Home Builders Vying With Foreclosures

As inventories of foreclosed homes swell, home builders across the country, particularly in the Sun Belt states hit hardest by the housing crisis, are pitted against REO properties for sales.
Steve Ruffner, president of the Southern California division of new home builder KB Home, recently told the _""Wall Street Journal"":http://online.wsj.com/article/SB123672707657288607.html_, ""We are no longer competing with other builders. We are competing with foreclosures.""
To illustrate this tug-of-war for home buyers, the _Journal _pointed to the Inland Empire region of Southern California, where one home, a four bedroom built in 2006 that was seized by a lender in a foreclosure action, is listed for sale at $229,900. Meanwhile, in the same housing development, the _Journal _said, D.R. Horton Inc. is trying to sell a nearly identical, newly constructed home for $299,000 - a 23 percent higher asking price.
A similar situation can be found in Henderson, Nevada, near Las Vegas. Here, the _Journal _reported, Pulte Homes Inc. is trying to sell a new, four-bedroom house for $214,990, while a distressed homeowner is trying to dump a similar house, that Pulte built two years ago, for $149,999. That price, the _Journal _said, is less than the owner paid in a short sale transaction approved by the lender.
While sales of existing homes are actually rising in some regions because of the deals buyers are finding on foreclosures, new home sales have hit a 40-year low. According to the U.S. Census Bureau and the Department of Housing and Urban Development (HUD), ""new residential sales"":http://www.census.gov/const/newressales.pdf in January totaled 309,000 units - a 77 percent plunge from the 1.4 million newly constructed homes sold by home builders at the market's peak in July 2005.
Many home builders are hoping the administration's nationwide plan to head off foreclosures will help drive down the growing numbers of discounted, distressed properties that they are struggling to compete with. And they also expect the government's $8,000 tax credit for first-time home buyers to give a boost to new home sales. The ""National Association of Home Builders"":http://www.nahb.org (NAHB) said it anticipates the tax credit to result in about 160,000 additional home sales in 2009.
Still, it may be a while before the administration's efforts perceptibly impact the numbers, especially with the backlog of REO and foreclosure inventory already looming large. As the _Journal _said, that's got many analysts questioning how low builders can go before building a house costs more than they can charge for it. In some hard-pressed markets in California and Florida, the paper reported, builders have already reached that point and have stopped building.