The homebuilders are obviously stuck in a rut. Sales of new homes in and around Irvine have ground to virtual halt, and in response the builders have attempted one of the following remedies:

• Suck it up and finish buildout. Communities that are more than 80% built out may find it easier to finish contruction and offer the last units for sale. Observed behavior has been to lower prices modestly and/or wait for someone to buy at a long-standing price.
• Postpone. This can take the form of postponing the start of a community (Orchard Hills), or postponing the sales even though models are built (Woodbury East). It is theoretically possible for a partially built & sold community to suspend sales with the intent of re-opending, but I am not aware of any examples.
• Bail out. This can take the form of abandoning plans to build, or more interestingly, actively euthanising a partially built community without any intention to return. Portola Springs’ Decada and Columbus Square’s Astoria are good examples; each shut down after one to two years of sales and not even reaching half of originally planned buildout.

Despite the fact that the market has changed so drastically from that of two years ago, I don’t sense an appropriate level of urgency on the part of homebuilders or the Irvine Company in adapting to the new downward-moving market. I’d like to offer my constructive analysis of what will and won’t work to get customers buying again. Some of these are based on what has been attempted or might be. Others are just ideas.

What Definitely Will Not Work:

1. Sell even harder the great lifestyle that awaits. We’ve all seen a nauseating number of markeing pitches showing thirtysomethings drinking wine in a back yard or at a dining room table, sunlight trail biking/exercise pictures, and a strange emphasis on shopping that is two minutes away (as opposed to having to drive a whole six minutes to get to the on of the other dozen retail areas in Irvine).
2. Try to make a big deal out of underwhelming discounts that are (at least) months behind reality. It is not just naive private sellers that demonstrate proclivity in chasing down the market. Despite some relatively aggresive cuts early in the slowdown, new homebuilders also participate in the “day late and dollar short” school of thought by offering $25k or $50k off of residences that were $75k-$100k overpriced when first floated and are now $125k-$150k or more overpriced because time has elasped, the market has worsened, and the prices haven’t changed.
3. Offer ‘until close of escrow’ price protection. With virtually no sales taking place and inventory likely ready to go, anyone who does purchase probably will have a 30ish day escrow. In this slow of a market, no reductions are likely to take place in that timeframe, and if they did, the buyer can always play the game of I-won’t-close chicken to secure discounts.
4. Lightly subsidized and/or teaser interest rates. This seems to be a favorite of Laing, and I don’t understand it on two levels. Consumers have learned they can refinance if rates fall, and they know they pay taxes forever on the sales price of the house. Also, weren’t teaser rates the huge contributing factor to the current pickle the market finds itself in? With increased consumer wariness of any “you can afford it for the first XX years” arrangement, it seems unlikely these woudl prove popular.