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Real Estate Bubble Bursts While Home Sales Fall Across Nation

By Vikas Bajaj
THE NEW YORK TIMES


PHOENIX

Until recently, this fast-growing area was a paradise on earth for home builders. Fulton Homes’ developments, for example, were so popular last year that it was able to raise prices on its new homes by $1,000 to $10,000 almost every week.

“People were standing in line for lotteries,” recalled Douglas S. Fulton, president of the company, one of the largest private builders in the Phoenix area. And they were “camping overnight begging to be the next number in the next lot in the next house.”

No more.

Today, it is the company’s sales agents that do most of the waiting. Not only are there few new customers to talk to, but many buyers who put down a deposit are not even bothering to come back for the walk-through.

“All of a sudden, they just don’t show up,” Fulton said, noting that such cancellations often mean forfeiting as much as 5 percent of the price. The reason? The prospective buyers got cold feet or simply couldn’t sell their old home.

The striking contrast tells the tale of a housing bonanza turned bust. Today, the number of unsold homes in the area has soared to almost 46,000 from just a few thousand in early 2005. And builders are pulling back as fast as they can.

They have little choice. Sales cancellations among big builders, not just here but around the country, are running as high as 40 percent, double the rate a year ago.

Across the nation, new home sales are down by more than 20 percent from their peak last year. Prices fell almost 10 percent in September from a year ago. And that reported drop does not take account of the extras builders are throwing in free or at steep discounts to lure buyers, which means that effective prices are even lower.

The reversal in fortune is at its starkest here in the West. For-sale signs in some new subdivisions are so common that Janet L. Yellen, the president of the Federal Reserve Bank of San Francisco, recently described them as “the new ghost towns of the West.”