The Impending Collapse of the New Construction Home Market | U.S. Real Estate Market Crash Begins

REAL ESTATE NEWS (Los Angeles, CA) — In recent conversations with industry experts and bankers, a concerning trend has emerged that is not receiving much attention: the imminent collapse of the new construction home market. The repercussions of this collapse are likely to be felt within the next 9 to 18 months, with far-reaching implications for the housing industry. In this blog post, we will delve into the factors leading to this collapse, its potential consequences, and the underlying dynamics at play. Some say that a massive collapse has already begun in the overall U.S. real estate market. DTLA real estate has already seen a decline for the last six months.

The Building Boom

Over the past couple of years, we witnessed a surge in building activity, fueled by low risk-adjusted returns and an influx of lending from commercial banks. Small builders and private developers took advantage of this favorable lending environment, embarking on projects such as infill lots and small communities. Consequently, new units flooded the market, meeting the growing demand for housing.

The Shifting Tides

However, the tide began to turn when prominent banks, like Silicon Valley Bank, Signature Bank, and First Republic, started pulling back their support for builders and developers. I recently had conversations with two significant lenders in the commercial real estate space, and their insights were alarming. One lender revealed that their products for builders were no longer viable options, while the other admitted that though the products still existed, approvals were dwindling and would likely cease altogether. This sudden shift in lending dynamics has profound implications for the future of new construction.

The Fallout

While the impact may not be immediately noticeable, it is crucial to consider the long-term implications. Private builders and developers, who previously relied on financing from regional banks, are now facing a precarious future. While ongoing projects may continue to be funded due to solid loan books and sales, the prospects for future projects appear grim. They are left with two options: self-funding smaller projects or facing the harsh reality of going out of business altogether. Consequently, the construction of new homes will be limited to major players like Pulte, Lennar, Toll Brothers, KB Homes, and others who have the resources to seek alternative avenues of funding.

The Big Get Bigger

As the new construction home market contracts, the larger players in the industry stand to benefit immensely. These major builders have the advantage of accessing capital through stock markets, enabling them to weather the storm more effectively than their smaller counterparts. The consequence is a consolidation of power and market share, as the big players swallow up the opportunities left behind by the smaller builders. This monopolistic tendency among the industry’s giants is likely to result in escalating home prices, given the reduced supply of new homes combined with limited availability of existing ones.

Implications Beyond Housing

The collapse of the new construction home market is just one facet of a broader trend. The repercussions are not limited to the housing industry alone. The same dynamics are observable in sectors such as banking and technology. As interest rates rise, smaller banks are finding it increasingly challenging to compete with larger institutions that possess more significant liquidity. Similarly, in the tech sector, the dominant players with robust balance sheets and abundant cash reserves can weather the storm, while startups and small businesses struggle to secure the necessary funding.

The collapse of the new construction home market is a looming crisis that demands attention. With the withdrawal of lending support from regional banks, private builders and developers face an uncertain future. As a result, the industry will witness a consolidation of power, with major builders growing more dominant while smaller players struggle to survive. This contraction in the supply of new homes, coupled with limited availability of existing ones, will likely lead to escalating prices. The implications extend beyond housing, affecting sectors such as banking and technology. In recent days, more are beginning to report that massive market changes have already begun.

Banks, Insolvency, and The U.S. Real Estate Market Crash

We find ourselves at the forefront of a dramatic shift in the U.S. real estate market. As we speak, property owners are increasingly defaulting on their loans, and the consequences are becoming more visible each day. As a result, the real estate market finds itself in a monumental crash, shaking the very foundation of the U.S. financial system. But what is causing these tectonic changes?

At the core, the problem is a significant contraction of new credit, primarily hitting the construction and real estate industries. The increasing difficulty of finding agreeable loan terms, and the changes in banks’ lending practices, are setting the stage for this disastrous scene.

The lending practices have been drastically altered, with many banks cutting back and refraining from issuing new loans to build up their liquidity cushion. This drive to eliminate long-term exposure can be seen in the widening spreads between Commercial Mortgage-Backed Securities (CMBS) and their corporate equivalents. This trend has been further exacerbated by the selling off of Mortgage-Backed Securities (MBS) by banks in an effort to unwind their long-term positions, which has led to these assets plummeting in cost.

The repercussions of these changes are hitting hard, and no one is immune. Even the Howard Hughes Corporation, a large real estate developer with significant funding, has been turned down by 48 banks, a scenario which would have been unthinkable until very recently. As this lending drought continues, real estate prices are plummeting across the board. This free fall in prices is impacting all sectors, including retail, malls, hotels, and most notably, office buildings.

This situation has led to unprecedented losses on Commercial Real Estate (CRE) debt, with investors, not the banks, on the hook. However, this trend is expected to change soon, and small regional banks are predicted to bear the brunt of these losses. Traditionally dependent on real estate loans for profitability, these banks are now curtailing these loans, marking a significant shift in their usual business model.

According to a report by Morgan Stanley, by the end of 2025, refinancing risks in U.S. commercial real estate will have increased, with nearly a third of the outstanding $4.5 trillion U.S. commercial real estate debt due. This maturity wall is front-loaded, meaning the risks are imminent and are expected to ramp up until 2025. This escalating problem is exacerbated by regulatory changes that could potentially decrease the ability of banks to buy senior tranches of securitized products.

This grim reality is exemplified by the lack of CMBS buyers in the market. With banks and the Federal Reserve no longer buying, hedge funds and regular investors are nowhere near capable of handling this volume of debt, leading to a further decline in CMBS prices. This issue extends beyond office buildings to other sectors like retail, hotels, and even multi-family properties.

The turbulence in the U.S. real estate market has just begun. The shift in banks’ lending practices, the increasing default rates, and the contraction of new credit have set the stage for a crash. The impacts of this crisis will not only be felt by property owners and investors but also by regional banks that are expected to bear significant losses in the coming years. Downtown Los Angeles has already experienced significant downward movement in total market dollar volume and median sales prices. The domino effect of these changes is set to shake the U.S. financial system to its core, and it’s essential for all players in the market to brace themselves for this impact.

Some new home prices are down, as seller incentives to new home buyers are up. Receive a free list of new construction homes coming up for sale. Get on the New Homes Interest List. Fill out the online form:

LOFT & CONDO LISTINGS DOWNTOWN LA [MAP]

  Lofts For Sale     Map Homes For Sale Los Angeles

SEARCH LOFTS FOR SALE Affordable | PopularLuxury
Browse by   Building   |   Neighborhood   |   Size   |   Bedrooms   |   Pets   |   Parking

Copyright © This free information provided courtesy L.A. Loft Blog with information provided by Corey Chambers, Broker DRE 01889449. We are not associated with the seller, homeowner’s association or developer. For more information, contact 213-880-9910 or visit LALoftBlog.com Licensed in California. All information provided is deemed reliable but is not guaranteed and should be independently verified. Text and photos created or modified by artificial intelligence. Properties subject to prior sale or rental. This is not a solicitation if buyer or seller is already under contract with another broker.

Avoid the Dangers of New Construction, and Get the Best Deal with the New Home Buyer Protection Program — Save 25 Grand, Get a 2-Year Home Warranty

Save $25,000 on an Amazing New Home — Get a FREE 2-year Home Warranty!

REAL ESTATE NEWS (Los Angeles, CA) — To avoid making the biggest mistake that new home shoppers most often make, visitors are required to meet first with a qualified program professional in order to be eligible to get free home buyer protections such as information on the pros and cons of the construction, down sides of the development, negatives of the neighborhood and drawbacks of a potentially bad deal. For new construction homes, the biggest disasters happen when an unsuspecting couple walks in to take an innocent quick peak at the new building, get a gander of the hip, chic new models, and then unexpectedly find that they immediately fall in love the sparkling new digs. They then quickly learn that they have fallen into a common trap, and that they will not be allowed to use their own representative, they must endure the pushy sales office telling them to immediately begin signing away even more of their rights. They end up buying a property without knowing if they got a good deal because they did not get a 2nd opinion from a local professional, they did not see a list of recently sold comparable properties, they were not informed of all of the problems of the building and neighborhood, and the buyer’s interests were not placed above the interests of the seller.

Like fly-by-night operations, new homes sales offices are temporary in nature, and they are not usually around for long. They usually disappear quickly after the homes are sold. The state of California has provided a way of helping to prevent new home mistakes and to protect prospective home shoppers before they step foot into a new real estate development sales office. Before making an appointment to see the new homes, visitors should determine if there is any chance that they might want to make a move within the next six months. If so, the potential home buyer can easily protect their rights, get free home buyer protection, place their interests above the seller’s interests, and save thousands of dollars guaranteed when they find a place they like.

There are three areas of thought that can help prevent disasters before a prospective new home buyer considers a walk into a new homes sales office:

#1 Leaving the checkbook at home will not protect.  —  Just browsing? Better plan ahead; and here’s why:  As soon as someone steps into the sales office of a new home development, they are asked to sign in.  That signing in seems innocent and safe enough, but it is often the first and biggest mistake in the process.

Most who stroll in to see new homes instinctively know that they will probably not purchase a home there, but they are rightfully curious. The first problem is that the buyer has unknowingly signed away their right to get free help from a licensed real estate professional. Unless they are accompanied by a qualified program representative on the very first visit, the buyer has actually agreed to give away their free protections given to them by the laws of the great state of California.  The innocent visitor has waived rights to free representation by a local real estate professional.  Should they fall in love with the new condo or house, the buyer now has but two choices: buy the home directly from the developer’s sales team without the assistance of a knowledgeable professional — or do not buy a new home at that new development.  The visitor has inadvertently hired the fox to guard the hen house. The first step of the buying process has begun, and possibly on the wrong foot.

#2 Today’s home buyers in Los Angeles have high standards, which might not be met.  Home shoppers want a clean, quiet home with open space, high ceilings, lots of big windows and light, a pretty view of some kind, architectural character, neighborhood safety, convenient parking and walkable to coffee, shops, entertainment and public transportation.   Some of the shiny homes in today’s new construction market suffer instead from excessive freeway noise or train noise, gnat swarms, boxy architecture, small windows, freeway view or no view, inconvenient tandem parking spaces, dangerous raceway bike path and prowling coyotes. Some new homes for sale do not yet have final approval from the City of Los Angeles, and in-house lenders sometimes experience big delays, so the sales could potentially be delayed many months.

Some new park-side houses under construction near the river have a land lease so that the owner does not really own all of the property.  This limits the long-term value of the property because the land lease impact snowballs to a greater and greater negative factor over time.

#3 Disasters are an inevitable part of the natural cycle – various geographical features and locations carry their own inherent risks. Cities and towns typically have contingencies in place for major catastrophes, which may occur once every few decades or centuries. However, the timing of these incidents is unpredictable; they may occur far in the future or imminently. When it comes to real estate, properties situated near potential disaster zones, even if not directly within the designated high-risk areas, are vulnerable. This includes homes and businesses that are near rivers that have a history of flooding, fault lines prone to earthquakes, or forests susceptible to wildfires. Structural elements such as underground parking, ground-level facilities, and low-rise units are particularly at risk. Ultimately, irrespective of the disaster type, the potential for significant damage exists, underscoring the importance of adequate preparation and risk assessment in real estate development and ownership..

Homebuyer Protection Programs

When the buyer does find the right home, they must face competition from the seller and from other buyers. In today’s real estate market, there are a relatively large number of buyers, and few sellers. Most buyers are unpleasantly surprised that they are usually outbid by other buyers or sometimes virtually ignored by the seller. To have a good chance of success in the current home buying environment, buyers can take advantage of strategies that help them to beat out other buyers to the best deals by getting priority access to all of the properties. This includes getting access to the largest number of pocket listings, off-market, unlisted and unadvertised bargains. Buyers are more satisfied with their home purchase when they get access to the pros and cons, including the negative information on properties such as lawsuits and litigation, along with undesirable construction and defects that sellers sometimes try to ignore or even hide.  Buyers want to understand the neighborhood and know what is going on and coming up in the neighborhood.  Like a fly-by-night used car lot, new home sales offices typically pack up and leave town after they reach their sales goals.

Rather than relying on a sales office agent, or a friend/relative who happens to be an out-of-area agent from another neighborhood, smart home buyers take advantage of the New Home Buyer Protection Program that includes specialized neighborhood knowledge, combined with the latest real estate technology such as a neighborhood heat map of homes, businesses, parks and amenities. Buyers get the best home purchase terms, incentives, loan rates and fees when they have access to compare several local lenders who know the building.  Buyers avoid expensive mistakes when they get help scheduling a local inspection company who specializes in that type of building in that area.

The most serious and astute of home buyers consider all of the costs and possibilities to save as much money as possible on their home purchase.  A local neighborhood specialist often knows what the bottom line is for the seller, allowing the home buyer to place the lowest offer rather than offering tens of thousands of dollars too much on a desirable new home.  A  savings guarantee can ensure that the new home buyer can negotiate down $25,000 from the asking price or the program pays $5,000 toward the buyer’s closing costs – visit www.Save25Grand.com.  

Ever notice that things seem to break right after the 1-year warranty has expired. Well, there’s a solution to that as well. An extended 2-year Home Warranty could cost the buyer $800.00, but it is also included in the FREE New Home Buyer Protection Program.  Usually, nothing is guaranteed in real estate.  It is all too common for buyers to buy a new home, then find out they don’t love home or neighborhood as much as they had hoped.  There is protection for that too: The Love Your Home Guarantee. Get the details at www.LoveYourHomeGuarantee.com

The take-away: Sign up for the New Home Buyer Protection Program BEFORE browsing any new construction condominiums or houses.  It’s free, it’s your right as a prospective California home buyer, and the right Home Buyer Protection Program can prevent numerous problems while giving many valuable benefits at no cost to the buyer.

Request early viewing, get access to unlisted properties by getting on the New Homes Interest List. Fill out the online form:

LOFT & CONDO LISTINGS DOWNTOWN LA [MAP]

  Lofts For Sale     Map Homes For Sale Los Angeles

SEARCH LOFTS FOR SALE Affordable | PopularLuxury
Browse by   Building   |   Neighborhood   |   Size   |   Bedrooms   |   Pets   |   Parking

Copyright © This free information provided courtesy L.A. Loft Blog with information provided by Corey Chambers, Broker CalDRE 01889449. We are not associated with the seller, homeowner’s association or developer. Offer good on most new construction, new development houses, town homes and condominiums. Limited time offer. Good while supplies last. Not valid with any other special offer. This offer is subject to change without notice. Participating lenders and inspection companies are independently owned and operated. Certain restrictions and qualifications may apply. For more information, contact 213-880-9910 or visit LALoftBlog.com. Licensed in California. All information provided is deemed reliable but is not guaranteed and should be independently verified. Prospective buyers should review all documents and seek independent legal and financial advice before proceeding with a purchase. Properties subject to prior sale or rental. This is not a solicitation if buyer or seller is already under contract with another broker. The New Home Buyer Protection Program is not an insurance policy and does not substitute for legal, home inspection, or real estate advice. Any person using the information contained in this article agrees to release and hold harmless L.A. Loft Blog and Corey Chambers from any liability arising from the use of this information.