January 31st, 2014 11:03 AM by Ron Mastrodonato
Dropping sales volumes in new-home construction has home builders worried about a possibly dismal spring looming in 2014.
“There’s some nervousness about the spring selling season,” says Jody Kahn, a senior vice president at John Burns Real Estate Consulting. “That’s partly because they’re worried [that] the lack of urgency from their prospects will continue.”
A survey of builders by John Burns Real Estate Consulting showed the second consecutive month in year-over-year declines in sales volumes for new home construction, the first decreases reported since early 2011. In October, sales of new homes fell by 8 percent year-over-year and posted a 6 percent drop in September year-over-year.
Earlier this year, the new-home market saw a rapid run-up in prices. But now, the percentage of homebuilders who are raising prices is declining, falling to 28 percent in October compared to 32 percent in September. In July, 64 percent of homebuilders had said they were raising prices.
“October was basically a crummy month for a lot of builders,” Kahn says. “Their frustration is about the government shutdown and how it probably trumped any seasonal [sales] lift that builders were hoping to see. Most did not have very good sales.”
While new-home purchases tend to drop in the fourth quarter, builders are worried that lawmakers’ indecisiveness over the federal budget and debt, as well as the fragile economy, will hamper the spring selling season early next year.
Markets where home-price appreciation is outpacing job growth and income gains are the most worrisome, analysts note. Some builders are already responding. For example, The Olson Co., a builder based in Seal Beach, Calif., has shifted the company to building less expensive housing, such as townhomes.
“I think this [slowdown] is a good wakeup call for the industry,” says Scott Laurie, chief executive of The Olson Co. “You can’t just raise prices 2 percent a month. That doesn’t work. What works is affordability.”
Source: “Weak October Sales Have Home Builders Fretting About Spring,” The Wall Street Journal (Nov. 22, 2013)