Since the Pandemic started, the national new home builders like Lennar, DR Horton, Pulte, KB Homes, Richmond American, Toll Brothers to name a few, have been quietly setting a negative equity trap for new homeowners. As demand spiked and inventory shrank in the early days of the pandemic, homebuilders were all too happy to raise prices, create waiting lists and make buyers feel as if they won the homeownership lottery. Trading an immense part of their financial future, six or seven figures, over to the builder for a piece of the American dream, the promise of a home and a chance to get on the equity ladder. 

 

As rates spiked and sales slowed for the builders they enticed homebuyers with below market rates, 2 and 3 year rate buy downs, free design upgrades, waived lot premiums. Those freebies, sold homes and enticed buyers, but they were far from FREE! The builder spent tens of thousands of dollars providing those incentives. Even though they lowered their margins the incentives created demand and kept the builders from doing the one thing that hurts them the most, lowering prices. When a builder lowers the price of a new home they face possible cancellations from buyers already under contract, after all no one wants to pay more for something that others, especially tens of thousands of dollars. 

 

They counted on the American mindset of monthly payments and sold to buyers that they would get more for less(Lower monthly payment. Compared to market interest rates of 6%,7% or even 8% the builders’ low teaser rates of 2.99%, 3.99%, 4.25%, 4.99%, even 5.5% saved homebuyers hundreds and even thousands of dollars a month off on their payment. In high cost areas like Southern California the price difference in a builder subsidized payment compared to a resale home could literally be thousands of dollars a month. It was a win for the buyer. The hidden cost was that while the home was cheaper on a monthly cost basis, the builders kept the price high, above market. 

 

Now if you are staying in your house for the long term no harm, no foul. Overpaid, but it really does cost you less. Being slightly upside down in the short term will have you ahead in 10, 20 or 30 years. The key word is short term…welcome to real life. The best of plans often change. Many people find themselves in very different situations than they planned for; illness, divorce, children, family moves in/out, job loss, under employment, relocations, unexpected financial situations, even death. Unfortunately in this situation that may leaving you considering a short sale.

 

So you bought a home, knowingly paid a little more and life has changed. For a couple years you could get out. Prices went up a little or stayed flat, negotiate a lower cost realtor, use a flat fee agent and slide out with little equity or slightly short. Not ideal but manageable. 

 

However 2025, brought some new problems for your situation, in many areas overall prices started to decline. The news tells you it was modest, maybe just 1 or 2% decline. In areas with a lot of new construction the declines tended to be steeper. Builders simply sell houses, they don’t sit around waiting for someone to pay what you paid last year like a normal homeowner, they don’t say if we can’t sell it we will keep it, or rent it. The big ones don’t always even care if they make money on one particular sale, as long as they keep the cash flow going and quarterly numbers moving. They use a number of tricks that I have watched over the years and in 2025 throughout the markets I work in I saw them start. Their favorite is to close out the models you bought and open new, usually smaller and slightly different versions right around the corner. They hope you don’t notice they just lowered the price of your home by 30,50 or even 100 thousand dollars because these are different homes. 

 

This was prevalent in the outlying suburbs of metropolitan Phoenix, Arizona. Places like Buckeye, Goodyear, Surprise, San Tan Valley, Queen Creek, Florence, Coolidge. I also saw it down in Tuscon, AZ in the bedroom communities of Red Rock, Marana, Vail, West Tucson. Same tactics, leaving any new homebuyer who needed to sell slightly upside down. Some used larger down payments and could absorb a loss, but most put 3 or 5% down and are looking at a negative equity short sale if they have to sell. It took a while for homesellers to linger on the market hoping for last year’s top price but the reality slowly crept in and I started to receive my first short sale calls in the fourth quarter of 2025. 

 

Likewise, Attorney John McConnin and myself have watched this start to happen in the Inland Empire of Riverside County California. New construction areas in San Bernardino County are in low to no equity situations. Riverside County short sales are on the rise, the builders’ incentives have trapped a large number of homeowners should they need to sell. Corona, Menifee, Hemet, Murrietta, Lake elsinore, Temecula, Temescal Valley, French Valley, Winchester, Moreno Valley,Perris, Wildomar, Norco, San Jacinto,Canyon Lake are all beginning to show increased distressed sales and especially short sales and foreclosures.  

 

The Coachella Valley including Cathedral City, Coachella, Desert Hot Springs, Indian Wells, Indio, La Quinta, Palm Desert, Palm Springs & Rancho Mirage have seen a huge spike in short sales, distressed properties and foreclosures. They have the new construction equity trap but they also have a tremendous amount of condos that are suffering from skyrocketing HOA and insurance costs in addition to the prevalent land leases. All three make payments high and put downward pressure on prices.

 

It is important to understand you have options and to understand your rights if you find yourself faced with negative equity, foreclosure, short sale, short pay. It is imperative that you have a lawyer review your options and lay out a plan that you fully understand. All foreclosure workouts have some risk. You must understand your risks and plan accordingly for optimal success. Contact us today to receive a free upside down analysis to review your situation and put you on the right path to minimize your financial impact and protect your future.