Home Builder Going into ‘Hibernation’

Privately owned homebuilder Astoria Homes has joined the ranks of thousands of home owners in foreclosure. They are losing 30 brand new, never-lived-in homes in Aliante and the northwest. The company has laid off 17 people last week and is down to a total of 17 employees. The president of Astoria Homes, Tom McCormick, stated that they stopped construction because they were unable to secure loans in the national credit crunch.

Fast Facts: Astoria’s sales have gone from 627 in 2006 to 320 in 2007 to 192 in 2008. The builder is selling fewer than 10 homes a month. source: Las Vegas Sun

The company is not facing bankruptcy and will finish completing 60 homes in five neighborhoods using its current cash stockpile and sales proceeds.

Given the current level of inventory and the median price of a home, this is a smart move by Astoria Homes. A common problem facing new home builders is the price of the land. Most builders paid a premium for the land they are now building their homes on. That combined with increased materials cost has cut into any profits generated by sales. Add in the difficulty of obtaining financing and you have an accurate picture of the market new home builders are facing. It wouldn’t be surprising to see other builders follow in Astoria Homes footsteps and stop building until the market balances out.

What this means for Home Buyers

While most media coverage has been focused on the latest bailout, et al, home sales around the valley fueled by bank owned properties have exceeded in volume the number of sales from the “boom” years. Prices have been driven to levels not seen in almost a decade (when is the last time you remember seeing a home for sale in Green Valley for under $150,000?). While cash is king, there are still programs available for first time home buyers and yes, banks are still lending money. Now before you rush out and grab up a bargain property there are some things you need to do (and know). Quite often a REO (bank owned property) listing will require that you provide a pre-qualification (prequal) letter from your lender OR from a lender they specify (quite often the same bank that owns the property). Without one, you are wasting your time because the really good bargains are not staying on the market that long. By the time you get your ducks in the row, the property may be sold. It is not uncommon to see multiple offers on homes that are historically under priced for the area. Another thing to remember, just because it is a bank owned property, that doesn’t make it a bargain, nor does it make it more likely for a low ball offer to be accepted. A good majority of bank owned properties had loans given for more than the current market value. While banks are eager to clear these properties off of their books, they are also cognizant of the fact that government help may be on the way. Making an offer of $50,000 less than list on a home that has already been discounted (in the bank’s eyes) by $100,000 and is listed for $148,000 doesn’t have a high probability of being accepted. While I’m sure some lucky buyers or investors have found deals like these, they aren’t by any means commonplace. Some of these institutions also have shareholders they must answer to as well. That doesn’t mean there isn’t room for negotiation, but you need to know the market history and listen to your agent. After all, that’s why you picked a professional to represent you.

If you are thinking about buying a home in the Las Vegas valley, feel free to contact me at 702-493-8033 or by using our email form below.