Homebuilders Are Feeling Deflated

Posted by: Peter Coy on June 18, 2007

Homebuilders are the most pessimistic they’ve been since February 1991, according to the National Association of Home Builders/Wells Fargo Housing Market Index, which was released today. If you’re into numbers, the index for June fell two points to a cycle low of 28.builder.jpg


Here’s a quote from the press release:

“Builders continue to report serious impacts of tighter lending standards on current home sales as well as cancellations, and they continue to trim prices and offer a variety of nonprice incentives to work down sizeable inventory positions,” said NAHB President Brian Catalde, a home builder from El Segundo, California.

The big problems are tighter lending standards, especially in the withering subprime market, and higher interest rates across the board thanks to the runup in bond yields. The NAHB isn’t expecting housing starts to re-accelerate until “early next year.”

In regional results, the Northeast looks healthiest:

The Midwest posted a three- point decline to 19, the South posted a one-point decline to 32 and the West posted a five- point decline to 27. The Northeast recorded a three-point gain to 35 following a six-point loss in May.

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Reader Comments

rich

June 18, 2007 08:22 PM

Yes, Peter, the big problems are tighter lending standards and higher interest rates. But those aren't the BIGGEST problem. The biggest problem is that builders had no discipline, economic forecasting, or sense of historic cycles. They all bought way too much land and build way too many subdivisions and condos, based in large part on speculative (investor) demand. Nobody could say whoa!

In almost every decent-size town in American, there is a big condo, apartment complex or office building rising today, still many months from completion. Nobody is lining up to buy or rent them, and the developers and lenders wish they would disappear. But mostly they won't. They will be built and sit, empty or half empty, for up to a decade.

In big real estate projects , it takes forever to slow down and you can't stop halfway. And next, Peter, you will see the same disasters in commercial real estate all over the U.S. For the same basic reason -- too much greed aimed at speculation, too little common sense.

There is no way the U.S. economy can avoid a recession with the double whammy of residential and commercial real estate collapse.

Chicago-Sally

June 19, 2007 10:57 AM

It's called churning. In Chicago we see it a lot, just like stock churning. Tear down-build up...tear down-build up...or buy old and rehab...and the condo building just keeps going on in Chicago even though the market is extremely soft...even Trump came into build up interest in his condo-hotel...over-building, bad forecasting...and let's not forget "stagnant" wages...not everybody is a millionaire you know?

Optimist

June 19, 2007 05:06 PM

I think this downturn is actually great for American economy long term. At a time when US competitiveness is under serious threat due to bad government, bad energy policy, bad education policy.. , the one thing that seems to be going in our favor is relatively cheaper cost of living. As expensive as New York and San Francisco seem to be, real estate there is actually cheaper than Moscow, Mumbai and Shanghai. Over time the best and brightest will gravitate towards where they can find best quality of life, and US still seems one of the best options.

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About

BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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