New Homes
In the recent sales spurt new home sales have been popular. Short term builder loans which come due in a year put a lot of pressure on builders to sell. In some cases, particularly in West Bellevue, we have seen per sq. ft. sale prices go under or about at the production cost, WITHOUT LAND. In essence you are getting the land for free. I have been asked by some why there are not more new homes being built if the finished ones have sold.
The main reason is there is no commercial credit for either building or land development. Even if a builder sells a house and is able to buy a lot at a reduced price and potentially build a profitable house there is not a bank to loan the money. Yes you will see a few being built in neighborhoods that have lots finished but even those builders are having a very difficult time finding commercial credit and are relying more on outside equity to help build a home. In addition once they have sold their standing inventory most are then only selling on a “presale” basis only. In even the most dire market circumstances, the Bellevue infill product should be cleaned out by the end of this year. This means if you want a new home in 2010 you will have to buy the lot and custom build the home.
This lack of commercial credit is creating a “perfect storm” regarding new land development and lot formation on the Eastside. For the last 15 years most of the lot supply on the Eastside was created in the three master plan communities: Redmond Ridge, Snoqualmie Ridge and Issaquah Highlands. These master plan communities are nearing build out. With nothing to replace them and lack of credit to start any new neighborhoods, even infill, Todd Britsch at www.newhometrends.com predicts that commencing in 2011 there will be a severe lot shortage even if market conditions remain tepid. In the meantime there will be some bank owned inventory to work out of but the days of going to open houses and buying the new home that is finished and ready to move into will be a thing of the past after the present new inventory is cleared out. There are some exceptions but mainly in the lower end under $300,000 where publicly held companies like DR Horton do not need local bank credit are buying lots from banks who have reposed them at a lower basis and building more affordable homes but once this supply of bank owned property runs out there is nothing in the pipeline. Even if credit returns starting a new subdivision from the time the developer negotiates with the land owner, get appprovals from the municipality and then install the improvements takes a minimum of three years and can take four to five years. In addition property owners have owned their land a long time and they need a big incentive to sell and many I know will not sell at prices where the market is at or where I think it will be in the next two to three years.
If you are looking for a new home this market presents one of your best entry opportunities.