Home builders such as
But as the housing downturn worsens, experts say at least a few major US home builders 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
A consolidation of weaker players may also be on the horizon.
The industry is "going to be a shadow of itself once we get through this downturn," said Mark Zandi, chief economist at
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. For example:
In Alexandria, Va., last month, 30 two- and three-bedroom condominiums were auctioned off in an hour for average prices of $300,000 to $350,000, a discount of around 10 percent from preauction prices. Some builders are bound to lose money through auctions, said Jon Gollinger of Accelerated Marketing Partners, which ran the Alexandria auction, but they see the benefit in cashing out.
In California, Kennedy Wilson Auction Group typically fetched bids 40 percent below the asking price on houses it sold in about a dozen auctions of residential developments this year, said Rhett Winchell, president of the Beverly Hills company.
In Baltimore, new town houses with granite countertops and rooftop decks that commanded $600,000 or more two years ago were advertised in October for as low as $480,000 during Pulte's Halloween-themed "Monster Sale."