Spec Builder Spectacularly Miscalculated Market

KIRO radio ran a mildly interesting piece about a spec builder in my neighborhood with especially poor timing: Local spec homes sit empty, cheap.

What started as a fun project turned into a nightmare for a builder in Kenmore.

Ken Youch, with Kenmar Construction, is happy to give tours of any one of the million dollar houses he has built in Kenmore.

“They’re absolutely beautiful homes that we built when the market was booming. This is my very first attempt at spec building,” he said.

It is also his last. Like many builders across the Puget Sound, Youch is losing a lot of money on these three sister homes. All were priced over one million dollars and now they’re going at about $500,000 lower.

7320 NE 150th St Kenmore, WA 98028The houses in question are 7320, 7328, and 7332 on NE 150th St in Kenmore, for which the builder is asking $674k, $679k, and $699k, respectively (as a side note, KIRO clearly has a different definition of “cheap” than I do). Cumulative days on market for each of the three properties is in excess of 440. He purchased the lots in April and July 2007 for $262,500, $265,175, and $267,200.

July 2007. If that rings a bell to anyone, it might be because it was the peak month for Seattle-area home prices. Granted, we only know that thanks to the benefit of hindsight, but even at the time the writing was on the wall for anyone paying attention.

Are we supposed to feel sorry for this builder for getting caught up in the mania and failing to do his research before jumping in head first to an expensive and risky venture like this? That seems to be the angle of this piece, but to be honest, I’m not feeling it.

At least he hasn’t gone into foreclosure yet, so he must have the financial strength to stand behind his risky move. Also, he doesn’t appear to be angling for a bailout, so while I question his business sense, I respect his apparent willingness to take responsibility for his decisions.

  

About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

15 comments:

  1. 1
    biliruben says:

    Youch!

    I think I’ll be calling all such misadventures “Youches” from now on.

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  2. 2
    Ray Pepper says:

    At least he hasn’t gone into foreclosure *************yet,********

    Your key phrase. Check back in October. He will not bring funds to close these.

    Rate this comment: Thumb up 0

  3. 3
    patient says:

    There’s still about $400k between the lot prices and the current asking prices. Taken into account the kind of homes you can get for $400k in areas where lots are almost for free ( most of Texas for example ) I’m not sure these would sell for a loss if he gets current asking. Is the pure construction cost for a home like the one pictured in the post really above $400k?

    Rate this comment: Thumb up 0

  4. 4
    Kary L. Krismer says:

    A few months ago I saw a builder on the news complaining that he’d been a good customer, but that his bank wasn’t giving him financing to build more houses. My thought was they were doing him a huge favor.

    Rate this comment: Thumb up 0

  5. 5
    The Tim says:

    By the way, on Google Street View you can see how closely packed together these three “million dollar houses” are:


    View Larger Map

    Rate this comment: Thumb up 0

  6. 6
    Ray Pepper says:

    look across the street at the lovely home with 6 or 7 cars not to mention homes worth 250k.

    Good God.

    The buzzards are circling!

    Rate this comment: Thumb up 0

  7. 7

    IMAGINE THE WINTER UTILITY BILLS [SUMMER A/C TOO?] ALONE ON THOSE THREE

    The property tax is estimated at about $700/mo each too.

    Rate this comment: Thumb up 0

  8. 8
    geon says:

    Right. Pay $700K , or more, for a house surrounded by 250-400K houses. I see it all the time. LOL. No central air? :(

    Rate this comment: Thumb up 0

  9. 9
    seattlerenter says:

    Funny I just drove by those today on the way to spectacularly overpriced garage sale in a newer division right by there. The people had to be hurting for cash based on what they were asking for garage sale junk. The overpriced mindset is still alive and well. Oh and the homes in question are placed in a very strange location and the feel of it is extremely cramped with these out of place homes.

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  10. 10
    Ray Pepper says:

    zoom in closer at the house with the 7 cars. look at the one in front . no doors, no tail gate. Who gives me 5-1 they have more then 1 dog at that house?

    I hate barking dogs. Who bets Tracy Flannigan lives there?

    http://www.youtube.com/watch?v=6Asc9Ip2ph4&feature=related

    (I love taking a few days off)

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  11. 11
    gameboy says:

    I have brother-in-law who is a general contractor and he built pretty expensive homes for $120 to $180 sqft.

    Looking at these homes and based on his descriptions, I am guessing he probably spent about $140/sqft. That would mean that about 3500 sqft each, you are looking at $490k for construction.

    Perhaps, he was able to squeeze some extra savings due to building three at once, which means that he is probably selling them pretty much at cost. Which probably explains why the house has been sitting empty so long and he is not willing to negotiate further.

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  12. 12
    Scotsman says:

    Sorry, but for that much money I’m not walking up steps to the front door, and having the garage doors greet people who drive up. That’s what second floor apartments are for.

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  13. 13
    shawn says:

    I feel sorry for this guy because nearly every single person in the world, especially the press, was telling him it was the right thing to do with zero chance for failure. Really, there were just a few of us nuts that were saying this thing was going to blow up. This guy was in the stampede running off the cliff and all he could see is everyone else moving along, seemed to make sense, just follow that one in front of you. Opps, off the cliff.

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  14. 14
    EconE says:

    RE: shawn @ 13

    By the time he bought the lots in 2007, the warning bells had already been rung. LOUDLY.

    It is what it is.

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  15. 15
    ElPolloLoco says:

    By Ray Pepper @ 6:

    look across the street at the lovely home with 6 or 7 cars

    Funniest thing I’ve seen all day. What a moran.

    Never mind Cletus across the street — you’d have to buy all three houses and live in the middle one to have any privacy. He basically built a row of expensive townhomes.

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