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That sinking feeling--on the cover of BusinessWeek

Posted by: Peter Coy on October 5, 2007

Do yourself a favor and read the cover story in the latest edition of BusinessWeek. It’s called “That Sinking Feeling: As builders slash prices, homeowners are getting slammed.” It’s by Mara Der Hovanesian and my fellow Hot Property blogger, Chris Palmeri.

Slashing prices may be necessary to eliminate the backlog of unsold houses. But people who bought before the price cuts are feeling like chumps. A great story.

Mara and Chris were early to pick up on this trend. I just got an email today from real estate agent and blogger Frank Borges LLosa in northern Virginia, who has seen it happening in his area. Here’s a link to his blog.

Reader Comments

Sacramento Real Estate

October 5, 2007 2:29 PM

The example of slashing as this builder has done is what is putting the family owned builders out of the market. There is no way that they can compete with those type of deals.

One of the things that I have considered is if a Builder is wiling and able to slash that severely, how have they cut back on quality with their building...tends to make me wonder enough so that I wouldn't buy one, now.

Congratulations on being selected as one of the Top 25 Most Influential Bloggers.

Frank Borges LL0SA- Broker

October 5, 2007 3:31 PM

I'm a REALTOR, but I keep hearing agents talking about the amazing deal that they negotiated on a new construction.

Meanwhile some builders are planning to dump units for $100,000 lower via AUCTIONS.

So much for that "deal."

Buyers need to be vigilant about the risks involved, even if they think they are getting a steal.

And builders will need to start offering escrows to insure against future auctions.

Here is the CURRENT conversation:

Builder: We just knocked off $50,000, you can get it for $400,000 now.

Buyer: How many units do you have left

Builder: 80

Buyer: How do I know you won't auction them off next week for $100k off?

Builder: Um, I can't promise you anything, but "probably not"

Buyer: No thanks

This is how it will have to become:

Builders: Buy it now for $400,000 and we will guarantee with a $100,000 escrow that we won't slash prices. If we do you get (insert amount from 50% to 100%) of the $100,000 escrow back.

Buyer: Oh, ok great. If you limit my downside, then I might buy.

Best of luck to all!

By Frank Borges LLosa- Broker/Owner

Peter Coy

October 8, 2007 2:17 PM

Here's a piece from the News10 TV station in the Sacramento-Modesto-Stockton area of California. Homeowners are complaining that a builder's auction of unsold homes will hurt the value of their own homes.

Brandon W

October 9, 2007 7:28 AM

Huh? These people are pro-free-market and enjoy the benefits of the run-up in their home prices, but aren't such fans of the free-market when it pushes their home values down. Too bad. Suck it up and learn to manage in free-market capitalism.

Jack B. Nimble

October 11, 2007 6:33 AM

I might have some sympathy for the Sacramento homeowners if these overpriced homes were there first homes. Otherwise, they probably sold into the same market into which they bought and this market adjustment has probably put them back at where they were a few years ago. No sympathy to be had there....


October 12, 2007 7:06 AM

I just read the article and immediately felt Deja vu for what many of us were saying would happen back in 2005, when we were told to "buy now or live in tent cities or Hondas".

A mortgage bailout is not necessary. What is necessary is from prices to drop another 20% (or back to 1999 levels, whichever is more) and clear out this massive inventory glut. Many Florida homes that are foreclosed and closed up will be destroyed by mold infestations in less than one year.

I can't feel sorry for those people in your magazine, no matter how bad I want to. The data regarding this outcome was clear and present to many of us.

Tarang Patel

October 13, 2007 7:48 PM

Its funny how all the free-marketers want the government to step in and further subsidize and prop up over inflated housing prices. I say further subsidize as mortgages are tax deductible. By the way this subsidy is already factored in by higher base house price. In reality until and unless the balloon is popped the slow puncture will only continue to ripple business areas that have nothing to do with mortgages.

A 20% or more correction is needed in most places, and then you have a generation of potential buyers who had been locked out of buying a home will fill the void.

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BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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