract. DBNO asked if that price had come down to around 90/ft. I think it may have, but I haven’t been looking at new houses lately either. Also, a builders cost to build isn’t going to be his intended selling price. Gawd I miss Allan, he would know these answers.
DonC
Sully — The problem with “taking back the country” is that, put another way, you’re just advocating that the best plan is to put the people who created the mess back in charge. Who exactly isn’t a responsible adult? How about those who championed the EFH and adopted it as some sort of ideological truth despite all the historical evidence to the contrary? Or how about those who voted for the worst tax cuts in history and then complained about the resulting deficit, apparently oblivious to the connection. Those would be of course the same guys who claimed that, and this is a quote, “deficits don’t matter.”
You do remember those tax cuts don’t you? The ones that were going to spur so much economic growth that revenues would go UP and not DOWN. Yes these were the days, the salad days of the “something for nothing” Laffer Curve — the political equivalent of the “something for nothing” housing boom. Too bad it just didn’t quite work out …
The basic problem we have as a country is that people want to live in “La La Land”, a place where housing prices go up at 12% a year, every year, stocks go up 20%, you can pay retirees huge pensions, and where you can balance the federal budget without raising taxes. Well housing doesn’t go up like that, stocks don’t up like that, it takes taxes to pay big retiree pensions and health care costs, and just looking at the budget shows that’s impossible to balance the budget without steep cuts in Defense/Medicare/Medicaid/Social Security. Until voters get a better grasp of reality we will continue to have platforms that essentially amount to “No plan. No solution. No clue.”
The lack of reality is inherent in the claim that the stimulus spending hasn’t created any jobs. Of course it has. Everyone who has looked at the question has concluded that the stimulus has created at least 1.6M to 1.8M jobs.
… [L]ook at the outside evaluations of the stimulus. Perhaps the best-known economic research firms are IHS Global Insight, Macroeconomic Advisers and Moody’s Economy.com. They all estimate that the bill has added 1.6 million to 1.8 million jobs so far and that its ultimate impact will be roughly 2.5 million jobs. The Congressional Budget Office, an independent agency, considers these estimates to be conservative.”
DownButNotOut
2000 sf, assuming $90/sf to build, $20K for the padded, permitted lot, 5% sales fee = $210K cost.
Woodland village has 2270sf for $200K or $88/sf sales price.
To state the obvious there can’t be a lot of room to move at that price. Or any profit to be made if it sells.And if prices continue to go down?….
Sully
DonC; added 1.6 million jobs? What about the 7 million that have been lost? And by taking back the country I meant putting the people back in charge, not the morons that created this mess. Starting with repealing the Gramm,Leach,Bliley Financial Services Modernization Act of 1999. As far as who isn’t a responsible adult try these three:
Phil Gramm PhD in Economics the architect of this financial fiasco
Alan Greenspan, PhD in Economics – in his dissertation for his Phd the introduction includes a discussion of soaring housing prices and their effect on consumer spending; it even anticipates a bursting housing bubble. (Yeah, the same guy that couldn’t see this bubble happening).
Chris Cox, MBA from Harvard, Chair of the SEC. Did as close to absolutely nothing as humanely possible during his reign.
Where do you get off saying I am advocating putting these same people back in charge? You read between the lines too much maybe, but you sure cannot read minds.