New Construction is Risky Business:

House under construction

Last year I pointed out that more and more builders have been unable to survive the housing market downturn.

Builders that can not pay their construction loans and contractors end up in foreclosure. Some even close their doors.

Here is the list from last year’s post:

  • Bower & Bailey (closed their doors suddenly resulting in many home buyers losing their construction deposit)
  • Lawless Homes (actually went out of business a while ago, but the principals are back now under the name Paramount Homes)
  • Saaman Corp (this Clayton developer is now out of business)
  • Miceli Homes (rumor has it that they are preparing to close down)
  • Tradition Builders (liens are being reported in the papers, the first sign of problems to come)
  • Rolwes Homes (they’ve got liens against them too)
  • TR Hughes (they are trying to survive this market, but there are no guarantees)
  • Taylor Morley (out of business) UPDATE: The owners closed TM down but almost immediately opened a new home building business – Benton Homes.

Recently, more builders have been added to the list.

The Countian reports on foreclosures of lots and spec homes owned by new home builders. Historically, a single foreclosure against a builder is often a predictor of problems to come.

Last week, the paper listed the following properties as foreclosures. Sounds like Lot 7 is a good lot to avoid!

  • Shapiro & Sons –  Lot 7 Dietrich Woods, Ballwin (63021)
  • County Homes (aka Shapiro & Sons) – Lot 7 Westchester Estates/11701 Lakeshore Drive (63141)
  • County Homes (aka Shapiro & Sons) – 211 Topton Way, Clayton (63105)
  • MJH Investments – Lots 1,2,3 & 4 of Wildwood Meadows, Chesterfield (63005)
  • Rolwes Homes – Lot 7 of the Promise Land / AKA  1711 Paradise Dr. (63038)
  • H-M Construction – Lot 7 River Bend, Chesterfield (63017)
  • SJF Group – Lot 23 & Lot 31 Woodland, Lake St. Louis (63367)
  • SJF Group – Lot 30 Woodcliff Manor (63303)
  • Bellemeade Development – Bellemeade – 15 lots, St. Peters (63376)
  • Fastrac Development – Dietrich Crossing – 6 lots, Foristell (63348 )

In addition, Missouri’s first green new housing development was a total disaster with buyers losing their down payments. Highland Homes was building a green condo development known as Highland Park, located in St. Charles County off Hwy 94. Three of the 7 partially completed buildings have been bulldozed and the city of St. Peters is trying to decide what to do with the remaining buildings.

Fraud charges against Edward Levinson of Levinson Homes also hit the news last week. Levinson Homes builds high-end homes in St. Louis County. Levinson is accused of fraud costing banks, contractors and home buyers over $12 million. Home buyers lost their deposits that were supposed to be placed in escrow but were used instead to pay for other projects and business expenses.

Almost no builder seems safe from slumping sales and the threat of foreclosure.

Even highly respected and solid builders have closed their doors. Using a builder with a good reputation simply doesn’t protect your money in today’s market.

Builders that slash prices present a different type of risk:

One of the things that builders have been doing to generate sales in this struggling market is to offer substantial discounts off of home prices. Many are selling at or below their cost just to keep their construction crews working and to unload some of their inventory.

The problem with builders slashing prices is that homeowners in the subdivision that bought BEFORE the builder slashed prices just found their home worth less money than when they bought it.

If you are thinking of buying a new construction home, keep in mind that if the builder slashed prices once, they could do it again. You could find your neighbors that buy after you getting deeper discounts. Don’t forget the the fabulous deal offered to your future neighbor will drag down your value too.

If you are thinking of buying a new construction home in today’s market, I would be happy to talk with you before you make an offer.