another sign of deflation: builders offer price guarantees

[sniglet]

I think it speaks volumes about the emerging state of deflation to see that many builders are now offering price guarantees to buyers. If the price of homes in the area changes between the signing and closing, the builder will sell at the lower price. Some builders are even offering a price guarantee for a period of time after closing, to instill confidence in buyers that they won't lose money.

This is a far cry from the days when buyers would camp out in lines over night to sign up for a new home, and the builders would raise the prices by the day.

With price guarantees for homes occuring, I wonder how long it will take for this to trickle through the rest of the economy? I can easily see builders wanting to pass on the risk of taking lower prices to suppliers and sub-contractors (e.g. forcing suppliers to take a hit if the homes don't sell for as much as expected). There's already been numerous cases where builders unilaterally declared cuts in payments to sub-contractors or supplier, who just have to suck-it up or leave the business.

In turn, those suppliers will likely be putting pressure on manufacturers and producers to reduce prices too. Instead of the inflationary cycle that kept pushing prices of everything up in the last decade, we are now seeing the beginnings of a cycle where lower prices beget still lower prices, and lead buyers to be even more reticent to purchase as they grow to expect even more price declines.

[Nell Plotts]

I hear that the price of framing lumber is back down to where it was over 10 years ago.

In the 80's, when PNW housing was in the dumps, I knew of a lumber broker who had saved during the previous run-up and moved to Europe through our recession. Husband knew that the market had changed when they returned. These days South America may be the place to hang out until this all blows over.