What builders are doing to the market:

From The Bakersfield Californian:

Deeply discounted new homes go on sale Saturday in two northeast Bakersfield communities, an event that has inspired stakeout tactics in some would-be homeowners and a measure of concern among those who paid full price to live in the neighborhoods.

D.R. Horton Inc. is selling homes at up to a 50 percent discount in 23 Southern California developments starting this weekend. One home plan, formerly listed for $380,000, has been reduced 48 percent to $199,990, according to a company sales flier.

Industry observers said the sale is a drastic measure, and a sign of the impact large national builders have had on the local homebuilding market. ‘They do things that we’ve never seen before,’ custom homebuilder Phil Gaskill said of his national competitors. ‘They overproduce homes when the market’s hot. And then when it’s not, they slash prices to move (inventory).’”

Jon Hess is betting on securing one of those bargains. He set up camp in front of the Contessa’s Vineyard II sales office Sunday, and was still in line Friday afternoon.

‘I think it’s a good value,’ Hess said of the model home he had in mind. Still, he was realistic about what this kind of sale might say about the health of the real estate market. ‘Who knows?’ Hess said. ‘Maybe by this time a year from now it’s going to be worth half of what I paid for it.’

At least one Lavender Trails homeowner, Billy Abney was worried Friday that the sale might further depress the value of his home, which he estimates has fallen $60,000 to $70,000 since he bought in the summer of 2006.

The 2,600-square-foot home plan he bought for $371,000 is being offered for sale at $230,000 this weekend.

Mr. Abney, your home is worth $140,000 less than when you bought it a year ago, not $60,000 or $70,000.

This is a tactic used by large home builders, especially the publicly traded ones, and is probably the thing to be most cautious about when buying a home from them. This week it's this price, but if the sales office doesn't sell everything in a timely manner, look out for the discounts. Think about it - if you could buy a brand new home for $50K less, right across the street from where a guy is selling that exact same floor plan, lived in, for which he paid $50K more, which one are you going to buy, and what is the "new appraised value" for BOTH homes. It's the lower amount. If the guy who has lived there for a year bought with little or no money down, he likely now owes more than what it will appraise for. This effectively kills the neighborhood, and will cause an upward spike in foreclosures, not abate them, as the builder will tell you.

If you owe more than it's going to appraise for, you can't sell or refinance without having to come out of pocket for the difference. Not cool.