Mothballing And Bankrupt Builders

There was a story in yesterdays WSJ about builders mothballing.  Motballing means Not Selling properties until the housing inventory improves.  Lennar is not selling rather than sell at deep discounts. 

Lennar Chief Executive Stuart Miller recently called some price cuts (by Hovnanian and Standard Pacific Corp.) "unrealistic and maybe even ridiculous."

Locally, there are many developers who have rented out the property until the market improves.  Many could have sold last year for a small loss.  Now as the conditions have worsened, they are looking at a bigger loss. 

It almost seems like an investor in a bad stock.  You just don't want to let it go because you believe it will go up.  And everytime it goes down, you keep asking yourself it can't go any lower.

With more foreclosures and a recession looming, I would assume the problem is going to get worse before it gets better. 

http://online.wsj.com/article/SB119492391355890969.html?mod=todays_us_page_one
 

Another story in WSJ talks about the issues when a builder goes bankrupt and how it effects current home owners.

What are the potential problems?

In some cases, buyers may lose all or part of their deposit or wait a year or more for their house to be completed or the builder's financial troubles to be sorted out.

And you can forget about the swimming pools and Tennis courts they promised.

If you think a developer is in ANY danger of bankruptcy, you would have to think twice before buying from them.  I would think that would cause a problem for any builder that has a chance of going bankrupt.  Once people think you have a chance, people may stop buying or expect a deeper discount. 

• Here is a summary of the problems
• Losing all or partial deposit
• Wait a long time for home to be completed
• Warranties may not be honored
• Promised amenities may not be completed
• Vendors may have placed liens on the property.  For example, Levitt stopped paying vendors.  The vendors then put a lien on the property.  According to Charlotte Observer, Beazer homes has delayed paying vendors.

 

And the situation is likely to worsen in the first half of next year, says Ivy Zelman, an independent housing analyst. "We're in the first or second inning," Ms. Zelman says. "There are going to be a significant number of insolvent builders."

 http://online.wsj.com/article/SB119499896076692014.html

 

http://www.charlotte.com/business/story/356321.html