When you read the stories today about home construction hitting its lowest level since 1959, you probably think it's just more bad news -- but it's actually good news. The only way we're going to even get near the bottom of the housing price drop is for the backlog of available homes to be sold. We'll only see prices start to climb back up when demand is higher than the available supply. We're still a long way off from that scenario, but if builders stop building, we'll get there a lot faster.
Based on the new numbers released today by the Commerce Department, the pace of new construction will put the U.S. on track to build the fewest new homes and apartments since the end of World War II. Commerce reported that construction of new homes and apartments dropped to 791,000 on an annual basis. Prior to today's report the slowest pace since World War II was in January 1991. This was the fourth straight monthly drop and I doubt it's the last one. There are still too many homes waiting to be sold.
The declines were led by a 31% drop in the Northeast and 13.7% drop in the Midwest. There were modest increases in the South (1.5%) and the West (7.5%). Given that the South and the West were the hardest hit at the beginning of the housing bubble burst, this could be good news that these hard hit areas are nearing their bottom.
But, the problem of available credit still haunts the housing industry. Tighter lending standards have sidelined most potential customers, while others are waiting to buy until they are sure that the market has hit bottom. Who wants to buy a house that could lose value before one even moves into it?
The big question is whether the builders can hold on long enough until there is a turnaround. Homebuilders are pushing Congress to take steps to encourage new home purchases. They're asking Congress for a 10% tax credit of up to $22,000 for home buyers who purchase a home over the next year. They also want Congress to allow a temporary interest-rate reduction on 30-year mortgages. While these moves may encourage purchases, I don't think any incentives should be tied just to new home purchases.
Lita Epstein has written more than 25 books including "The 250 Questions Everyone Should Ask About Buying Foreclosures" and the "Complete Idiot's Guide to Improving Your Credit Score."
The big question is whether the builders can hold on long enough until there is a turnaround. Homebuilders are pushing Congress to take steps to encourage new home purchases. They're asking Congress for a 10% tax credit of up to $22,000 for home buyers who purchase a home over the next year. They also want Congress to allow a temporary interest-rate reduction on 30-year mortgages. While these moves may encourage purchases, I don't think any incentives should be tied just to new home purchases.
Lita Epstein has written more than 25 books including "The 250 Questions Everyone Should Ask About Buying Foreclosures" and the "Complete Idiot's Guide to Improving Your Credit Score."
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Reader Comments (Page 1 of 1)
11-19-2008 @ 11:29PM
Ang said...
I have to laugh at how everyone sees Obama as their governmental Messiah. Stop it already! LOL. He is JUST A MAN. He is not going to save you.
As far as new home construction being low...good! With the dearth of existing homes on the market, why kill more trees and leave the unsold homes standing vacant on bulldozed land when they could be remodeled and reused without having to flatten and pave more earth? Homebuilders should take on second jobs as remodelers and tree planters. Just like the fashion industry and the auto industry, there's simply a glut of product. At some point, you have to stop producing and allow demand to catch up. In the meantime, figure out how to more efficiently conduct business so you don't use up resources and put yourself out of business! People have no foresight anymore. Really.
11-20-2008 @ 3:15AM
Lyreddwm said...
This article looks like classic Orwellian double-think to me. The news is really bad, but it's really good? Not to demean Ms. Epstein, but this analysis is flawed on so many levels that it makes one roll one's eyes. Supply and demand works from both ends, remember? Yes, the supply is very overbuilt, but any reduction in supply must be matched by an increase in demand in order for a bottom to come in sight. If demand continues to drop even faster than supply, the market will continue to deteriorate and prices will continue to drop. What you must look for is the balance point between value and price. When value continues to decline, price can do nothing but follow. Nobody wants to believe bad things can happen, and these days, most people only believe what they want to believe. We're taught what to think and not how to think. So, believe what you want, but reality has a way of being what it is - regardless of whether an individual likes it or not.
11-29-2008 @ 3:22PM
charles hopfl said...
The shells are standing all around the country with half finished homes, high rises and commercial buildings. What were the developers, banks, mortgage lenders, rating agencies, regulators and buyers thinking? Could this go on forever? Obviously not, and still, no one seems to have learned anything. With no one minding the store, the investment types and hedge funds got into the act creating phony insurance through swaps and debt obligations sliced into so many parts that no one can figure out what they did. All the con men have taken their bonuses, commissions and stock gains and left the rubble for the common folk. It will be a long time before the buyer has the confidence to buy again and who is to blame. Thank goodness with a new administration, the upward turn may start again in the not too distant future.