Monday, November 20, 2006

Priced to Sit Part III: Beazer Homes

For the third part of this series, I chose mid-level builder Beazer Homes. Beazer has seven large developments under construction in the Sacramento region, with houses generally priced from $250K to $400K. According to their web site, they have plenty of houses "available now", which means they have had cancellations or they have been building on spec. Either way, these houses should be priced to sell quickly.

To balance out the other analyses, I focused on two of Beazer's more "affordable" developments. They are located in more marginal areas and consist of smaller houses built closer together on smaller parcels. The first, located in Rancho Cordova, is called Capital Village:

Capital Village is bordered on the north by a large office park complex, on the east by a flood-control channel beyond which are several junk yards and more light industry, on the south by another new development and some open pit gravel mines, and on the west by more light industrial. Mather Field, a major commercial airport and a hub for UPS, is less than a mile away to the southwest.

Since the development area is mostly non-residential, there were only 35 resale houses for comparison. Once again, however, a major house builder is putting the squeeze on their competition:

The second "affordable" development is called "Riverdale", and is located in west Natomas:

Riverdale is bordered on the north by another housing development, on the east and south by Interstate 5 and Interstate 80 respectively, and on the west by agriculture land. There is also a large 24-hour truck stop and an industrial equipment yard less than a mile away to the southwest.

There were 51 comparable resale houses on the market nearby, and once again, Beazer beats them all:

Like all housing market participants, new house builders are seeing the need to lower prices to attract business. They will continue to do so until all their spec inventory is depleted. Unless the resale market participants can bring their prices in line, they should expect an indefinite wait before a sale.

How long can they hold out?


Anonymous said...

Guess what, at the $$$ beazer is asking - they can cut it in 1/2 in the next few years as illegals will build for 1/2 what they were charging and lumber has dropped to ~1/2 - and still make out like bandits. As in ... there is no bottom or if there is for the damn cardboard boxes beazer can build its at $50 a sqft. I know I built one and have the pics to prove it and it was under 60 a sqft with 20K upgrades.

Anonymous said...

I don't have any sympathy for the developers or the hapless homeowners trying to sell their boxes for what they paid for them. They're all overpriced, even if the developer is only 5% less overpriced than the homeowners. If either of them are closing deals, they're just selling to greater fools.

Very interesting story though.

Anonymous said...

I work right next to those Beazer homes going up in Rancho Cordova and every day when I drive by I can't believe the sight. What used to be a giant barren field with not a single tree will now become a tightly packed nest of houses, each one of which looks no bigger than my rental when the garage is taken away.

I've never been a fan of tract homes, but these ones nearly take the cake. Of the ones I've seen build so far they are packed SO close together that there's not even enough room to put a fence between the houses. It almost looks like they are condos until you realize there's a tiny little gap between them. It's incredible... incredibly bad.

AnalysisGuy said...
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AnalysisGuy said...
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AnalysisGuy said...
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Metrokip said...

Funny how they need to deplete all that standing inventory yet they haven't stopped building more homes. It's because they have to keep the machine running in order to report something to wall street. The choices a builder has to make as a publicly traded company don't exactly jive with the market. They have to loose their once-high margins So they end up desperately trying to keep their losses at a minimum by cutting personell. add all that up and you only stress the market more by raising unemployment after every builder in town has laid off half of their employees.

your post suggests that it's the builders' new home inventory putting downward pressure on the resale prices. but don't forget that the resale inventory will be going higher and higher as we add countless foreclosures to the pool, while at the same time the demand continues to soften.