Home Builders Starting To PANIC In Southeast Michigan – MiHomesByAndrew

Home Builders Starting To PANIC In Southeast Michigan

Just a year ago, homebuilders were overflowing with new contracts, and even had to raffle off their inventory to buyers on a waitlist, but since then, the tables have turned. Stay tuned to find out why.

As the title states, builders are starting to panic. There are signs on every corner saying there’s new homes being built starting at XYZ price, countless emails hitting my inbox to let me know about new inventory, postcards at my office saying the same exact thing. All these projects and communities are sitting on the market with little to no interest, even though just a year ago, potential buyers were shaking their checkbooks trying to get into these new communities. There were bidding wars, waitlists, builders canceling contracts to turn around and sell for more, and now they can’t seem to find anyone to fill these brand new homes. 

THE QUESTION IS WHY?

The big question is why? Why all of a sudden are these homes less desirable? The answer boils down to the rising interest rates, business practices and the pricing strategy for their homes. With the interest rate rising at a steady rate, buyers are being priced out of the market, and having to sit on the sidelines until the market corrects itself. With that in mind, the overall demand has decreased, which is why there has been an increase in inventory. Outside of the mortgage rate increase, the business practices have been very questionable. During the pandemic when housing was in such high demand, builders and their sales reps treated buyers agents and potential buyers very badly. Of course, I can’t categorize every builder in this category but for the most part, the ball was in their court and they abused that power. Marking up prices, adding clauses to cancel contracts during construction, not communicating to the other parties about construction updates and delays, slopping houses together as fast as possible to get a quick buck and now they are on their knees begging these same agents and buyers to take the inventory off their hands. 

All these builders were buying up land, building as many homes as they possibly could on the minimal amount of acreage to try and take advantage of the inflated home prices and it came back to bite them pretty hard. These builders have destroyed their reputation over the last few years just to make a quick buck and now all you have to do is make a Google search or two and see the terrible reviews they have received, and when it comes to educating yourself about a service’s quality, reviews are the first place we turn too. 

TURNOVER RATE

On top of that, there has seemed to be a pretty high turnover rate on the builders side of the transaction which brings me back to the point of treating people terribly and having horrible communication, and that’s due to the high turnover in staff. No new introductions, these sales reps (who are licensed real estate professionals) were thrown in the fire without even being told how to handle the situation.

Imagine starting this process as a buyer a year ago, where you could lock in a mortgage rate of 2.75% and you were told in the next 12 months you’d be receiving the keys to your new home only to find out that the build has been delayed for months, and the mortgage rate you locked in a year ago is expiring and you have to pay thousands and thousands of dollars to keep that rate locked so it doesn’t jump to today’s rate of 5.55%. 

You might be wondering why anyone would want to get a new construction home when the housing market is as hot as it is, and that’s a fair question, and the answer has to do with demand and convenience. I have worked with several buyers over the years who have looked at dozens and dozens of homes only to realize that nothing they wanted suited their lifestyle, so they wanted to start from scratch, go the new construction route and build the home of their dreams. At a glance it was a cheaper route to take, until the simplest and expected features in a home were upcharged. A kitchen island? Over $15,000. A minimal amount of lighting fixtures to ACTUALLY light the home adequately, thousands of dollars. Stairs from the back door wall so you don’t just fall off the back of the house? Little things like that were drivers to make an affordable new construction home $75,000-$100,000 more expensive. 

On top of that, their contracts are vague and oftentimes twisted and almost solely in the builders favor, leaving buyers with an endless list of empty promises. They’ll state a price to pay for the home, but say it can change due to building material costs, in which they’ve also said they can cancel the contract and sell the home from under you for more money. They are also forcing buyers to make gigantic down payments, so they could avoid having their preferred lender run an extensive credit check. All while advertising the convenience of utilizing their finance methods for a new construction loan, just to have their preferred lender have the same unsatisfying business practices as the builders they represent. Buyers knew all these things before diving into the contract, because it was easier to get a new home under contract than to battle in the trenches for an existing one. 

There are buyers who have broken contracts, or just went another direction toward existing homes, because they were just fed up with waiting for the building times and being told all the empty promises about their home’s completion. New construction communities are also finding themselves to be in less desirable areas due to the limited availability for premium lot options. Especially in bigger cities where it seems like every square inch of the city is taken up, these communities are blooming on the outskirts of town, away from all the amenities and adding quite a few miles to your commute time, which is another reason buyers have chosen a different route altogether. 

HOMEBUILDER MISTAKES

Even after this large shift in new construction homes, builders are continuing to make these mistakes. They still think we are in a pandemic where the supply and demand graph shifted in their favor, so they continue to list homes for much more than their worth in hopes to capitalize on those buyers. Not only that, they are stuck in their ways and not giving potential buyers the freedom to make the home how they want it, which is why they went the new construction route in the first place. These changes aren’t structural by any means, because buyers need to stay to their floor plan they committed to, but rather they are saying they can’t add a light, change the floors, faucets, etc. Some of the little things that weren’t even in order yet that they simply said no to because it was an inconvenience to them. 

SUPPLY CHAIN ISSUES

Of course the supply chain had a lot to do with it, getting materials on time, and them being backordered during the pandemic, and at that point builders raised material rates and labor rates, but I find it interesting that they don’t do anything for the buyers when materials and labor go the other way. Again, I’m not categorizing all builders in this category, but it’s more common than not (unfortunately) to have builders behaving this way. 

HOW DOES IT AFFECT BUYERS?

So what does all this mean for buyers? Well, the scale is actually tipped in your favor. If you’re someone who isn’t priced out in this housing market, it can be a great time to pull the trigger on a new home. With all this new sitting inventory, builders are finding themselves having to give concessions (which are credits given at closing). So in this case it would be a credit given to the buyer, or even price reductions made on the homes, which is probably something you’ve never heard before, as they tend to hold their ground when it comes to their home prices as the homes within the community are direct sale comparables. 

OPPORTUNITY

You have the opportunity to not just step foot in a model home that looks nothing like the floor plan you want, but you can actually walk around a few of their options, as they sit on the market instead of doing what everyone else did a couple years ago, huddling around some digital design software they have and try to imagine what the final product looks like. I believe as builders become more and more desperate to sell their inventory that they’ll begin to offer more incentives to purchase their homes, weather it be concessions or price reductions like I said, or even allow buyers to have more freedom in the customization process, as a lot of new builds out there are just sitting empty waiting for someone to add the final touches. 

In the future, you can expect the process of buying a new construction home to be much easier, having less competition, more freedom to pick and choose what you actually want in the home and even have more of a say contractually. Not all builders are bad, so if there’s one thing to take away from this it should be buyer beware. Be hesitant, do your research, and if you choose to get a new construction home, use a buyers agent because they are free to you and they will represent you and your best interests. It also never hurts to have a professional in your corner. 

For those of you that went the new construction route, how was the process for you? Drop them in the comments below.

Cheers,

Andrew McManamon is a licensed Real Estate Professional in the great state of Michigan. His philosophy to put people first has paved the way to his extraordinary real estate career. Born and raised in Brighton, MI, Andrew acquired a bachelors degree in business management and marketing from Cleary University in Howell, MI. The combination of his experience and education allows him to take a strategic approach towards every transaction and help his clients make more informed and confident decisions.

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