Thursday, January 26, 2006

Homebuilders In 'Denial'

Danielle DiMartino at the Dallas News has this on overbuilding. "New-home inventories have crested the 500,000 mark, an all-time record. On Friday, we'll get new-home sales figures for December. Purchase data for the month and homebuilders' reports on buyer traffic suggest sales dipped again. But that doesn't mean we'll see a dip in the inventory numbers."

"The one thing builders remain most enthusiastic about is the future. In the January National Association of Home Builders index, builders' expectations for sales six months out stayed at a lofty level."

"So what if rising interest rates are shutting out an increasing number of first-time buyers? Who cares if regulators are finally clamping down on the creative financing schemes that have allowed so many to buy? Home Depot is cutting the number of new stores it plans to open in half. What do they know? Is anyone actually paying attention to the fact that builders are missing their sales forecasts?"

"Nowhere does the denial run as deep as in the South, where starts rose by 5.2 percent in December. We in the land of the wide-open plains are our own worst enemy. We don't bother with planning and development or supply and demand; we just let the banks foreclose on our homes when we can't sell them. Indeed, foreclosures hit a fresh cyclical record with February postings."

"As for the starts data, just because they've dipped below 2 million doesn't mean they are at some kind of conservative level. It looks as if the overbuilding will go on."

"I'm sure there were similar alarm bells at the record number of homes built in 1972. With good reason; that year, starts outnumbered sales by a factor of 3-to-1. The comparison makes this year look downright healthy, 2005 starts 'only' outnumbered sales by 1.6-to-1."

"But back then, baby boomers were setting up households for the first time. Today, many are making plans to do just the opposite, get rid of that second home or go back to renting. Demographics are not on this market's side."


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