New Housing Market Stuck At Bottom

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Sales of new single-family homes peaked in 2005 with 1,269,000 homes built. Today, new housing construction news is grim as outlined in a Los Angeles Times story here:

 New home sales are stuck at the bottom of the market at a rate of 300,000 new homes constructed annually. This represents a 75% drop in home construction. Most businesses cannot sustain a 75% drop and survive.

The article reported, "With job growth at a standstill, the stock market swinging wildly, Congress wrangling over the debt ceiling and the euro zone's problems sending consumer confidence down; sales of new homes are slipping from an already weak pace." Celia Chen, director of housing economics at Moody's Analytics, wrote in a note to clients, "New home sales fell below the 300,000 mark in August and are nearing the cyclical (and 48-year) low of 278,000 that sales hit in August, 2010."

The article also quoted Patrick Newport, U.S. economist with IHS Global Insight. He said that the trend for new home sales has been flat for the last 16 months."This year is shaping up to be the worst year on record for new home sales."

With mortgage rates incredibly low, home sales are still weak.  The turnaround in the new housing market is not here and it doesn’t look like it will be here next year.

During the housing boom in 2005, new home construction often cost less than existing homes. This encouraged buyers to select new home construction. Now, in most markets, new home construction is far more expensive than existing homes. The National Association of Realtors reported in August that the average cost of a new home was $225,000 while existing homes were $175,000. That’s more than a 20% difference. In addition, costs for new homes rise as you  figure in landscaping, window treatments, and other move-in expenses.

For new housing to register gains, the housing prices of used homes must increase to the point that new home construction is a competitive option. That means that those holding vacant land will be waiting a long time before buyers emerge.

Anyone in new home construction or related businesses feels the sting. And the projected outlook isn’t getting better.  The impact hits a wide variety of businesses that market to new homeowners, such as landscaping and furniture. Many contractors have gone out of business while others have shifted to handy-man jobs and remodel work. In today’s economy, flexibility is a good strategy. 

Those in the construction business need to take action and find alternative methods for making a living. Some examples include a contractor who started marketing energy efficient windows in a cold weather region. Another marketed handyman services as a way to earn income. Others have shifted to trades like plumbing or electrical contracting where the skills transfer easily.

King Solomon wrote, “How long will you fools fight the facts?” (Proverbs 1:22, NLT) The fact that we can’t fight is that the new housing market has been declining with no turnaround in sight. Consider this hard reality and look for ways to augment work through related business. In today’s economy, flexibility is a good strategy. Even Solomon would have agreed.

Steve Marr, Your Christian Business Coach