In the midst of reporting earnings from KB Home and Lennar this week, neither of which were particularly pretty, I saw a press release for an auction in Houston that tweaked my interest. The title reads: Greater Houston Real Estate Auction: Sign of the Times.
The release goes on to say:
Attention Houston home shoppers! The housing downturn has reached Houston resulting in sellers offering new home inventories at public auction. To move inventory quickly, market-driven deals on 50 brand new builder model homes, built by Lennar and KB Homes, will be offered to the public in a unique auction on July 27, 2008.
It struck me as strange for two reasons:
You don’t often see big builders flagrantly pitching an auction of their new homes (there was one in San Diego by another builder, but it was sort of hush-hush and done under another name).
Houston is actually fairing better than most U.S. housing markets, and its foreclosure rate isn’t all that high.
So I called the representative in charge of the auction, a very well informed Laurie Tarver, who is running the auction for a “national investor” whom she cannot name. It turns out that these homes were bought from KBand Lennarby the “investor” and then leased back to the builders so that they could use them as the model homes while they sold their developments. The homes are fully furnished to look lived-in, but they never actually have been. So they’re not foreclosures.
I asked why, if Houston is still a pretty good market, that the “investor” wants to auction them off in one fall swoop. The auction release clearly implies deep discounts through auction. Laurie says it’s all about the time value of money. These homes will all sell in one day, and close in 30 days, done deal. There’s no financing contingency, you’ve got to have your mortgage ready and your 10 percent to plunk down.
It just leaves me wondering. An investor is auctioning off brand new big builder fully furnished homes, fifty of them in one day, while the builders themselves can barely move one property at a time. Is the “investor” in deep trouble or are builders missing a good opportunity to draw on the “auction” mentality of a new breed of foreclosure shoppers?
I asked Laurie why the release sounded like a foreclosure auction when it wasn’t, and she admitted; it grabs people’s attention these days.
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