My Home Depot

Why are they building huge subdivisions of homes with the market so bad?

Home sales are down over thirty percent where i live. In fact the home next to me and one two doors down have been empty and on the market for almost a year now. They have reduced the price twice yet two blocks over they are building a new six block subdivision and half the homes are built now and for sale. Can someonw explain new home vs. existing home value in the market today? What would motivate a company or investor to build right now?

Public Comments

1. Because they know it will get better, and they probably have cut corners building to have lower prices to sell more.
2. Some people have convinced themselves that the market is going to turn around very soon. Also, if a builder has planning approval for a house or houses and he has his crew all lined up, he will go ahead and build because that's what he does for a living. There's a lot less of it going on, though.
3. The company has to make money. They can't make money if they don't have product to sell. Your existing home does not affect them at all. Bad market or not, homes change hands all the time. The new ones will be purchased by someone.
4. The very simple reason for building new homes is that these contractors / developers have bank facilities (loans) that must be used in the construction of projects that these loans were issued for. As to the question of value of new homes vs, existing homes, well you can customize the price you pay for a new home based on the upgrades or lot size or fixtures that are available to you at the time of construction. Not to mention that the developer has a margin for profit that they may choose to drop. With an existing home generally in this economy there is not a whole lot of room to play with pricing, because most people have borrowed against equity in their homes when the prices shot up through the roof, and when selling the hoime you must cover those loans.