Sometimes events change the way we think and the way we approach things that have been considered a tradition. Often smaller communities in less populated states like New Mexico have depended over the past twenty years on the small custom homebuilders to supply us with the houses we live in. Las Cruces is still an attractive destination for retiring baby-boomers. As the economy and the housing market improve they will again be coming strongly to Las Cruces just like we experienced in 2006 and 2007. Many will want to buy an on-the-ground house. The question is: who will be left in business to build their new home?

As a community grows and meets certain demographics and population levels, these markets attract a larger regional level semi-custom homebuilder. These regional homebuilders, though larger companies, still have ownership that is directly connected to the product and they place a creative design emphasis on their products. To date regional builders with a few exceptions have focused primarily on entry-level priced homes. There were some exceptions by well-known regional and national homebuilders like DR Horton and Winton Homes, when the mid-level and top of market priced homes were in demand. Currently, the regional builders and even the national builders are focusing on the entry-level product. This is what has been selling and they smartly go with the market demand and movement.

In previous years, much of the mid-level and top-level homes were built by the smaller and local custom homebuilders. Some of the inventory at this price point was classified as pre-sale homes or owner-secured financing. Much of the mid- and top-level homes were produced as speculative custom homes by the local custom homebuilders. Typically they partnered with private investors to build mid-level and above custom homes for the Las Cruces new home inventory. With the housing market “crash” and existing homes devaluation, the mid-level market and above for new custom homes has become virtually paralyzed. In 2009 the only homes built at the mid-level and above price point were built as the result of the prospective homeowner often securing financing directly from the lender. The prospective homeowner purchased the lot and then secures the construction loan as an individual. From this point the homeowner would select a local custom homebuilder to construct their new home. In 2009 the financing for the local custom homebuilder to build a speculative home has totally dried up. The criteria for owner financing has gotten tougher, much tougher as well.

We have not seen the impact of the loss of local custom homebuilders not being able to secure construction financing for the speculative mid-level and above custom homes. The abrupt housing market down-turn in 2008 left the Las Cruces area with an excess inventory of new custom speculative homes. The excess inventory of mid-priced and above custom homes has been slowly worked off. Over the past six months, the slight market resurgence has helped the sale of local existing homes for resale as well as helping to reduce the inventory of the speculative new homes. Here’s the problem! Will there be any new speculative mid-level and above custom homes going into the market pool? Who will build them? The local custom homebuilder has been excluded from the process because of the inability to secure speculative home-construction financing. Private investors are still fearful of the speculative housing market. Banks and mortgage companies have shut off any speculative funding and typically only now finance individuals who are the owner / occupants of the new custom homes. So again, we ask who is going to build the homes at the mid-level and above priced new homes?

The time line to build a pre-sale home is often four months or more depending on the size and detail of the custom home design. Waiting for four plus months for a custom built pre-sale home is too long for many and the extra involvement in designing and building a new home often does not appeal to retirees. You might think this is a potential boon for the resale home market. Can local homeowners take advantage of a market demand that has a low inventory of new custom homes? You would think so, but there is a problem. The price of resale homes is linked to mortgage lending and mortgage lending is linked to “comps” or comparisons of recent sale of similar homes. The market crashed and so did home prices with it. Resale house prices dropped and the comp values declined with them. Existing homeowners have to think – “I do not want to put my home on the market now and sell it well below 2006 and 2007 values”. Even if they get an offer at the price they want, can they get past the mortgage-financing hurdle which is reliant on the comparisons of other recently sold similar properties?

We have a “housing gridlock.” New custom homes inventories are dropping. The talented local custom homebuilders are locked out of the market due to access to financing. The low market comparisons are a problem for resale as well as new homes. The boomers are coming. They may have been slightly delayed, but believe me, they are coming. Las Cruces and the surrounding area are still very desirable as a new community for weather and lifestyle. This has not changed. Who will provide them the new home product?

Perhaps the Las Cruces market will grow with the larger builders who typically offer a selection of set floor plans and models to choose from. That is not a negative but will we loose the unique custom homes that have defined this market?

Finally, what is the fate of the local custom homebuilder? Are they an endangered species? Will they fall by the wayside like many other small businesses have fallen by the advent of market changes and financing? Many of these local builders started cleaning up the nails and scrap wood off of their dad’s construction sites. Many of the local builders are true artisans as well as their subcontractors and suppliers. The loss of these small homebuilders is the true tragedy of a housing market crash. The market is cyclical and will ultimately rebound. Again, I ask who will build the custom homes that have defined, to a great extent, the personality and joy of moving to Las Cruces?