The Times They Are A-Changin'

It was 2005 when I bought my last new home, and there was such a frenzy to buy that people didn't seem to care that they were paying up to $40,000 more for the same house that those in the prior phase bought. They weren't happy about it, to be sure, but the climate at the time was such that if you didn't buy, there was a line of people behind you who would.

We never even got to see a model before we bought our home. They weren't built yet, so we chose our home from an 8 1/2x11 piece of paper. It took nearly nine months between the day we picked our lot and paid our deposit check and the day we got our keys. We moved in with about $130,000 in equity earned in those nine months, and, as prices continued to climb, fueled by over stimulated buyers who had been convinced the market would not come back down and greedy investors driving up prices by over speculating neighborhoods (often against the CC&Rs of the neighborhoods in question), that number continued to rise as well.

It was so crazy at one point that builders — Richmond American among them (and I know cause they built my house) — wrote into their contracts that you had to live in the community for at least two years before selling. Builders didn't want a bunch of investors coming in and buying up the homes, only to try to flip them immediately, thereby creating competition with the sales office. They didn't want a sea of "For Sale" signs muddying up the new lawns. And, they didn't want a bunch of renters coming in to drive away the young families. Now I don't know how enforceable that language was, but the point is that the market so hot, builders were actually able to be choosy.

Contrast that with now. Smaller builders are going under and many builders regardless of size are choosing to walk away from — or at least delay indefinitely — their projects. What's going on in Central California is particularly grim. Nouveau Homes has scrapped a small project in Lincoln, Homes by Towne has shelved projects in Natomas and Elk Grove and quit working on a project in Yuba County and one of the largest builder's in the nation, Pardee Homes, just closed down its 660-home neighborhood in Natomas. It's a veritable new-home community ghost town. The same thing is happening across the nation, particularly in severely overvalued and overbuilt areas like Southern California's Inland Empire, the Las Vegas basin, and throughout states like Florida.

Those builders who can weather the storm are not just pulling back on building, but are also pulling out the circus act to get their standing inventory sold and retain the buyers who have already signed contracts — which makes this a particularly good time to buy, if you are someone who's looking to stick around awhile. Those years of double digit rises in home prices convinced homeowners and buyers that that was the norm. We all began to believe that buying a home was akin to winning the lottery and that we could move in for two years, capture a couple hundred thou in equity, and move up to something larger. The American dream, right?

Actually, the American dream is predicated on the idea of actually living in a house — for more than the two years it takes to be rid of capital gains. If you're looking to put down roots, go visit your community of choice, negotiate with the builder for a fancy fridge, and pick your dream. That's what I'd do. After all, it's not 2005. But then I didn't get a free appliance package with my house.