Why Are House Builders Not Reducing Their Prices?

[Pie Eater]

My mum and I were talking about this the other day. We both agree that house prices will continue to fall, but my mum has a point when she says that the house builders round ours have yet to lower their prices from 2007 levels, despite a number of properties going unsold for months. I made an offer (less 25%) to both Wainhomes and Morris Homes some weeks back, and both were rebutted outright. Both houses remain on the market.

My view is that the stakes are higher for house builders than Joe Public. They have high volumes of homes to sell, therefore to reduce one means to reduce them all, whereas Joe Public can cut his losses and reduce the price on his one house to sell it then breathe a sigh of relief if the sale actually completes (like I did). Are they waiting until they are absolutely sure that prices are staying down? What will convince them?

[dredwerker]

My mum and I were talking about this the other day. We both agree that house prices will continue to fall, but my mum has a point when she says that the house builders round ours have yet to lower their prices from 2007 levels, despite a number of properties going unsold for months. I made an offer (less 25%) to both Wainhomes and Morris Homes some weeks back, and both were rebutted outright. Both houses remain on the market.

My view is that the stakes are higher for house builders than Joe Public. They have high volumes of homes to sell, therefore to reduce one means to reduce them all, whereas Joe Public can cut his losses and reduce the price on his one house to sell it then breathe a sigh of relief if the sale actually completes (like I did). Are they waiting until they are absolutely sure that prices are staying down? What will convince them?

Have you tried offers or do you know people have tried offers? After all there were stories of 43% off from builders a week or so ago. So builders want to get shot of stock not retain it. Nothing is selling for the sticker price.

[Darkman]

"sticky on the way down"

[Lepista]

Because a lot of them can't. If they do, then they will expose themselves as bankrupt.

[buytoilet]

We have arranged a few new build mortgages over the last couple of weeks and each time the buyer has managed a big discount from the advertised price. You need to find a builder who has a lot to get rid of.

[Pie Eater]

Have you tried offers or do you know people have tried offers? After all there were stories of 43% off from builders a week or so ago. So builders want to get shot of stock not retain it. Nothing is selling for the sticker price.

I personally made offers. Specifically I made one in writing (25% off) to Wainhomes to which I received an extremely derisory letter - which I posted in the Anecdotals thread at the time. They did not even try to negotiate with me.

I then made one to Morris Homes (20%) but was told that things aren't THAT bad. Again, they didn't try to negotiate with me.

I then discussed the possibility of making a 20% off offer on a house type that wasn't available for viewing at a Persimmon site (I would have had to visit another site to view the showhome). I was told that I must be 100% sure I wanted the house before she would be prepared to present that offer to those higher above (which is fair enough I suppose) but she gave the impression that it would not have been given much consideration.

I have to admit, part of me made the offers just to see whether they would have been accepted. Not sure if I would have actually gone through with any of the purchases - although I might have. I don't suppose it hurts for them to receive a few 'cheeky' offers - might accelerate the drops. Deep down I didn't really think they would be accepted anyway, I just wanted to test the waters. My plan remains to rent for a while longer.

[ItsColdUpHere]

My mum and I were talking about this the other day. We both agree that house prices will continue to fall, but my mum has a point when she says that the house builders round ours have yet to lower their prices from 2007 levels, despite a number of properties going unsold for months. I made an offer (less 25%) to both Wainhomes and Morris Homes some weeks back, and both were rebutted outright. Both houses remain on the market.

My view is that the stakes are higher for house builders than Joe Public. They have high volumes of homes to sell, therefore to reduce one means to reduce them all, whereas Joe Public can cut his losses and reduce the price on his one house to sell it then breathe a sigh of relief if the sale actually completes (like I did). Are they waiting until they are absolutely sure that prices are staying down? What will convince them?

Re: Why Are House Builders Not Reducing Their Prices?

Some are.

One just down the road from us has knocked up to 30% off the ASKING prices compared to next year.

Another one has had a series of "special offers" up to 20% off - only the only houses selling are the special offers.

Both of these are managing to shift houses.

Two other estates nearby who haven't reduced their prices are shifting nothing. They'll have to join in the price cutting eventually.

Re: My view is that the stakes are higher for house builders than Joe Public. They have high volumes of homes to sell, therefore to reduce one means to reduce them all, whereas Joe Public can cut his losses and reduce the price on his one house to sell it then breathe a sigh of relief if the sale actually completes (like I did).

The problem with this theory is that your average Joe Public doesn't HAVE to sell their house. I can sit in mine forever unless I need to move or lose my job, no matter what happens to the price. The prices for private houses are being decided by forced sellers, not the average person.

Builders , on the other hand, HAVE to shift houses because its WHAT THEY DO FOR A LIVING. So while they may hold out for a while they'll cave eventually.

My theory has always been that prices will be driven lower by forced sellers and builders. And builders will be just another type of forced seller in the end

Cheers...

[editud for spealung]

Edited October 14, 2008 by ItsColdUpHere

[RufflesTheGuineaPig]

Barratts have offered 40% off list prices if you buy several houses at once.

Many builders will be reluctant to drop the "sticker" prices as that would mean devaluing their assets, which would force them to write down the value of their stock, possibly pushing them into bankrupcy.

When the first builder folds, (probably Taylor Wimpy going by share price) their stock will be sold at auction causing a general price collapse. THEN all the other builders will start dropping prices and some some more will fold in a chain reaction.

Were just waiting for the "trigger" builder to collapse.

Come-on Taylor Wimpy! You can do it!

[0q0]

Don't tell me - the govt has promised to nationalise them if they can't sell their stock!

Anything to get re-elected - anything! LOL "Whatever it takes... [whisper] no matter how much taxpayer money I spend, no matter what personal cost to individuals..."

[roblpm]

I was offered a Barrat flat on for £152k in Bathgate Scotland for £99k. That was without even being interested in buying a flat in the first place! I imagine if I had haggled I could have got 50% off.

[Austin Allegro]

Barratts have offered 40% off list prices if you buy several houses at once.

Many builders will be reluctant to drop the "sticker" prices as that would mean devaluing their assets, which would force them to write down the value of their stock, possibly pushing them into bankrupcy.

When the first builder folds, (probably Taylor Wimpy going by share price) their stock will be sold at auction causing a general price collapse. THEN all the other builders will start dropping prices and some some more will fold in a chain reaction.

Were just waiting for the "trigger" builder to collapse.

Come-on Taylor Wimpy! You can do it!

I think this is a fair analysis; I suspect builders are currently hanging on by their fingernails in the hope of things improving; the government is drip feeding them hope with things like 'back to 2007 lending'; but who knows, in the current climate, I wouldn't rule out some form of nationalisation of housebuilding, since the buying and selling of houses is as important to our economy now as the mines, railways etc that got nationalised in the forties were then.

[Girly girl]

According to somebody we know, they actually cannot reduce beyond a certain level, they will shut up shop and wait for the next bounce rather than sell at a loss, which is just bloody typical isn't it, control freaks.

[Bubble_Bobble]

Purely anecdotal but I was in Lloyds TSB the other day transferring some money around.

Cheeky chappie who was sorting out the paperwork was asking all manner of questions!!!

He asked what I was saving the money for so I told him it was for a house deposit - I also

took the opportunity to share my views on the future of house prices

Turns out he had been looking to buy, and had been to see some places on a new build

development. Apparantly a 240k list price had become 180k within 20 minutes. That's some

drop (25% unless I'm very much mistaken).

Told him it was still too much; not sure if I put him off but think I sounded convincing!!

[Phil_Spencer]

Purely anecdotal but I was in Lloyds TSB the other day transferring some money around.

Cheeky chappie who was sorting out the paperwork was asking all manner of questions!!!

He asked what I was saving the money for so I told him it was for a house deposit - I also

took the opportunity to share my views on the future of house prices

Turns out he had been looking to buy, and had been to see some places on a new build

development. Apparantly a 240k list price had become 180k within 20 minutes. That's some

drop (25% unless I'm very much mistaken).

Told him it was still too much; not sure if I put him off but think I sounded convincing!!

how old was the guy? I'm guessing a bank clerk can't be on more than 16-17k? (if that?). So unless he has equity behind him or a partner on a decent amount, he's looking at a very high earnings multiple on his mortgage!

[Bubble_Bobble]

how old was the guy? I'm guessing a bank clerk can't be on more than 16-17k? (if that?). So unless he has equity behind him or a partner on a decent amount, he's looking at a very high earnings multiple on his mortgage!

Yes, it did strike me as a little odd, although I didn't question further. He wasn't that old, maybe early 20's. Got the impression he was buying with partner and could quite easily have had some parental assistance lined up.

[RufflesTheGuineaPig]

According to somebody we know, they actually cannot reduce beyond a certain level, they will shut up shop and wait for the next bounce rather than sell at a loss, which is just bloody typical isn't it, control freaks.

I hate to break it to you, or rather them, but it doesn't work that way.

Just because a house isn't on the market, it doesn't stop it's value dropping.

The value of the builders completed stock and land bank would still drop and eventually they'de have to write down the value. At some point the difference in their " value" and market prices would be so great the banks would push the bullsh1t button.

Add in the fact that these companies have on-going costs to cover, plus empty houses decay, and they have to sell a certain number each month to stay afloat, regardless of how much profit/loss they make on the property.... must - have - cashflow!

They are holding out as long as possible in the hope that the MD can get hs annual bonus before the company goes bust, or maybe, just maybe, that the government will bung them some cash, something which the government, even given what it's done so far, would be hard pushed to justify.

Rather than give £1bn to Taylor Wimpy it could just use £1bn to buy up Wimpys entire old stock and use it as social housing. In fact, I'de put this as the most likely outcome.... Brown will buy up the distressed builders completed and part ex properties at a big reduction and use them as social housing, meanwhile iving the builders a lifeline for another 6 months.

[Tankus]

around 500 new flats £250K (single) to £500k (4 bed duplex) are under construction (now on the 5th floor) at Dalston Junction London (Barretts) , A mate of mine went round to the show flat for a gander , and he said that they would not budge on the price , but ...If he bought it they would pay him rent of £1200 per month for two years , ? Does this sound right ?

Correction...... the top end is now £415K

Nice flats by the way ...tad small though

[Guest An Bearin Bui]

I hate to break it to you, or rather them, but it doesn't work that way.

Just because a house isn't on the market, it doesn't stop it's value dropping.

The value of the builders completed stock and land bank would still drop and eventually they'de have to write down the value. At some point the difference in their " value" and market prices would be so great the banks would push the bullsh1t button.

Add in the fact that these companies have on-going costs to cover, plus empty houses decay, and they have to sell a certain number each month to stay afloat, regardless of how much profit/loss they make on the property.... must - have - cashflow!

They are holding out as long as possible in the hope that the MD can get hs annual bonus before the company goes bust, or maybe, just maybe, that the government will bung them some cash, something which the government, even given what it's done so far, would be hard pushed to justify.

Rather than give £1bn to Taylor Wimpy it could just use £1bn to buy up Wimpys entire old stock and use it as social housing. In fact, I'de put this as the most likely outcome.... Brown will buy up the distressed builders completed and part ex properties at a big reduction and use them as social housing, meanwhile iving the builders a lifeline for another 6 months.

This is the most likely outcome and is what's happening now in Ireland where the crash is about a year ahead of the UK. The government there has just announced government-backed deposit loans* of up to 20% of a 300k house (conveniently enough the fantasy 2007 price for a starter new-build) for first-time buyers and are buying up lots of the empty housing stock from the builders for social housing. I'm sure Labour will do the same here. It's all back to the 1970s - more council houses, nationalised industry, nationalised building, nationalised mortgages and nationalised MEW-ing. It's a brave new world of eternal economic miracle!!!

Unfortunately as anyone with even a passing knowledge of economics knows, it won't work. Houses are going to drop back to 3 x the average income anyway, either through inflation or deflation. Ultimately what would normally have pushed the builders to sell is the banks calling in bad loans and driving the big builders into bankruptcy. With nationalised banking that might not happen now but the builders still need to make sales at the end of the day. The government interference, builders' stubbornness and estate agents denial just delays the inevitable and makes it all more painful than it needs to be...

* Even though from my point of view a 'deposit loan' is surely a contradiction in terms...