Sunday, September 7, 2008


I had a discussion on Friday with an old friend who I have not seen in about two years. During our conversation, we talked about foreclosures, and I made a comment to him that I have made to many of my buyers that should be emphasized once again.

In many of the newer communities that have been hardest hit by foreclosures, the damage was caused in large part by the builders themselves. For example:

* Builders routinely threw in "extras" like finished basements, prepaid HOAs, appliances and upgrades, vacations in Mexico... anything to get buyers to pay the highest possible price for their new construction, especially in the early stages of the build-out

* Once higher values are established and on the books, the "pullback" begins - fewer incentives at the same, inflated prices

* An unregulated mortgage industry up until 2006 - since addressed by the state legislature with strict registration and licensing requirements that has placed greater oversight on "builder-owned" mortgage companies and driven many corrupt lenders out of the state

While there are many reputable builders out there, the fact remains that many builders looked only at pumping up values for a short period of time - two or three years, or enough time to finish the build-out, sell the inventory and move on to the next project.

What happened in many areas is that people overpaid for homes they could not afford with loans set to explode shortly after the builder left town.

And the net result was a trail of foreclosures.