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PART 2: Ada & Canyon County Builders - Spec-Housing Bubble

Posted by Heinrich Wiebe in Fizbomap, For Sale by Owner, News on March 25th, 2007

This post ties nicely into two prior post that relate to the current market conditions for our Treasure Valley. Builders Hold 46% of The Inventory and Ada and Canyon County Builders - Spec Housing Bubble

I’m illustrating the trouble brewing in our local housing market.

First, I pointed out that builders are holding nearly half the market listed for sale. This is scary considering the majority of resellers haven’t hit the market yet and our total ADA and CANYON COUNTY inventory is ragging an all time high by blowing past 7,000 listings last week.

By the numbers and historically speaking, there’s more inventory to come from the re-sellers. Re-sellers looking to move-up, move-down or move-out historically peak in May.

Next, I illustrated the housing mix of new construction as it relates to what buyers are buying. Most buyers are putting their money down on inventory that is in the shortest supply. This is way bad news for those builders who decided to join the ranks and construct above $350,000.

To make my third push into this issue, here’s a bar graph that illustrates what the average price has been for new homes-never occupied (SPEC-HOMES) and listed for sale during the first quarter of each year since 2004. The writing is on the wall as far I’m concerned.

2004-2007-first-qtr-avg-pri.jpg

Who told these builders to go out and speculate on such expensive inventory? Here’s my hypotheses :

  • Our market has a lot of little builders. Many of which may not be well informed.
  • Small builders can only manage a few projects at a time.
  • Small builders can’t develop a strong economy of scale.
  • Historically, builders make better margins on more expensive homes.
  • Small builders would rather spec-build versus custom build because its easier. (They don’t have to find the client before they build, and they don’t have to listen to them either.)

    • I’d be foolish to try and predict the future, but I can say my money isn’t on the builders or the lenders who gave them the construction loans. How long before these notes are going to start coming due?

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