During the boom, business was booming for builders. It seemed I would wake up in the morning, drive to the office, and see a new development going up on the way. I wondered, “Geez, where are all these buyers coming from”. After a while, I started to figure it out.
One weekend, a few years back, I had a buyer who wanted new construction. They had heard about a new neighborhood going up and wanted me to take them by for a look. Needless to say they loved the neighborhood. I started asking questions to the sales agent and was a little disturbed by what I heard. She told me they only had a few lots left so my buyers should act quickly. I commented how the neighborhood had just gone active two week prior and she informed me that 27 of the 30 lots had been bought by one investor from south Florida. He was building homes on every lot and then would sell them upon completion. I turned to my clients and advised them they might want to reconsider the location because there was no telling what would happen to the neighborhood since a investor had bought almost the entire thing.
Hate to say it but they did not take my advice. They put a home under contract and moved in six months later. They called me a year later, wanting to sell their home because they no longer wanted to raise their kids in the neighborhood. When I asked why, they said that the investor had not been able to sell most of the homes he built and was instead renting them out on the cheap. To them, the area was no longer safe because the entire neighborhood was renters. (Not to bash renters, but many just do not care for a home like a home owner would.) I had to tell them they were more than welcome to sell, but that the market had crashed and they would have to sell for less then they owed. It was not a pretty sight.
But my point of the story is that too many builders sold to “investors”. (I have a hard time calling them that because a true investor holds for the long term. Short time investors should really be called “speculators” because they are speculating the making of money in a quick amount of time.) When the builders sold to investors, it artificially increased the need for housing. So builders kept building.
Now builders are finding themselves in the position where they need to unload lots of inventory. The speculators are gone, and so are the buyers. In order to keep themselves out of financial trouble, they are turning to events like the upcoming New Home Auction in Minneapolis. Many could have kept themselves out of this type of situation if they just would have had the courage to pull back on the reigns. But sadly, the need to profit out weighed the need to look into the future and see that the roller coaster ride was going to come to an end sooner or later.