Bankruptcy looms for some builders

first_imgThe industry is “going to be a shadow of itself once we get through this downturn,” said Mark Zandi, chief economist at Moody’s Economy.com, who predicts home prices won’t rebound until late 2009 or early 2010. “Everyone was too optimistic.” Developers are reeling from sharp increases in loan defaults, which force lenders to be far more cautious about new mortgages. The result: sinking home prices, surpluses of unsold homes and a spike in canceled orders. Even speculators who snatched up new homes during the bubble years hoping to turn a quick profit can’t sell, meaning more properties compete for a limited pool of buyers. To move unsold inventory quickly, builders are staging flashy sales promotions of the kind common at used car dealerships. In particularly hard-hit housing markets, such as California and Florida, and even in less-devastated regions, such as the suburbs around Washington, D.C., developers are resorting to auctions to sell new houses, town houses and condominiums. In California, for example, Kennedy Wilson Auction Group typically fetched bids 40 percent below the asking price on houses they sold in about a dozen auctions of residential developments this year, said Rhett Winchell, president of the Beverly Hills-based company. Homebuilders such as Centex Corp. and Pulte Homes Inc. aim to survive an industrywide unraveling by selling houses at bargain prices, slashing jobs and scrapping growth plans. But as the housing downturn worsens, experts say at least a few major U.S. homebuilders may end up bankrupt. Builders constructed more than 2 million housing units nationwide in 2005, the year the boom peaked. So far this year, housing starts have fallen to an annual rate of 1.2 million units through September, and economists expect the number to drop to an annual rate of 1 million by mid-2008. Some analysts foresee a shakeout similar to that of the early 1990s, when numerous builders went through bankruptcy, including Reston, Va-based NVR Inc. and U.S. Home Corp. of Houston, now part of Miami’s Lennar Corp. A consolidation of weaker players may also be on the horizon. Nationwide, Pulte cut prices $10,000 to $50,000 during the sales event, offering discounted closing costs and free golf carts in communities catering to seniors. The company would not provide sales figures from the event but company spokesman Mark Marymee said the promotion “generated considerable momentum in a lot of markets where there really wasn’t a lot of activity or interest.” Homebuilders also have moved away from buying land outright and instead buy less-expensive options to do so, said Elliot Eisenberg, a senior economist with the National Association of Home Builders.160Want local news?Sign up for the Localist and stay informed Something went wrong. Please try again.subscribeCongratulations! You’re all set!last_img

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