Commercial PropertyRealty Times - Focus On Builders
A more than seasonal pull-back in new construction suggests that housing is slowing down. That raises an interesting question. Is the building industry simply protecting profits by carefully controlling inventory or is it anticipating slower sales?
Realty Times" focus this week is on the home building industry where recent reports have people talking about housing once again. This time, economists and pundits are worried that a housing slowdown has already begun. Here are several progressive indicators:
In September, the price of new homes fell nearly 6 percent.
New construction of homes fell nearly 6 percent by October.
Mid-November reports say that building permits dropped nearly 7 percent.
Last week, mortgage interest rates have hit 2-year highs and are now over 6 1/2 percent.
With less new inventory on the market, it appears that housing is fulfilling the prophecy that pundits have been expecting -- that years of record sales can"t continue.
But consider this -- housing starts are still over 2 million for the year, even if they"ve dropped from a pace of nearly 2 and a half million from September. While that"s the biggest drop in six years, it"s still an orderly cooling down period, says David Seiders, chief economist for the National Association of Homebuilders. He suggests that prices are creating their own kind of drag on the market, including those for lumber, concrete and other building materials which have jumped since Hurricanes Katrina and Rita.
New records can"t be set again and again without a rest period, and it could be that housing won"t get a chance to rest for long before being called back into the game.
Leading economic indicators for October such as a drop in jobless claims and rise in factory hours suggest that the economy is already improving, and that new starts in housing are sure to follow. But there is one caveat -- those building costs. Construction costs have skyrocketed 30 percent, as the continuing housing boom has created shortages of some materials. Rebuilding 632,000 homes in and around New Orleans has pushed lumber prices up as much as 50 percent. The price of oil has also impacted costs, even though oil prices are drifting back down recently.
Realty Times advises that homeowners who want to buy a home now should not be discouraged. A pull-back in prices and increased availability of inventory is happening now, but housing could rebound as early as January, so if you"re going to sit on the sidelines, don"t plan to warm the bench for long. We believe that spring housing could rebound to test new record levels in 2006.