LAS VEGAS—Home builders have lost half their share of the U.S. housing market in the past two years, largely because of competition from cheap foreclosed houses. In 2009 only 7.6% of the homes sold were newly constructed, down from the average of about 16% over the previous two decades.But home builders are fighting back, cutting prices, promising to complete homes faster, and warning about the risks of buying foreclosed property.
By James R. Hagerty and Dawn Watapka, Feb. 3, 2010 WSJ
Spurned by Banks, Builders Look Elsewhere
The financing drought is mainly hitting small and midsize builders – Private Equity Steps Up to Fund Smaller Developers as Traditional Lenders Balk—but the Cash Doesn’t Come Cheap
LAS VEGAS—Private-equity firms are stepping into the vacuum left by banks’ flight from lending to small and midsize home builders. “The banks just are not doing construction loans,” says Robert Mecay, a real-estate developer who is trying to build a luxury condominium complex on the south shore of Lake Tahoe in Zephyr Cove, Nev. So Mr. Mecay and his partners in the Tahoe Beach Club project are seeking $150 million of equity or debt financing from private-equity firmsBanks haven’t totally abandoned construction lending, but they are much more restrictive, and some have temporary freezes on new real-estate loans. Many banks that formerly courted home builders are now short on capital and badly burned by their current loan books. As of Sept. 30, about 15% of real-estate construction and development loans were 90 days or more overdue at financial institutions whose deposits are insured by the Federal Deposit Insurance Corp., up from 1.9% two years earlier. Such loans outstanding have dropped to $492 billion from $616 billion two years before.
By James R Hagerty, Feb 3, 2010 WSJ