Crying Builders....

I hear a lot about these home builders sales being down and quarter losses and on and on, waa waa waa!!! I bought my last house (2002) for $376,000 and the neighbor next door had bought his house several years before (my street was constructed later on), same plan with less upgrades, for just over $200,000. You can't tell me it took the builder $176,000 more $ to build my house. Then a year later they are selling the same house for over $500,000. So what did the builders do with all that extra profit, besides pay their CEO a 7 digit income, they got greedy like most everyone and bought a ton of land hoping to pilage and profit some more and now they can't.......boo hoo!!! There is a lot of blame to place in this vicious cycle we are all in now. The builders hike the price up cause they know you can get a fancy loan and "afford" it, then it just keeps the escalation game going. I pay a little more for a car today but not 50% more......I knew this was going to happen back in 2004 and sold high and got out, or so I thought and had to move this year........doink!!!
  • October 04 2007 - US
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Answers (18)

Actually construction costs went up 30% from 2005-2006. Thats quite a bit, maybe not enough to justify what you just said, but a much bigger hike than what was expected.
  • October 04 2007
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Profile picture for pinksandbaby
Not going to start a political thing, but I've heard that the cost of building supplies (lumber, sheetrock, cement, etc) were on the rise because of so much of it being sent overseas to help rebuild in Iraq.

Any truth you think?
  • October 04 2007
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There is this sub division that I looked at a year ago, I don't like sub divisions but this was nice, all of the properties were 4 acres or more and the builder didn't knock down all the trees, the house are all built out of stone and the interiors are beautiful. He had 3 or 4 houses up and not finished, little things still needed to be done, at that time his prices were high, even our agent was concerned at the prices and didn't think we should consider the house unless they came down a bit. Well, here it is a year later, all houses still on the market, still in the same condition and he hasn't dropped the prices 1 cent!
  • October 04 2007
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Yes, i have it on good authority the price of wood, bathtubs, and electrical outlets went up 30% .

Well, the actual cost to manufacture it didnt, just the markup by the sellers of the stuff because there was a housing boom.

Builders can CRY A RIVER, but they cant cry for long.

the same house they 'charged' 300k to build will never APPRAISE for that now..........so nobody will buy them.

So look for building costs to 'drastically come down' all of a sudden.... lol.
  • October 05 2007
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Profile picture for dvernon_us
Below is a link from a Business Week story about new homebuilders and how they are slashing their pieces. Just kind of ties into the discussion.

http://www.businessweek.com/magazine/content/07_42/b4054001.htm?campaign_id=nws_insdr_oct5&link_position=link1
  • October 05 2007
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Yeah the building supplies may costs more, but the guy building your home and supervising its construction is not making 30% more......so those people can afford less home too like the rest of us. What is interesting about the home I am selling currently is that the builder is building the same floor plan but making it slightly smaller, a foot here a few feet here and taking out all the extra millwork details, so when all is said and done it is doubtful it is costing them more to build that house, they are making money and their CEO is making millions, perhaps if he dipped into his coffer to spread the wealth then it wouldn't be so bad.....oh dear did I just hint at a socialist idea!
I don't know about the rest of you but between rising gas and food prices my budget is much tighter than ever before, and we all have new expenses our parents didn't have like cell phones, internet and cable bills. How is it that my Grandfather was able to raise 5 kids and have his wife at home, all with a blue collar job in NYC...with everything adjusted we are making less money and working harder for it.
  • October 05 2007
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Profile picture for Rate A Home
OK, here's a builders point of view. Hands almost trembling writing this, LOL.

Your right the sales price has sky rocketed. Many years ago through the board floor of the National Home Builders Association we adopted a program on "Where will our children live." The cost at the time was heading out of the reach of the first time home buyer (which is what we spealize in).

Reasons being:
* Land cost (suddenly a $10,000.00 infill lot became $40,000.00)
* Government Greed oops did I say that out loud. (Permits, fees, etc kept creeping up to add to infustructure so they said, but we were paying additional for infustructurer in the platting process)
* NIMBY kicked in (More green space, don't build close to my house, larger lots, give us a play ground, etc all added cost)
* Material Cost (The largest factor. They large companies controlled the remainder of the industry. Hey we might get hit with a hurricane, lumber prices up 40% over night, sorry. Canadian lumber tariff, yup we don't want competition, sorry. Now oil prices, sorry we have to add to our delivery charges to cover our expenses, sorry)

So as a builder, I'm frustrated as well. My bottom line has continued to erode while paying for the bottom line of the public companies trying to show their share holders a great return.

Sad part is, guess who ends up paying in the long run, my buyers. Until, the government starts dealing with these deep pocket companies and looks past their contributions they donate, this cycle will continue.

The market is correcting the prices, but only to the builders bottom line, I'm not seeing much reduction in material cost, or government retraction of expenses.

The profit and overhead of a builder BTW isn't $100k per home. Today most subcontractors make more on a home then the builder does.

OK, fire away. Were all in this together for our kids and your kids sake.

:-)
  • October 05 2007
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Profile picture for dvernon_us
Sorry,

I meant prices not "pieces". I guess it was too early in the morning for me. It is still an interesting article.

http://www.businessweek.c ... ion=link1
  • October 05 2007
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Profile picture for weeber
Actually the primary dramatic increase in building materials is a direct result of the huge building boom that is currently going on in China. Their demands are creating a worldwide shortage of building materials, thus the price increase.
  • October 05 2007
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Profile picture for Mike2020
Rate a Home..

Last I saw, Lowe's and Home Depot stock price was sent tumbling too.. They have the price power to overtime make the big companies reduce the costs..

However, like weeber said.. Materials and Heavy Machines (CATAPILLAR, etc) are still in huge demand.. China is an awaking beast that is growing at an astronomical pace and based on GDP and GDP growth.. if both were to stay steady.. They would surpass us in only 20 years.. (sustaining such a high growth rate for 20 yrs is probably not possible so it'll take more than 20 yrs..)

As long as demand is up, prices will stay up.. However, don't discount the power that big box stores like Lowe's and HD have.. They'll want to reduce prices over time to shore up profit and revenue while decreasing costs too..

Not only that.. Builders are still building.. You can't stop building as a builder or you'll be out of business.. so until some builders go bankrupt or fold.. More inventory will be added..
  • October 05 2007
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The rates the cities want for permits, applications. etc.....is absolutely ridiculous.- At least some cities are giving builders incentives...the cities that want more growth....
  • October 05 2007
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Profile picture for Mike2020
I don't know what the home builder CEOs are doing currently...

However, Countrywide's CEO Angelo Mozilo is letting his employee's know what he's doing to protect the housing market...

http://wcvarones.blogspot.com/2007/10/blog-post.html

Click on the first picture..
  • October 06 2007
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Profile picture for lucydjacobs
On the government greed part, I can give another view of one reason why that happened. My part of N.C. lost an entire manufacturing base in a short time - textiles. Then in my city we lost a plant that made little puzzles and books for kids, lost Black & Decker.

Meaning, we lost a serious part of our tax base and people lost jobs. That left property owners and small business with almost the complete tax bill to build/repair schools, So to keep the courts running (too bad we can't export our drug dealers and drunk drivers overseas instead of our jobs) and such, local governments began raising fees and permit costs to spread the pain a bit, rather than dump it all on property taxes and small business. That added to builders' costs.

In my city, builders heard that personnel from other downsized bases would be headed to our community. They did not listen to the timetable to when most of these families will arrive - 2010 - and so scrambled to be the first to build a lot of new homes. A hardheaded bunch around here. So now they are stuck with houses not moving and with some serious loans due in the middle of a mortgage crisis and war where the rest of the population is either deployed or not buying because a spouse is deployed.

Arrogance exceeded common sense, and so now everyone else pays for their arrogance. They dropped new home costs to existing-home prices, and value of every home owner's house dropped like a rock.
  • October 06 2007
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It is so sad the whole economics of it all. Many people who should not have gone into home ownership were duped into it with the fancy loans and I was just looking at the foreclosures in my local paper and it makes me sad. One was bought in 2005 for $565,000 (a small townhouse no less) and now she is in default, exactly two years later, guess she could not sell before the ARM was up. When we bought in 2004 we were told that we could afford almost a million dollars and we just looked at them and asked them if they were on crack, and graciously said no thanks and bought a more reasonalby priced home. Ever watch tv, almost every other commercial is for cars.....we are being taught that you have to have the Land Rover, the big house, the perfect kids in private school, and on and on......and I just laugh when I see a woman driving a Hummer exiting from the million dollar home neighborhood cause I may be bidding on her house when she defaults and I can snag it for on the cheap, but then I may not want it cause most of the homes in there will be vacant, virtual ghost towns.

The wealth in this nation is slowly being taken away from the middle class who basically keep this nation afloat and with their spending power decreased and the concentrated wealth being held by the top tier it leaves us in this mess that we are in.....guess the Reagan to G.W. Bush trickle down economics really means that, they get the most and we get a little trickle.....guess they are trying to secure billions so that all of their future generations of children never have to work and can buy their way into everything.

The next elections will be quite intersting, esp the local ones in towns across America where the economics are ruining them.
  • October 06 2007
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Profile picture for casme
Not only are prices of building materials going up, the dollar is at an all time low and still going down. I expect the costs of building materials to rise over the long run.
  • October 06 2007
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Yes, builders and developers make a good living but they have enormous expenses and risks. The developer who bought our property for developing sunk over $50,000 in it just to get their sewer reports and hookups set up and the other land inspections, getting the rezoning approved over the complaints of nosy neighbors, all on his dime and at his risk. After the property closed the market crashed and he is sitting on 35 acres that cannot be developed at this time and he is paying interest on over 1.3 million dollars. They can and do hit hard times. I wouldn't do it for any amount of money, much too stressful.
  • October 10 2007
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Rate A Home, you have it exactly right.

A lot of people miss much of what the builder's exposure is in terms of market changes, materials, the cost of using money, labor, insurance, permits, taxes, soft costs, carry, etc.

It's tough to be a spec builder in many markets right now. The ones in my area are proceeding a bit more carefully now and taking on fewer projects at a time.

I can imagine the squeeze must be a lot tighter in other areas of the country not as affluent where the margins are smaller.
  • October 11 2007
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casme: the price of drywall has actually dropped; As real estate slows, many domestically produced building materials will drop in price, togehter with labor rates...
  • October 11 2007
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