And they’re not the first. Mercedes Homes is the newest member of the Bankrupt Builder Club. The Austin Buisiness Journal broke the news Monday, but what does this mean to those in a Mercedes home? Well, Meredes is not going away, they are (for now) reorganizing. Mercedes Homes is continuing to operate!
We hear “historically low rates”, “finance now”, “now is the time to buy”, “if you have good credit, you can still get a mortgage”, but the builders are not being treated nearly as kindly as their customers. Although now, as long as you are ‘financially responsible’, you CAN get financing at a great rate, saving you money or giving you an opportunity to purchase in that next braket.
Homebuilders, on the other hand, have their hands tied. Now is a great time to start new construction because although demand is lower than average, new starts are WAY below average. So in 6 months, when home is complete, the summer buying season is here, and we (hopefully) see the end to this economic slowdown as predicted, a builder could be in great shape. The trouble is, practically no one is loaning on construction or in the commercial sector in general. This means that the builders can’t get the new loan to start a new project and their business cycle is halted immediately.
It will be survival of the fittest. Volume builders with strong holdings in parts of the country hardest hit by the housing crunch, like Phoenix, Los Angeles, and Palm Beach, were hit financially long before we felt the diluted shock wave in Austin. They have spent as much as three years struggling, and for some, that was just too long.
Low volume builders, those who build less than 50 homes a year, typically build in only one sub-market, say west Austin or west Pheonix. In Austin, low volume and custom builders felt the hit a year ago. Those with strong companies have survived, but not all have been so lucky.
It is the oldest and strongest builders who have survived. But don’t panic if your builder files Chapter 11. Panic only if they don’t recover from it.
What can you do?
If you live in a home build by a company that has filed bankruptcy, your primary concern should be on home warranty. If your home is still under warranty, or you are buying a new home, ask about a 3rd party warranty from a company with a track record. Even if the builder folds, the home warranty company will take care of you.
My advice is in a move-up situation, you’re getting ahead of the game. Not only are you getting bigger savings on the home you’re buying than any losses in the home you’re selling, but you’re also able to lock in amazing interest rates (saving you much more for years to come).
Notice anything? I notice how home sales volume is extremely volitile in these markets as compared to Austin’s. Sure, there was money to be made in this real estate gold rush, but was it the tortoise or the hare that won the race?
