New-home construction in the U.S. may take until 2011 to return to last year’s level, said David Seiders, chief economist for the National Association of Home Builders in Washington.
Monthly construction starts would need to jump by 21 percent to reach Seiders’ benchmark for full recovery, which is 1.85 million. There were 1.53 million in April, the Commerce Department said. At the height of the five-year housing boom in January 2006, construction began on 2.29 million homes.
“We’ve fallen way below trend because we soared way above trend during boom times,” Seiders said in an interview. “The upswing will be relatively slow, unlike earlier cycles.”
The inventory of unsold homes is the largest since the Washington-based National Association of Realtors started counting them in 1999, and house prices have had the steepest drop since the Great Depression, according to the Realtors. Defaults and foreclosures also may rise as about $650 billion of loans to subprime borrowers, those with poor or limited credit histories, reset at higher interest rates by 2009.
“We’re still being hit pretty hard by the subprime-related mortgage market problem,” Seiders said. “One of the biggest unknowns right now is how serious the change on the mortgages side will be on home sales.”
Sales of new homes rose 16 percent in April, the biggest increase since 1993, the Commerce Department said. The gain was made possible by builders who cut prices more in April than in any month since 1970. The median new-home price fell 11 percent, to $229,100 from $257,600 a year earlier, the report showed. Sales of previously owned homes fell in April to the lowest level in almost four years, the Realtors said.
“I’ll break out the champagne a year from now after the resetting of the mortgage rates and defaults come in less than what we’re fearful about,” said Susan Wachter, a real estate professor at the Wharton School at the University of Pennsylvania in Philadelphia. “For now, for the sake of the wider U.S. economy, the home builders have to start clearing out their inventory.”
Atlanta-based Beazer Homes USA Inc. was offering houses in the first quarter at a development about 44 miles outside Phoenix for $136,990, down 36 percent from the year-earlier price of $215,490, said Samantha Morris, senior consultant in Houston-based Metrostudy’s Mesa, Ariz., office.
Builders “have written off any hope” of 2007 being a good year, said John Burns, president of John Burns Real Estate Consulting in Irvine, Calif.
Larry Zacks, president of closely held Putnam County Builders Inc. in Mahopac, N.Y., said he put a 3,150-square-foot house on the market in February for $799,000 and had to reduce the price to $659,000.
“We finally sold it for $649,000,” Zacks said. “Things are moving, it’s just a question of finding the right price. In a glutted market, buyers have a huge selection, so they don’t have to be forgiving. If they don’t like one thing about it, they can go down the street.”
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Prime Home Builders, a closely held company in Ft. Lauderdale, is advertising a 23 percent discount on a new four-bedroom townhouse with 2 1/2 bathrooms in Naples, Fla. The price was slashed to $344,169 from $449,258 in a development where about half the units have been sold, said Keith Thompson, a marketing consultant with Prime Home Builders. “It was under contract and the buyer forfeited the deposit, which is pretty common in this market,” he said. “We’re putting it out at a much lower price by rolling the deposit over to the next buyer.”
Horsham, Pa.-based Toll Brothers Inc., the largest U.S. luxury home builder, reported that fiscal second-quarter profit slid 79 percent. Chief Executive Officer Robert Toll said on May 24 he was “a little more confident” about the market, adding: “I would emphasize a little.”