Homebuilders Competing Against Foreclosures

Los Angeles, CA, March 13, 2009--The nation's homebuilders are finding that their greatest competition is coming from foreclosed homes, often in their own subdivisions.

Home buyers are avoiding new houses for virtually identical homes that are in foreclosure at substantially reduced prices.

The Wall Street Journal described a common situation in California, where 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, D.R. Horton Inc. is trying to sell a new house that looks nearly identical for $299,000, or 23% more.

Pulte Homes is in a similar predicament in Henderson, Nev., near Las Vegas. The builder is trying to sell a new, four-bedroom house for $214,990, while a home owner is trying to dump a similar house, which Pulte built two years ago, for $149,999. That price is less than the owner's mortgage under a "short sale" approved by the lender.

In many markets, "we are no longer competing with other builders. We are competing with foreclosures," Steve Ruffner, president of the Southern California division of KB Home, told the Journal.

Credit Suisse analyst Daniel Oppenheim downgraded his ratings for Centex Corp. and D.R. Horton stock last week, partly out of concern about foreclosure competition.

Home builders' are responding with a wide array of incentives, such as ultra low mortgage rates and energy efficient designs.