The Builders Will Lead Them
Swords in the Wind -- Manowar
"The wolf also shall dwell with the lamb, and the leopard shall lie down with the kid; and the calf and the young lion and the fatling together; and a little child shall lead them." Isaiah 11:16
Builders are now leading the charge in our race to the market price bottom. We have made much about the presence of REOs in the market and the downward pressure they put on prices. However, REOs are not the only form of must-sell inventory. The builders also must sell homes or go out of business. Early in the deflation of the bubble, particularly on the Irvine Ranch, builders held to peak prices and watched their sales volumes drop to near zero. Since the credit crunch signaled the end to crazy financing, the builders have been consistently lowering their prices to generate sales and liquidate their inventories. This has happened without much fanfare here on the blog because we focus on the resale market; however, since the builders are also competing with resellers for the small number of available buyers, their activities are important as they will strongly impact resale home prices.
The builders have already trashed the resale market in the Villages of Columbus. Check out 22 Honey Locust now being offered for $350,000 off the original purchase price. The price drops in VOC have little to do with the quality of the homes, the location or anything else. It is almost exclusively due to the activities of the builders trying to get out of the project. It is my opinion that VOC will be on price parity with Westpark in 5 years, and this will not happen through appreciation in VOC.
Today's featured property is a new home being offered in Portola Springs at $275/SF. That is new construction for $275/SF. What do you think that will do to the resale market? In a normal real estate market (if such a thing exists in California,) new homes command a premium of around 10% over resale mostly because they are new. If you look at the listing price history, you can see this home has already seen a 5% haircut, and it seems likely that builders will need to drop prices further to generate sufficient sales volumes to stay in business. I believe new home sales prices will bottom between $225/SF and $250/SF while most resales will fall to $200/SF or below. Even now at $275/SF, why would someone go pay someone $350/SF or more for a used house when you can get a new for much less? The fact that the builders are at these price levels and still lowering price to generate sales speaks volumes about the future prices of resale homes.
Asking Price: $578,880
Income Requirement: $144,720
Downpayment Needed: $115,776
Monthly Equity Burn: $4,824
Address: 128 Long Grass, Irvine, CA 92618
| Beds: | 3 |
| Baths: | 4 |
| Sq. Ft.: | 2,106 |
| $/Sq. Ft.: | $275 |
| Lot Size: | - |
| Property Type: | Condominium |
| Style: | Spanish |
| Year Built: | 2008 |
| Stories: | 3+ Levels |
| Area: | Portola Springs |
| County: | Orange |
| MLS#: | S524595 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 150 days |
 Unsold in 90+ days |
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The realtors in Irvine could learn something from John Laing Homes on how to write a description and stage a home for photography.
If you pan back in Redfin to get a broad area of homes, they will provide a summary at the bottom of the page showing the average asking prices for resale homes. Depending on where you look, this average goes from over $400/Sf down to about $360/SF. If builders are willing to provide homes for $275/SF, and they are still lowering their prices, resellers have little or no hope of achieving these asking prices. Just based on this simple analysis alone, it appears that resale prices in Irvine still have to fall 30% to 40%. Granted, the asking prices are not where the transactions are, but it is where the fantasies of resellers resides. It certainly appears these asking prices have a deep decline in front of them...
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I Surrender My Soul Odin Hear My Call
One Day I'll Sit Beside Your Throne In Valhalla's Great Hall
Like So Many Before Me I'll Die With Honor And Pride
The Right Of A Warrior Forever To Fight By Your Side
Send A Sign Raise The Sail Wave A Last Goodbye
Destiny Is Calling Immortality Be Mine
Call The Witch To Cast The Runes, Weave A Magic Spell
We Who Die In Battle Are Born Not For Heaven Not For Hell
We Are Sons Of Odin The Fire We Burn Inside
Is The Legacy Of Warrior Kings Who Reign Above In The Sky
I Will Lead The Charge My Sword Into The Wind
Sons Of Odin Fight To Die And Live Again
Viking Ships Cross The Sea, In Cold Wind, And Rain
Sail Into The Black Of Night Magic Stars Our Guiding Light
Today The Blood Of Battle Upon My Weapons Will Never Dry
Many I'll Send Into The Ground Laughing As They Die.
We Are Sons Of Odin The Fire We Burn Inside
Is The Legacy Of Warrior Kings Who Reign Above In The Sky
I Will Lead The Charge My Sword Into The Wind
Sons Of Odin Fight To Die And Live Again
Viking Ships Cross The Sea, In Cold Wind, And Rain
Sail Into The Black Of Night Magic Stars Our Guiding Light
Place My Body On A Ship And Burn It In The Sea
Let My Spirit Rise Valkries Carry Me
Take Me To Valhalla Where My Brothers Wait For Me
Fire Burning To The Sky My Spirit Will Never Die
I Will Lead The Charge My Sword Into The Wind
Sons Of Odin Fight To Die And Live Again
Viking Ships Cross The Sea, In Cold Wind, And Rain
Sail Into The Black Of Night Magic Stars Our Guiding Light
Swords in the Wind -- Manowar
