Oct 5 2006
Most of the home builders and construction firms in Colorado report sales have turned very sour lately as their inventories of unsold houses soar, cancelled orders pile up and prices sink. Many contractors have dozens of homes for sale, but these “middle-class homes” are turning out to be bad long-term investments. Prices of these mid-range Vail Valley homes are down as much as 10%.
Yes, prices of these freshly painted homes are dropping everyday, but there seems to be a shortage of buyers. One real estate seller said" The carpets are fresh, appliances are new..."; yet, they still await their first owners. The other side of the Vail market, the custom built "luxury" homes; are holding fast and selling firm.
Vail contractor, J. P. Sunderland said, "Investors see real value in building a home in Vail. These homes are great real estate investments; they really hold their price.” Sunderland owns SunderInc, (www.VailCustomHomeBuilder.com). He is just one of the custom home builders in Vail that have been busy these days. He and others report custom home orders have held strong all quarter.
The housing market in Vail, Colorado is typical of what is happening all across America. While some construction firms sit and wait for buyers, big time investors seem to be sinking their dollars into million dollar custom homes and other vacation retreats.
Demand and supply conditions have been deteriorating rapidly. The real estate market has changed into a buyers market. New home sales are off 22%, while the inventory of unsold new homes is up 22% in the past year. Not surprisingly, prices are flat and probably down significantly considering all the extras builders are throwing in for free to sweeten the deal. One Colorado builder is giving away a free Hummer when you buy a new $400,000 home. That is a far cry from just a year ago, when interest rates were low and prices were at an all time high.
What is the future outlook? Home builders are reluctant to begin new projects and are reacting to an increase in cancellations. Speculators, who drove the Vail market for new homes over the past few years, have now fled. Investors who sunk money into average homes are now looking at their home values drop, while their short term interest rates rise.
The record profits over the last 15 years seem to be over for most home builders. Across the country, a record 1.73 million homes are vacant and awaiting a buyer. The pace of the decline in starts and permits so far this year is the largest since the recession of 1991. A year ago, two thirds of builders were upbeat about the market, but now less than one third are positive about future sales. Economists expect a deeper drop in the market which is already at a 15-year low.