Beware a Concentration of Spec Homes

As the housing market has continued to depreciate and even begun to infect previously balanced markets, such as north metro Atlanta, Georgia, it has become necessary for buyers of new homes in Alpharetta, Milton, Roswell, Crabapple, etc. to assess the likelihood of a builder's inability to weather the financial storm. This is further complicated in locations where there is a single developer and multiple builders with spec inventory. Such a scenario is more complicated than a subdivision where there is one builder because one builder has a greater incentive to protect that investment from deprecitating events such as the emergence of bank owned properties. In the case where there are multiple spec builders in one location there is almost an expectation that at least one of them will fold and turn their assets over to the bank, which negatively affects the values of all other builders' adjacent properties.

As a potential buyer in what is already a strong buyer's market, it is important to assess the overall environment within a given subdivision in an effort to understand the stability of the values of the properties. As an example, Echelon in Alpharetta Georgia is a mixed bag of spec builders (masquerading as "custom home builders", of course) who have begun to surrender their assets back to lenders, who are significantly discounting those assets. This creates a downward cycle in which the builders who continue to pay their bills become dis-incented to continue to do so because the market discounts are so significant. Any buyer considering Echelon, or similar locations, should understand how this trend will impact their property and adjust any offer accordingly.

Another alternative is to consider a subdivision that is already well-established or small enought to avoid this downward value spiral. Examples of north Atlanta metro locations that offer new luxury homes in a stable value environment with little risk of cascading foreclosures are Blackberry Ridge, Lake Haven at Crabapple (no spec homes), The Oaks at Crabapple (www.theoaksatcrabapple.com), White Columns, Six Hills, to name a few.

Other locations that are showing significant stress but lack the concentration of private residences to mitigate a mass spec-builder foreclosure scenario include The Manor and Blue Valley. These locations still have significant value but are best for long-term buyers who are looking for a significant discount with the knowledge that values might not firm there for several years.