Buying & Selling: Builder Blues

Cute little guy, that Bob The Builder. Got the can-do spirit and everything, and it seems national home builders are feeling the love:

The Commerce Department reported that builders started construction at a seasonally adjusted annual rate of 1.957 million units last month, an increase of 5 percent from the April construction pace. The better-than-expected increase came after declines of 5.5 percent in April, 7.5 percent in March and 5.9 percent in February.

Now, this would seem to be good news, but if you read down a little further, or read this press release from the National Association of Home Builders, it would seem that confidence is not high:

“We now expect new-home sales to be off by 13 percent from the record posted in 2005. Single-family starts, supported by large builder backlogs of unfilled orders and some continuing reconstruction in the wake of last year’s hurricanes, should be down by about 9 percent from the 2005 record.”

The smart home buyer is putting their risk on an existing home in this market, rather than rolling the dice on the increasingly frenzied output of homebuilders desperate to put up anything and everything they can. While this can only help prices in the long run--too much supply and too little demand will lead to prices dropping in order to move out the inventory--in the short term, it's going to mean more order cancellations and falling profits, which could mean heavy job losses in the construction sector.

There're some great comments at Calculated Risk that emphasize this point:

Here in Sarasota florida the building of condos, and homes is going non stop in an almost feverish manner. I have been watching 2 recently completed 12 story towers on busy highway 41 here in Sarasota and day or night i look into the open bottom floor and do NOT see one car parked and not one light in the condos above and yet a third ugly tower is now under construction. What gives?

Like Bob said, "We can get it done....," but what happens then?

Posted at June 20, 2006 03:17 PM

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Cute little guy, that Bob The Builder. Got the can-do spirit and everything, and it seems national home builders are feeling the love: The Commerce Department reported that builders started construction at a seasonally adjusted annual rate of 1.957 million units last month, an increase of 5 percent from the April construction pace. The better-than-expected increase came after declines of 5.5 percent in April, 7.5 percent in March and 5.9 percent in February. Now, this would seem to be good news, but if you read down a little further, or read this press release from the National Association of Home Builders, it would seem that confidence is not high: “We now expect new-home sales to be off by 13 percent from the record posted in 2005. Single-family starts, supported by large builder backlogs of unfilled orders and some continuing reconstruction in the wake of last year’s hurricanes, should be down by about 9 percent from the 2005 record.” The smart home buyer is putting their risk on an existing home in this market, rather than rolling the dice on the increasingly frenzied output of homebuilders desperate to put up anything and everything they can. While this can only help prices in the long run--too much supply and too little demand will lead to prices dropping in order to move out the inventory--in the short term, it's going to mean more order cancellations and falling profits, which could mean heavy job losses in the construction sector. There're some great comments at Calculated Risk that emphasize this point: Here in Sarasota florida the building of condos, and homes is going non stop in an almost feverish manner. I have been watching 2 recently completed 12 story towers on busy highway 41 here in Sarasota and day or night i look into the open bottom floor and do NOT see one car parked and not one light in the condos above and yet a third ugly tower is now under construction. What gives? Like Bob said, "We can get it done....," but what happens then?