Neighborhood Construction Put On Hold

Added January 31, 2008 by Ilyce R. Glink

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Summary: In a slow housing market or real estate recession, you need to be careful with new construction. If you are already seeing warning signs like the developer has put construction on hold, or only a fraction of the development has been completed, you might want to rethink your purchase. If the builder is having problems, there are no guarantees that the plans for the neighborhood will ever come true.

Q: We are 51 and 49 years old need your help. Our kids are no longer living with us and we are planning on down sizing to a 2,200 square foot ranch in a nearby lakefront community.

We found a house that we love and we could pay if off in 10 years so we will would eliminate a mortgage payment in our retirement.

Here's our problem. The subdivision is supposed to have 900 homes. Only 90 have been built and many of those are spec homes. The builders are releasing lots back to the developer, but our agent said she didn't know who would buy these lots and what kind of houses they would build in the future.

I think the developer is having financial trouble because the installation of curbs and streets is on hold. But we're worried the developer might just sell out to anyone to recoup its money.

What should we do?

A: As much as you like this house, just 10 percent of the properties in the subdivision have been sold to homeowners. That sounds like a recipe for disaster. If you're going to proceed, you must do so with extreme caution - and I'm not really sure you should proceed.

The reality is that we're in a terrible real estate recession in some areas and home builders have been hit the worst. The latest numbers indicate that 38 percent fewer homes are being built this year than last. Some builders have seen their numbers fall almost to zero, and others have gone out of business entirely.

In this subdivision, you have 90 percent of the homes left to be built. The builders you named are having trouble and it could be years before this subdivision is built out. You might be locked into this property for 20 years before you can resell it.

If you do buy it, the roads may not go in and you may be stuck with a home in a development that is only partially constructed. There may also be no one to help you if there are problems with the way this house was constructed.

That doesn't give you a lot of options. There are no guarantees that the pictures on the brochure will ever come to fruition.

My instincts would be to take a pass on this house.

Published: Jan 31, 2008

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