Home sales in Georgia and the South continue to buck national trends that indicate a cooling housing market, but nervous home builders are hedging their bets even in Atlanta’s robust and competitive sales arena.
Home construction in the South increased at an 8.5 percent clip, according to the Census Bureau’s housing starts for May. But the South is the only region with faster building than a year ago, and the overall trend has been down.
“The starts number is sort of a red herring,” said David Seiders, chief economist for the National Association of Home Builders. “The cooling process is well under way and will continue for the rest of this year and into next year.”
After three consecutive months of decline, construction of new homes reversed course in May and grew 5 percent to an annual rate of 1.96 million homes nationally.
Most of the increase came from apartments and condos. But building permits, which anticipate future housing activity, declined by 2.1 percent.
National home builders are turning to aggressive promotions to keep their bottom lines intact.
Atlanta-based Beazer Homes recently held a “72-Hour Sale,” offering to finance homes for 1.875 percent for the first year for buyers that purchase ready-for-occupancy stock at any of its metro area developments.
Pulte Homes is advertising “No Interest Payments Until March 2007” on a banner outside its Westwood Terrace development in Smyrna, Ga.
Beazer’s mortgage rate promotion, which is rolling out nationally, is actually aimed more at extending brand recognition than pushing individual sales, said George Schulmeyer, Georgia Division president. About 100 homes will be available for the program.
“It allows us to capitalize on our competitive edge,” Schulmeyer said.
Unlike many other parts of the country, metro Atlanta continues to post strong sales, builders report.
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“We actually have lower inventory [now] than we had this time last year,” Schulmeyer said.
Metro Atlanta led the nation in building permits last year, according to the Census Bureau: 60,950. But the region is usually not listed as a “bubble” zone, where the housing market has boomed so far beyond fundamentals that a fall in sales and prices is inevitable.
Atlanta’s figures for April–they lag national numbers by a month–show permits actually 1 percent higher than a year earlier, said Rajeev Dhawan, director of the Economic Forecasting Center at Georgia State University.
While inventories of for-sale homes have grown significantly, the biggest imbalance is condominiums, he said: “The demand for new condos may be there, but there may not be demand for old condos.”
Residential real estate has been critical to economic growth since the 2001 recession. By some accounts, housing has accounted for roughly one-third of new jobs.
Moreover, the boom has lifted home prices, which has enabled millions of Americans to trade equity in their homes for cash. That money–more than $1 trillion–is credited with providing much of the fuel for consumer spending growth.
Some economists have warned that a housing slowdown could drag the economy with it. And the dangers of a meltdown are greater if home building continues at a frenzied pace while sales dip, flattening prices by creating a huge inventory that is expensive to maintain over time.
In metro Atlanta, one measure of housing inventory is posted on billboards maintained by GMAC Metrobrokers. On Jan. 3, the billboards said there were 67,766 homes for sale metrowide. Recently, the billboard recorded more than 90,000 homes on the market.
Peggy Sullivan, vice president of marketing for Pathway Communities, said sales in Pathway projects around the Atlanta region have shown no signs of slowing.
“We’re seeing a lot of relocation, and [the market trend] doesn’t matter because when they show up here, they need someplace to live,” Sullivan said.
National Association of Home Builders’ Seiders is among the optimists who say the economy is strong enough to ride out a housing retreat. But he says the slowdown is for real:
Overall starts in May were down 14 percent from September, while starts of single-family homes fell 18 percent.
Building permits, which are needed to begin construction, have slipped steadily since the start of the year.
Starts, which are affected by weather, can be erratic and are not always dependable as a predictor of the market’s direction, Seiders said.
“Building permits are the best indicator of current housing activity,” he said.
And the data may shroud some of the market’s weakness. When a contract is signed for a new home, it is counted as a sale. But if the buyer backs out before closing the deal, there is no adjustment to the report.
According to an NAHB survey of its members, cancellations are up roughly 60 percent during the past year, Seiders said.
A spike in mortgage rates might chill the market quickly, but those rates–linked to long-term bonds–remain at historically moderate levels.