Housing Market Turning 'Worse’

A recent poll of builders across the land shows the market for new homes is continuing to deteriorate. The survey, which was released at the National Association of Home Builders’ convention in Las Vegas, found that sales are declining across all price ranges.

The unbiased random sample of 417 NAHB members from throughout the country also shows that things are growing progressively worse as the price range increases. Half the builders said the market for houses priced under $150,000 is in either substantial or some decline, while 80% said the market for houses priced from $250,000 to $1 million is in full retreat.

“Things are getting worse,” said Gopal Aluhwalia, NAHB’s research guru. The main reason people aren’t buying, the builders said, is that they can’t sell their current homes. But a substantial number are worried about their jobs (88%) or think prices will decline further (75%). Nearly 70% of the builders said they cut prices in the fourth quarter to move inventory, and almost that many were offering formerly optional items at no cost. As recently as August 2003, half the builders said they were not offering any incentives to buyers. In addition, nearly three out of five reported making no profit during the period.

Meantime, nearly nine out of 10 builders who participated in the monthly Builders Economic Council survey said they are switching to smaller, less expensive houses. Only 12% reported building larger, more expensive houses. The latest Census Bureau figures confirm what the builders are saying. While the average square footage of houses completed during the third quarter was on the upswing, the average size of those started in the quarter is going down. And the change is “significant,” according to Mr. Aluhwalia.

The average square footage in newly started single-family houses was 2,629 in the second quarter vs. 2,438 in the third quarter, a difference of nearly 200 square feet, or an amount equal to a good-sized bedroom. Until the third quarter, the size of houses has been creeping up almost steadily.

The homebuilding slump has resulted in a loss of more than three million jobs, according to an analysis by economists at the association. Because production has dropped by more than one million units since starts hit their peak in 2005, 1.4 million construction workers have had to seek employment elsewhere, the NAHB said the convention.

“But the loss doesn’t stop there,” according to the report, which says the slump also has resulted in the loss of nearly 562,000 jobs in the businesses which make building products and nearly 583,000 jobs in such service-related industries as architects, lawyers and engineers. That adds up to 3.05 million jobs that no longer exist, and $145 million in yearly lost wages.

But three key housing economists at the convention were more optimistic than most that the bottom is in sight.

David Crowe, the new chief economist at NAHB, forecast a gradual increase in new home sales in the beginning of the second quarter and a “modest” uptick in housing starts some months later. “I expect to come out of 2009 on the upswing,” he said. “All the ingredients are there.”

Mr. Crowe conceded that some members of his group believe his predictions are a little too rosy, but he countered that his was not out of line with what other economists were saying. “If anything, I try to be more pessimistic so I don’t get builders to do something they shouldn’t,” he told National Mortgage News.

Frank Nothaft of Freddie Mac and David Berson, late of Fannie Mae, tended to agree with the NAHB economist.

Despite what he sees as a “continuing deterioration” in the jobless numbers, the Freddie Mac economist said he is looking for the recovery to begin in the second half of this year and for 2010 to be even better. Mr. Nothaft wasn’t without a dose of pessimism himself. “The only good thing I have is that mortgage rates are at a record low,” he told NMN. “But even then, you have to have a sufficient downpayment, a good credit score and full documentation to qualify, and that’s only if it’s a conforming loan.”

The credit box, he later told a news conference, “has tightened across all spectrums of the marketplace.”