Fallout From The Sub-Prime Woes

Sep 15th, 2007 @ 7:38 AM by Alden Smith

I have written about the trickle down effect from the sub-prime issues this year.  On a blog such as Loan.com, these gloom and doom reportings seem a bit out of place for a company that makes it easy for the consumer to find an ethical lender and not fall into the trappings of a predatory market.  Lenders here are screened very carefully, and have a reputation to uphold that is very strict according to Loan.com’s ethical standards.  The fact remains that these things are happening in our nation today, and cannot be buried in the sand.

The Problem For Builders

NBC Nightly News last night ran a segment on the builder’s market, and the problems they face.  In California, the Irvine based Standard Pacific Corporation has been running an event called “Mission:Possible” with dismal results.  They are offering unbelievable incentives to unload the glut of homes that this builder has ready for market, but can’t unload. Even with the offer of an interest rate of 6%, and incentives including a free 42-inch plasma-screen television with every home purchase, the turnout for the sale was very low.

Hovnanian Enterprises Inc. of Red Bank, N.J., is holding a Deal of the Century sale this weekend in 19 states, including California, with price cuts of as much as $100,000 and other goodies. The sales promotions “show the builders are serious about moving inventory,” said Patrick S. Duffy, a principal at Los Angeles-based Metro Intelligence, a building industry consultant. “They’re trying everything.”

 Fallout From Price Reductions

Even though these price reductions and incentives have given a very good opportunity to buy, people are not interested.  There are too many fears in the market at this time to encourage people to buy with incentives.  Another issue that is unforeseen is the fact that selling these homes at a much lower price decreases the value in existing neighborhoods, upsetting home owners.  Because the going price of a home determines what other homes are valued at in a suburban area, people buying are getting a good deal, and people who are established owners are seeing their investment in equity disappear. It seems no one wins.