Tom McNamara, Blueprint America
The national credit crisis is hitting the housing market again, this time resulting in bankruptcy – for builders. The New York Times reports that across the county, small home builders are going into bankruptcy as the banks providing their construction loans foreclose on their developments. Home sales are down nationwide, and builders have been dramatically reducing the prices of new homes in efforts to sell them. Land deals that builders once intended to turn into master-planned communities, particularly in places like Arizona, have failed as the demand for homes has dropped-off. This reduction in home sales has depreciated the worth of assets many builders use as collateral for their bank loans. Banks, in turn, have demanded more collateral to continue backing the loans. When builders cannot come up with the additional money, the banks foreclose on the developments.
According the Mary Utley, Public Information Officer for the Arizona Department of Real Estate, there is no timetable for how long the Chandler, AZ development mentioned in the Times article will remain half-built and vacant. “Since (the builder) has been foreclosed on, the banks or the lending institution will have to sell the homes or the property to another developer. There’s no law that says how quickly the bank has to sell those properties. I know that some of the local non-profits have worked with those lending institutions to see that those properties don’t become blighted, or to make those properties into affordable housing units. But it’s now totally in the hands of the lending institutions.”