Housing Developers Worst Hit By Foreclosures
June 30th, 2008
Housing developers are some of the worst hit victims of foreclosures. It is the irony of fate that the market situation is such that many of the builders are competing with new houses – some of which they have built themselves and are now being resold for peanuts.
Usually the new house buyers have never been defaulters but today the opposite is happening. Builders eager to get the load off, are cutting down prices and offering all sorts of free incentives like weekend bonuses. The foreclosure houses are being sold at rates below the market price grabbing the attention of the few buyers that are still moving around.
Centex Corporation or CTX is the third largest house-building firm in the country. Lawrence Angelilli, the senior vice president of the company said at a recent conference, “Mortgage foreclosures were never viewed as being competition for a new construction.” But now this unheard of thing is happening – foreclosed units are competing with new units for buyers. The problem is very significant although no exact details are as yet available; the trend has become increasingly noticeable. Although it is not uniform it is feared that with more foreclosed units entering the market soon it will infect all the regions. According to Credit Suisse estimates, the new foreclosures will peak to 1.69 million before 2008 draws to an end. Another 1.14 million is apprehended to enter the swollen river by 2009.
According to Lennar Corporation (LEN) not more than 20% of all the houses have been foreclosed upon – the term foreclosure being used to denote all the various stages of the legal process. Another building giant, Hovnanian Enterprizes Inc. has noted a ‘couple of instances.’ Ara Hovnanian president and chief executive commented that although foreclosures are not the best thing for communities but today they are a reality accordingly they have to be dealt with.
It has been observed by relevant quarters that those regions that had witnessed the maximum activity during the housing boom years are now saddled with the largest number of foreclosed units. Las Vegas, Phoenix, Inland Empire of California and Florida are the worst sufferers because of this factor. Here the companies had over reached themselves in frenetic building activity and are now paying the price by being trapped in the cash crunch. Foreclosures are selling at 20% below the market price and are even then failing to attract takers.
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