Sunday, June 25, 2006

Builders Slash Prices or Do They?

There was article in yesterday's local paper about national 'spec' builders slashing prices. A spec builder, as opposed to a custom builder, builds houses without them being sold. In the past few years, the 'spec' builder had the ;luxury of actually being a custom builder - in other words they could pre-sell everything they could build.

Back to the subject. Yesterday's article indicated that builders were slashing prices by several thousands of dollars. At first glance one would think this is a disaster in the making for both the local real estate market and for those Buyers who recently purchased. However, the article could have just as easily been titled "Builders hold firm on 2005 prices for 2006".

Basically, what these builders have done in the past is raise their prices 2-3% or more a month. Demand was that great. In fact, the prices in Sarasota were low for many years compared to other Florida prime areas such as Naples, Miami, Boca Raton etc. The market was seeking its top level. When demand cooled last Summer/Fall, the builders kept increasing the prices past the point where there were Buyers. At the same time, the spec builders kept building their homes - but they stopped selling after the first of the year.

So the builder "slashes his prices" by 20-25% the percentage he has been increasing his prices - which can amount to 50,000 to $100,000 . However these selling prices are the the same as their 2005 prices.

Bottom line is the article could have been headlined "Builders roll-back prices to 2005".

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