What price would you pay right now for new construction?

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qwerty_IHB

qwerty_IHB

New member
I almost purchased a 2400 sq foot home at Lantana at VoC (residence 1) a couple of weeks ago (due to pressure from fiance, have since convinced her to rent). Their current asking price is about 810K (they are offering 100-120K in incentives as well). From reading this blog for about a month and a half now (this blog is great by the way, a lot of very good info), many of you will be buying when prices are significantly lower. My personal opinion is that new construction such as this would probably go for somewhere between 600-650K at the low point of the market (sometime between 2008 - 2010). My question to all of you is what price would you offer right now for a home like this (or comparable size homes such as Manzanita at PS)? Looking forward to your opinions. Thanks.
 
500k or less.

Yay! I did it! I inserted a smiley! Thanks Firefox. Now I know I wasn't being daft the whole time I was surfing with Safari - the option just wasn't even there for me.
 
500K really? Im 30 and for most of my adult life (after graduating from college) all ive seen are RE prices going up (for the most part), so i guess its hard for me to imagine something brand new of that size going for 500K in Irvine.
 
if loan requirements continue to be tight, then I think the prices will come down to the high 500, low 600s. How many people actually have $120k to put in for a downpayment..
 
Luckily for us my future father in law will be gifting us the 20%. I was reading BKshopr's analysis the other day about ABCs (american born chinese), of which my fiance is one, that receive down payments from their parents - he was right on about that.
 
where has bkshopr been? I miss his comments. I hope that the politically correct crowd's petty complaints about his Asian observations (which by qwerty's comment above supports bk's observations) did not drive him away.
 
What is going to hamper resales in VoC and Portola Springs are the high mello roos. The fixed rates on those mello roos are not going to go down. If you pay $6300 in Mello Roos in Lantana on 1M home, the tax rate ends up around 1.7-1.8%, if the home drops doon to $550K, all of sudden your tax rate is more like 2.1%. Granted you're still paying less total taxes than if you bought at 1M, but that $6300 in mello roos will still be there irregardless of the actual home price.
 
$250/sq ft is pretty low. We sold our last house in Oak creek for that back in 2002. Hard to imagine it would drop that much, but I'd be really happy if it did. :)
 
If you think new home prices will continue to go down, here are a few reasons why I think it won't go down much more.

1) New home prices are already priced lowered than comparable resale homes because the builder need to get rid of their inventories. Unlike resale owners, it cost the builders to have the house sit there in the market.

2) Builders are large corporations, they can afford to loose money unlike home owners.

3) End of the year right now, many of the builders are trying to close their books.

Having said all this, once the builder completed selling their inventories, they will delay or cancel any new developments because they don't want to loose money on future investments. In addition, I doubt Irvine company would want builders to build anymore homes in this market. Therefore, since there won't be any new homes, less inventory of new homes, thus, prices of new homes will not go down. As for the resale market, that is a different story.
 
Slamdunk, interesting points but I beg to differ.

1) New homes are priced lower than resales but that does not mean it is cheaper. New homeowners have to put in landscaping (extra $100k to 200K), upgrades, and misc. things like window treatments (which are unbelieveably expensive). New homes also tend to have much higher HOA fees (see V of C) and some old homes have no mello roos (at least in Irvine).

2) Builders are large corporations but so were Pan Am and Enron (also see the American car industry). Also see: www.cnbc.com/id/21249064/site/14081545 and www.cnbc.com/id/21267203/for/cnbc/

The fact that they are big companies actually makes it more likely for them to discount the homes faster and more substantially because they do not want to keep them. Resellers (who are not foreclosed upon) will simply stay if they cannot sell. Also builders have a much lower base price (cost of construction + land + overhead) where resellers want to try and at least break even with what they bought the homes for.

3) I do not buy the "seasonal" argument. This year, every excuse has been pulled out. Prices are lower first because it is slower in the Spring so sellers want to motivate buyers, then it is the summer selling season so builders want to have buyers come in to ensure good numbers, now it is because the builders want to close their books. At a certain point, someone has to say that house prices are going down because people do not want to buy.

As for future development, builders are caught in a no win situation. If they build more homes, they are increasing inventory. If they do not, they will have to continue to 1) discount the value of their land and 2) pay for the holding costs since no one wants the land. Also, since builders' only business is to sell homes, no sale means no revenue. Finally, housing is like a locomotive. It is hard to start and stop. Once the builders slow down, it will take a while for them to go back up again.
 
i bet Lennar is NOT going to start the great park / el toro project anytime soon - they have no money to develop. Just look at their B.S.

In terms of Irvine company, and mission viejo company, I also will bet you that they would rather wait this downturn out two years, or three years - which means all their 2009 projects will be further delayed until it is relatively clear the market has stablized.

In Woodbury east, other than the one track opened two months ago, other tracks have already been delayed by at least two quarters (even after the model homes are in process of being built). So this means woodbury east is on hold for now too. It will only make sense to delay further if market continue to do down q1 / q2 of next year.

In Woodbury, the new Cal Pac home's model home is done, but they are delaying the openings to Q1 next year. Again, wait and see approach, and none of us wil be surprised if there are further delays. StanPac was going to start a new track in the 3200 to 3500 sq ft range Q1 of next year. However, I don't think they will move forward on that plan, since they need to protect their BS right now.

This leaves just VOC area and PS in irivne. PS is not cranking out a lot of new homes right now as far as I know. And I am sure Irvine Company will not let any builder to "upset" the market too much.

In terms of VOC, I don't track.

The only area I think you might see potential large new home discounts are in the VOC area. Then again, I don't believe the comps in VOC will effect Northwood, Northpark, Woodbury, Turtle Ridge, Woodbrige, Oakcreek, Woodbury that much. Remember VOC/ tustin field's comps have always quite a bit lower than the areas I mentioned just above.

I think the large discount keys belong to the existing home owners in Irvine.
 
It is also important to mention that some builders bought land so even if there are no homes they still have some carrying costs.

Also, the credit crunch is much worst than what most people think. The inventory is still very high and people will realize at some point that they can't wait any longer to seel so they'll reduce their prices

Here's what is heppening right now. Not a lot of people are realistic, so people don't drop their prices as they should. When more and more people have to seel or go in foreclosure, people will start to panic and drop their prices to make sure they sell. After all selling at 5% loss is better than at 15% loss. It will get crazy...mainly in OC (Irvine and Newport might get pretty ugly).
 
I suspect that many who need to sell cannot lower the price. They make too much income for bank to agree to a short sale (ie. bank's plan is to foreclose and just garnish their wages later for the difference) and don't have enough cash on hand to cover the difference (ex. sell for $50,000 less than you owe, then bring check to closing table for $50,000 to make the bank happy). So all they can do is ask for too high price and wait for foreclosure - they literally cannot lower the asking price.

One the foreclosure actually occur, however, the banks can mark the properties down as they don't have those constraints. So I think we need for a fair number of REO properties to accumulate (which seems inevitable - it's just a slow process to foreclose and clean places up for sale), then we'll see more true asking prices on the market.
 
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