California Home Builders

Amidst the many foreclosures and a decrease in demand for new homes, California home builders are experiencing rough times financially. The real estate market in California is flooded with an increase in foreclosures, an influx of resale homes and a decrease in the demand for new homes.

Many homebuyers are leery of purchasing a new home because home prices continue to decline and all reports from the media indicate that, at best, we still have a few months to go before the market bottoms out and pricing stabilizes. Future homebuyers sit on the sidelines waiting for good news, and a little reassurance that their investment in a new home will be a good one. It’s hard to say if waiting on the sideline makes things worse, but it’s understandable that homebuyers don’t want to buy a new home only to lose thousands a month or two down the road.

In addition to the oversupply of new homes in California, California home builders are experiencing problems getting potential homebuyers financing. A large percentage of these possible homebuyers are now subject to stricter lending standards that leave them with little to no financing options. The recent rate cuts do little for homebuyers that can’t get approved for financing.

A few years ago, homebuyers could purchase a new home with nothing down and fair credit. In addition, these buyers could take advantage of creative financing programs which greatly decreased their monthly mortgage payments. Today, these same buyers can’t get approved for a loan, can’t come up with the higher down payment requirement and don’t have the many options available to them to decrease the payment on their home loan. Although these strict lending practices are needed to help curb the foreclosures, they leave home builders with one more problem in an already difficult market.

Lending isn’t the only new problem facing California home builders. The creative lending practices mentioned above allowed homebuyers to pay less on their monthly mortgage, but in most cases, these programs permitted lower monthly payments for only a few years. Unfortunately, it’s been a few years and many of these homeowners are now stuck with a huge monthly increase on their mortgage payment that they cannot afford. As a result, foreclosures are happening at a record rate and inexpensive resale homes are now flooding the market. Home builders are now competing with lenders to sell homes, and both builders and banks are losing big.

Hopefully, within 2008, the real estate market in California shifts from instability to stability and home builders find financial relief. The combined efforts of home builders, lenders and the government to stimulate demand and has allowed for more home sales but true relief has yet to come. The market may need a little help from the media and a little less honesty from the Fed… with every rate cut, the Fed announces that a future rate cut is just down the road. Would you buy something today that you could get a better deal on next month?