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Homebuilders Starting to See Glimmers of Hope

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Last week I presented the annual real estate forecast to the Home Building Association of Richmond along with Lloyd Poe of LifeStyle Builders & Developers, Inc. It’s always tough presenting to a group when the news is discouraging; but at least this year we’re beginning to see some glimmers of hope in an otherwise depressed market.
Figuring out when the home building industry would rebound in past recoveries was easier than it is now. The number of houses for sale as well as those in the process of being built makes up the excess inventory that needs to be sold before home building can start growing again. Today, the shadow inventory (foreclosed and yet-to-be foreclosed homes) is impossible to measure with any accuracy. For example, the number of new houses expected to foreclose over the next year is dependent on a combination of economic factors as diverse as trends in unemployment and interest rates.
Even the number of current foreclosed homes is difficult to measure. Fannie Mae lists 354 foreclosed properties on their site as of February 1, 2011. However, since they are Fannie Mae homes, none exceed the general conforming limit of a $417,000 mortgage. The Multiple Listing Service (MLS) for the Richmond metropolitan area showed 498 bank-owned homes on the market in December 2010. These are homes that have gone through the foreclosure process and are now listed in MLS by the lender. A little over 7,100 homes were listed for sale in the MLS in the month of December equaling a 7.0 percent foreclosure rate. One year ago, 359 homes, or 4.7 percent of the listings, were bank-owned.
These homeowners, more importantly, suffered the stress of late payments and evictions. Where do they now live? Many went to apartments or doubled up with family. To the home builders, those foreclosures represented lost market share. In fact, Lloyd noted that “As the national housing crisis intensified, bank-owned sales took market share away from builders. Through the third quarter of 2010 in most markets, banks sold 2.5 new or almost new homes for every 1 new home sold by a builder and at a much lower price.”
Clearly, the national homebuilding industry remains depressed. Housing starts in December 2010 were 79 percent below their peak in April 2009 and, as of December 2010, housing starts had only risen 10 percent.
The Richmond metro area is currently treading with the nation. Residential building permits dropped 76 percent from their peak in January 2006 to 187 permits in April 2009. Since then, permits have risen only 15 percent to 215 in December of 2010. This prolonged contraction in home sales has taken its toll on residential builders. In the Richmond metro area during the first quarter of 2008, over 1,200 firms identified residential building as their primary business. By the second quarter of 2010, those firms dwindled to 927.
But there are some glimmers of hope. Initial unemployment claims for construction workers in the Richmond metro area dropped to 740 claimants in December 2010 from 1,107 the previous year. As a leading indicator, this suggests homebuilding is showing signs of picking up. Although it may not be much solace to homebuilders in Richmond, this region has fared much better than others in the nation. Consider Miami-Dade County where Fannie Mae currently lists 1,297 foreclosures or more than three times as many as in Richmond even thought the total number of homes is not quite double the amount in Richmond.  Once again the Richmond MSA was spared the worst of the downturn.

Reprinted with permission from the Richmond Times-Dispatch.

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