The Pioneer press has an interesting article in this morning’s edition about a housing auction coming up at the end of the month here in the Twin Cities. Long story short, local builders are trying to unload a lot of spec homes, models and the like. According to the story, there’s probably around 2,400 new, never-lived-in homes & townhouses in the metro area, and this auction is trying to dump around 200 of them in this auction.
Clearing inventory is a good thing, but as the story notes, it’ll probably increase downward pressure on home prices, so it’s a double-edged sword. I’ll be curious to see if there are any more auctions scheduled as the year rolls on.
This story further proves to me that we’re not close to the ‘bottom’ of the current housing market cycle. If builders are sitting on 2,000+ unsold homes in addition to the current inventory of around 25,000+ other properties in the local real estate pool, it’ll take a while to work through that. The ARM resets will peak in a few months, which will probably inflate inventory and deflate pricing more, and add to the overall time it’ll take to cycle through everything.
EDIT: I had a paragraph in here questioning how much money builders would truly be losing and took it out after receiving a comment from a reader who questioned my numbers regarding builders’ profit margins. After doing some research, I came to the conclusion that my recollections of the purchase agreement were off base, and so I removed the paragraph. As the commenter notes, average profit margins are between 5 and 10 percent, so builders will be losing money, it will hurt, and they are desperate. Mea culpa…