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Builders Compete With Lender and Tax Foreclosure Properties

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By : John Cutts    99 or more times read
Homebuilders in California, Nevada, Florida and other foreclosure-laden states are finding it hard to sell their new homes because of large numbers of lower-priced lender and tax foreclosure properties available. Oftentimes, builders are competing with homes they have built two or three years ago.

In Southern California, while home builder D.R. Horton is selling a newly-built house for $299,000, there is a similar home nearby foreclosed and listed for sale by a mortgage lender at $229,900, a price difference of over 23 percent. Similarly in Henderson, Nevada, Pulte Homes Inc. is selling a new home for almost $215,000 while a distressed homeowner in the same neighborhood is selling an identical house built by Pulte in 2007 for only $149,999.

Steve Ruffner, head of KB Home’s operations in Southern California, said traditionally his firm is competing with other home builders. Nowadays home builders are competing with lender and tax foreclosure properties.

While sales of existing homes have been rising across the country due to low-priced lender and tax foreclosure properties, sales of new houses have declined in January to its lowest level in 40 years. Homebuilders sold only 309,000 units nationwide in January, a 77 percent decrease from the record sale of 1.4 million units in the summer of 2005.

While large home construction firms have been surviving the glut of lender and tax foreclosures by restructuring their debts and controlling their expenses, many small-capital home builders have been closing their operations. President Barack Obama’s program is expected to help stop the flooding of lender and tax foreclosure properties into the housing market, but smaller home builders might not have adequate resources to ride out the crisis until new-home sales perk up again.

Reviron Realty owner Graham Holmes, who sells bank-foreclosed properties in Southern California, said most homebuyers are looking for lender and tax foreclosure properties and are not even considering new homes. He said buyers expect they would get the best bargains from foreclosed properties.

To address the foreclosure problem, homebuilders have devised remedies. KB Home of Los Angeles has been building smaller and competitively-priced homes. Centex of Dallas has been enticing potential buyers with energy-efficient designs, warranties and low mortgage interest rates. California builder D.R. Horton has been offering to pay closing costs and informing buyers about the California tax credit break of $10,000 and warning them about the costly repairs of lender and tax foreclosure properties.

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