Foreclosure Crisis Causes Developers to Change Building Philosophy

Posted in Foreclosure Crisis, October 17th, 2008 |

The foreclosure crisis has brought about a total change in the philosophy and thinking of developers and builders. Hitherto the focus was on making money by building large ritzy houses but now the strategy is rescheduling building designs keeping in mind the adage that ‘less is more’ or the smaller houses sell better and bring in more dollars.

Within three years the builders are adjusting to a new change brought about by the foreclosure trauma. More affordable houses are getting attention to draw in new nest builders and divert them from the plethora of foreclosed houses in real estate markets.

KB based in Los Angeles constructs houses by altering its previous plans to more realistic levels. Initially it came down from 3,400 square foot houses that used to be sold for $450,000 to modest 2,400 square foot units priced at $300,000. It “worked for some time” but soon the market began to shift. Today the builder is launching a new set of house in southern California – the area particularly ravaged by foreclosures. The houses start off with 1,230 square feet that have price tags of about $200,000.

There are similar other developers like Warmington Homes as well as John Laing Homes that are toeing the same strategy in an endeavor to lessen losses due to the raging foreclosure crisis. The sale of new units dropped to a record low since the last 17 years last August. The average priced decreased by 5.5% to $221,900.

After more than twenty years more attention is being given to smaller houses. Previously the average medium sized house had gone up from 1,600 square feet to over 2,200 square feet. Builders had continued to opt for bigger and more bigger houses. This tendency reached its apex during the housing boom time. These jumbo mansions came to be derided as McMansions. Primarily these properties caused the housing prices to escalate.

Today the competition comes from pre-owned mostly foreclosed houses. The foreclosure crisis has also made a hole in the purchasing power of people. Today they are looking for affordable shelters. This has caused a change in the attitude of the builders. Building large houses are no longer profitable commented Nishu Sood of Deutsche Bank. She added, “The only way to respond to the lower price environment …is to make the home smaller.” Historically it is going back by not only decreasing the size and price but also the amenities.