August Market Watch

Builder survival in a buyers market

The buyers market has many builders taking it on the chin as new home sales (annualized) dropped to 530,000 in June from a high of 1.2 million in 2007. Surprising, perhaps, is that few builders have gone into bankruptcy during this time. So, how have they managed to do it?

Many have gone through significant cutbacks in operations and staff. Some of the larger builders have sold significant land holdings at "fire sale" prices to eliminate carrying costs. Still others are selling what homes they do have at cost or with very slim margins.

If you are considering the purchase of a new home, many builders are willing to bargain. Finished basements and other upgrades are common.

If you are sitting on the fence wondering when the bottom will arrive, here are some additional numbers to consider:

• Vacancy Rate: 18.6 million homes were empty in the 2nd quarter. This is the highest rate ever recorded while new home construction has dropped to its lowest rate since the early '90s. Notably, the rate of vacant homes for sale dropped from 2.9% to 2.8% (a portion of those vacant are rentals or seasonal/vacation homes).
  
• June Inventory of all homes at current sales rates: Nationally - 11.2 months; Cinci - 8.5 months (both were slightly higher from the May rates).
  
• Inventory of new homes are at their lowest level since 2004.

According to National Association of Realtors Chief Economist, Lawrence Yun, "builders will need to continue to cut back production in order to work down not only new home inventory but also existing home inventory. I anticipate further declines in new construction and new home sales deep into 2009. Existing homes, meanwhile, will likely rise in upcoming months due to the first-time homebuyer tax credit that will go into effect very soon."

More of the latest national housing statistics can be found at:
National Association of Realtors Housing and Economic Indicators