New Homes Competing Against Foreclosures
Builders broke ground on fewer homes in April as the new-home sector continues to face competition from a glut of foreclosures that in many markets has brought home values down.
Construction on homes and apartments dropped 10.6 percent to a seasonally adjusted annual rate of 523,000 units, the Commerce Department reported on Tuesday. In March, housing starts reached a 585,000-unit pace (an upward revised figure). Residential construction is down 23.9 percent compared to April of last year–its largest drop since October 2009.
Considered the “volatile part” of the new-home market at the moment, construction of multifamily homes (buildings with five or more units) particularly hampered housing starts last month, decreasing 28.3 percent. Single-family home construction–which generally makes up 75 percent of all housing starts–dropped 5.1 percent from a month earlier.
Regionally, the results were mixed. In the South, housing starts dropped 23 percent and 4.8 percent in the Northeast. However, the Midwest posted a 15.7 percent gain in housing starts, as well as the West with 3.7 percent.
Permits for future home construction dropped last month, falling 4 percent to a 551,000-unit pace last month, the Commerce Department reports.
The Distressed Sales Impact
New-home construction is being weighed down by an oversupply of existing homes on the market, particularly foreclosures, experts say. Buyers are increasingly choosing bargain-priced foreclosures and previously owned homes over–in general–pricier new homes.
“Builder confidence has hardly budged over the past six months as persistent concerns regarding competition from distressed property sales, lack of production credit, inaccurate appraisals, and proposals to reduce government support of housing,” NAHB Chairman Bob Nielsen said Monday in statement about the National Association of Home Builder/Wells Fargo Housing Market Index, which shows builders’ confidence about the new-home market remains low.
Source: “U.S. Housing Starts, Permits Fall in April,” Reuters News (May 17, 2011), “US Apr Housing Starts -10.6% to 523K,” Dow Jones International News (May 17, 2011), and “U.S. NAHB: Distress Homes Continue to Weigh on New Sales,” Market News International (May 16, 2011)
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Builders Reveal Utility Costs of New Homes
Home builders are using the energy efficiency of new homes to try to get buyers buying. For example, KB Home is giving buyers an estimate up-front of what their monthly gas and electric bill will be in their new home, as well as insight into where the home ranks on an energy efficiency scale.
Similarly, McGuyer Homebuilders Inc., based in Houston, has begun providing its customers with estimates of what the annual heating and cooling portion of their utility bills will be on homes. If the buyer ends up with higher utility bills than what’s estimated, McGuyer will even reimburse them the difference in the first two years.
Sales of new homes have fallen flat in the last few years, sinking last year to its lowest level since 1963. Home builders are banking on energy efficiency to try to lift new-home sales.
They call their approach similar to that of automakers, which have provided miles-per-gallon labels on vehicles, a move that ultimately helped make fuel-efficient cars more popular in the market.
“It’s the biggest purchase decision that people are making at that time in their lives, and typically they have no idea what it’s going to cost to truly own the thing until they’ve been there for several months,” Jeffrey Mezger, KB Home’s president and CEO, told the Associated Press. “It’s a cost of home ownership that hasn’t been out there.”
Source: “Homebuilders Take Page From Automakers, Tell Buyers What Their Monthly Utility Bill Will Cost,” The Associated Press (Feb. 14, 2011)
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Construction Spending Remains Low
U.S. builders pushed construction spending down 1.3 percent in February to the lowest level in eight years, the Commerce Department reported Thursday.
Construction reached an adjusted annual rate of $846.23 billion, the lowest level since November 2002.
Spending on construction projects is down 12.8 percent from a year ago, suggesting that housing is still a long way from recovery, analysts say.
“The bursting of the housing bubble continues to depress new-home construction. The proliferation of foreclosures is a dark cloud that overshadows the construction industry,” says Ken Mayland, president of ClearView Economics.
Source: Associated Press, Jeannine Aversa (04/01/2010)
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New Homes Are More Energy Efficient
Buyers of new homes can expect much healthier and more energy-efficient properties than they get if they buy an older home.
Tom Molidor, president of Molidor Custom Builders in Clarendon Hills, Ill., recommends installing a high-efficiency furnace close to the part of the house the family uses the most, instead of putting it in the basement.
A 3,000-square-foot home that is top-rated for energy efficiency can be heated in the greater Chicago area for less than $50 a month, estimates R.A. Faganel Builders.
Other commonly included energy-friendly features include double- or triple-paned low-E windows that not only keep out cold air but also make homes quieter.
Source: Chicago Tribune, Leslie Mann (11/06/2009)
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Basic Features Appeal to First-Time Buyers
First-time homebuyers are forcing home builders to think frugal by penny-pinching on upgrades.
Nearly 50 percent of new homes sold in the first six months of 2009 cost less than $200,000, the largest share for the first six months of a year in five years. The average size of new homes fell to 2,065 square feet, the smallest since 2000.
“The high end isn’t moving, so builders have to dumb-down their designs and put in Formica kitchens and the bare-bones carpeting,” says Brian Bethune, an economist at IHS Global Insight.
The barebones approach is helping builders that focus on first-time buyers improve their profits. Standard Pacific Corp. has more than doubled its stock price and Meritage Homes Corp. is up 84 percent.
Source: Bloomberg, Kathleen M. Howley and Daniel Taub (08/06/2009)
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Housing starts unexpectedly surge!
Government report shows construction of new homes jumped 22% in February.
NEW YORK (CNNMoney.com) — Initial construction of U.S. homes unexpectedly surged in February, after falling for seven months, according to a government report released Tuesday.
Housing starts rose to a seasonally adjusted annual rate of 583,000 last month, up 22% from a revised 477,000 in January, according to the Commerce Department. It was the first time housing starts increased since June, when they rose 11%.
Economists were expecting housing starts to decline to 450,000, according to consensus estimates compiled by Briefing.com. Still, starts are down more than 47% from February 2008, when over 1.1 million new homes broke ground. More Details.