Luxury home builders continue to tout 'dream homes'

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OREGON CITY, Ore. (AP) - The street was supposed to be the stuff of dreams.

Along South Grasle Road outside Oregon City, six supersize Street of Dreams homes built in 2007 back up to ribbons of Doug fir and a glazed Mount Hood peak.

The builders came to attract future customers, and they were optimistic about selling the show houses that stretched to $3 million. Normally, two or three homes sell during the show and most are sold within a year.

But nine months after the Street of Dreams show, none has sold.

The show opened just as the U.S. mortgage market tumbled, triggering the Portland region's biggest home price decline in at least two decades.

One Street of Dreams builder tried unsuccessfully to auction his home. Two builders now own their homes and one of them lives in his. Subcontractors who worked on four homes have filed liens to get paid.

"The timing was probably about the worst ever," said builder Ray Derby, a Street of Dreams veteran who is still trying to sell his $1.9 million home. "We just hit a bad market."

The idle homes show what can happen to builders who test the market's limits of luxury, price and location at what turns out to be the crest of a historic boom. When the market slowed, in this case, the builders got stuck holding homes that turned out to be pricier and tonier than the rural Clackamas County market could support.

Across the Portland area, homes priced over $1 million are selling about as well as less-expensive homes. But the sweet spot for ultraluxury resides in Portland's West Hills, West Linn or Lake Oswego, not rural Clackamas County.

Through April of this year, eight homes sold across the Portland market for more than $2 million. Six were in the luxury hot spots. Two were in the Clackamas or Oregon City areas, according to the Regional Multiple Listing Service.

The 2007 Street of Dreams' troubles reminded builders of the 2001 show. That year, the show opened in Hillsboro just as the dot-com economy busted, leading to sluggish sales. Derby said he needed about 18 months to sell his 2001 show home.

With last year's bad timing and an out-there location, broker Craig Reger, who tried to sell one of the show homes, called the 2007 show's conditions "a formula for disaster."

Builder Sean Foushee has built custom homes across the Portland area for 15 years. "This is absolutely the toughest time I've ever seen," said Foushee, owner of Accent Residential Homes in Tualatin.

Foushee, 37 years old with close-cropped red hair, designed his home, named "Salish Moon," in early 2007 before the market cooled. His "modern lodge style" - think Aspen - was designed more to make a splash than cash.

"You get caught up in it," Foushee said. "You're putting a show on."

For builders like Foushee, the Street of Dreams is a chance to show off in front of thousands of people, some of them potential customers. It's also a big fundraiser for an industry group, the Home Builders Association of Metropolitan Portland.

Inside the house, Foushee's voice bounces off the Glacier stone that lines the front room up to the vaulted ceilings. He's greeted by sales fliers waiting for a potential buyer.

The house, named Best of Show, has all the touches of an exclusive Street of Dreams home.

There's a smoking room outfitted with thick drapes and a Robb Report magazine - the "Global Luxury Source." There's a massage parlor and a shower the size of a small bedroom. Even the walk-in closet has a Mount Hood view. And how many fireplaces?

"I don't know," Foushee said. "Seven or something."

But all this space requires attention.

Without a buyer, upkeep falls on Foushee and his work crews. "It's not fun," Foushee said.

Foushee, a golfer, mows the putting green out back. His crews drain the front-yard pond to sweep out algae. Walking next to the wine cellar, Foushee spots dust gathering on the walnut wood floor. "I gotta get guys in here to clean this up," he said.

The house is still outfitted with $460,000 worth of furniture from the show. "The couch alone," Foushee says, "was $38,000."

He wouldn't say exactly what his loan payment is, but Foushee said builders for homes in that price range typically must cover a $8,000 to $12,000 monthly payment.

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Foushee first advertised the house for $3.2 million.

He's now listing it at $2.9 million, and he just wants to get the house off the books. "I'd take less than that," Foushee said. "I'll take a loss, and it's fine."

On the way out, he notices the front-room lights are on. He reaches for the touch screen.

"No sense spending any more on the utilities," he said.

Just as the 2007 show ended and the housing market started to slide, Greg Heinze learned he'd be the lead developer for the following year.

By then, it was clear to anyone that the housing market was headed for trouble.

Heinze, a Street of Dreams veteran, said he and the Home Builders Association of Metropolitan Portland needed enough builders to attract about 80,000 visitors. But he said they had to look hard to find interested builders.

Some builders already had too many homes to sell. Others found that lenders required more upfront cash equity than they could handle.

They talked briefly about canceling the 2008 show, Heinze said. Organizers for the Seattle version of the Street of Dreams canceled this year's show, but the group's statement didn't specify why.

In Portland, Heinze and the builders association decided to go ahead.

They found four other builders to join in the 2008 Street of Dreams show. One house is already built and occupied. All of the other builders except Heinze have homes that are presold, reducing the builders' risk of getting stuck with the house.

Heinze, though, remains confident. He scans his half-built 6,400-square-foot Street of Dreams home on Mount Scott's peak above the coursing traffic of Interstate 205. He points to the view and a downtown skyline that shines through the blue-gray sky. Around him, a framing crew hoists a beam into place, a circular saw whirrs and a nail-gun's compressor growls.

"Right price. Right plan. Right location. You will sell your house," Heinze said. "The upper-end market is still there. They're just pickier. ... People who've got money will always have money."

Heinze said he did a few things differently to build his house at a lower cost this year. He went with a truss roof built off-site and a steel foundation to reduce construction schedule and interest costs.

During the 2006 housing boom, Heinze said he might have asked $2.25 million.

Now, he's thinking less than $2 million.

"It's primarily market driven," he said. "You're absolutely insane to go over $3 million. You're pretty crazy to go over $2 million."

Copyright 2008 The Associated Press. The information contained in the AP news report may not be published, broadcast, rewritten or otherwise distributed without the prior written authority of The Associated Press. Active hyperlinks have been inserted by AOL.

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