| Neither Supply Nor Demand Will Help the Average Builder This Year |
| Written by Jonathan Smoke | |
| 05.25.2007 | |
|
Discuss this article on the forums. (0 posts) Last Thursday, NAHB released the May report from David Seiders, the Chief Economist of the NAHB. This exclusive report echoed many of the same observations and conclusions highlighted in the May 14 “Eye on the Economy” column in the Nation’s Building News.  The most critical observations covered very negative conditions in both supply and demand that are weighing heavily on new home sales in 2007 and will continue to wreak havoc at least for the remainder of the year.On the supply side, vacant homes on the market are weigh heavily on net demand for new construction: “First-quarter data from the Commerce Department show a rising tide of vacant housing units on the market, with new records posted for both for-sale and for-rent units. The high vacancies are showing up primarily in the for-sale components of both single-family and multifamily sectors, but the numbers of vacant single-family and multifamily rental units on the market also are up to formidable levels.”
Also impacting supply are in-process housing completions and the potential for foreclosures: “Although housing starts are down dramatically since early last year, housing completions have fallen by much less and the pipeline of units under construction still is quite large —pointing to an ongoing flow of vacant units onto markets that already are heavily overloaded. And a rising tide of interest-rate resets on subprime hybrid ARMs made during 2005-2006 inevitably will translate into a rising tide of foreclosures and resales during the balance of this year and in 2008.” And on the demand side, credit tightening and weakening home prices are continuing to sideline would be buyers: “Key indicators of home buyer demand have continued to weaken, under the pressure of the evolving tightening of mortgage lending standards as well as flagging confidence among prospective buyers about the prospects for house prices. NAHB’s surveys document a broadening pattern of house price adjustments as well as more intensive use of non-price sales incentives as builders strive to support sales and hold down sales cancellations.” NAHB reduced its official forecast for new housing units in 2007 to be 22% less than 2006, and they are only forecasting a 5% recovery in 2008. To succeed in this tough climate, builders need to weigh their decisions carefully. The average or below average performers may not fare well, and some may not survive, especially those with big exposure to markets with the worst conditions. Yet, with intelligence it is possible to succeed. If builders can pick markets and land investments carefully, determine the best customer targets, and deliver a quality product effectively and efficiently that will be well received by their customers, they will beat the average and will be well positioned when the market improves in 2008. 
We're always looking for feedback from our readers.
|
| < Prev | Next > |
|---|
