Naturally you would think home builders would dramatically scale back their operations until inventories had dropped and the market rebalanced. And that's your first mistake; You thought.
While builders have cut back production, they have only cut back to the historic average. Since this is a historic level of glut in the market, production will have to be cut to historic lows in order to rebalance the market. As I've suggested before, the best thing for home builders to do right now is take a vacation and not work the next year. Come back and then start building houses again. Alas, when I drive down the Streets of Minneapolis (a popular 1970's spin off that was relatively unheard of) I see new condos, town homes and twin home developments going up further condemning us to lower housing prices.
Apparently home builders just don't seem to get it.
5 comments:
Gawwwwd, why do you care??????
OH! right...! I forgot: because you are a SELLER in this shitty seller's market.
Let's try a paradigm-shift for one second: Pretend you're a buyer! Things look a LOT rosier from that perspective!
Argh. Love ya Caps, but FFS, gimme a break with the negativity.
*hearts* Connie *hearts*
P.S. I am currently a seller too, so I feel your frustration. Nevertheless, I do realize that if I can't sell for my bottom-line price (due to either lack of demand or overabundance of supply... or BOTH,)I must simply hold.
As should you, my sweet... it'll be okay in the end.
Just read today that the National Realtors Assoc. projects a 24% decrease in home sales for next year - following up this year's 18% decline. Question for the Captain, are the Realtor's Assoc. the most sober cheerleader of their business, or are these the rosy predictions you would expect from an industry's association?
It's not so much I'm selling a place, it really is the idiocy of these developers. They're wondering why they're not selling cookie cutter townhomes AND THEN BUILDING MORE!
Hi Bill,
Based on the people I've ran into at the NAR and the likes of David Lareah, they're biased as punch. They might be changing their tune with the new guy they brought in, but their figures I do believe simply because they're historical and kind of black and white.
I think you just suggested a really good point:
It's in the builders' best interests to build houses as long as each house is profitable. The important question is, where's the break-even point? According to the (apparently) active building going on right now, the break-even is still a ways off. There's a relatively long lag between the builders building and the profit falling, so that even when most U.S. houses return to near-pre-2000 prices they'll still be building. In fact, they'll just reduce construction costs to cut away the "specialty items," and we'll end up with - after adjusting for inflation - most homes being worth about as much as they were before 2000.
This is pretty pessimistic, but it is the worst case scenario which, if demand stays relatively even (fed funds rate doesn't move much), seems very possible.
I'm glad you posted the Robert Shiller graph a few posts ago, Captain, because I think the answer is in the fact that pretty much every other boom in housing prices was followed by an bust that EQUALIZED home prices before & after. This is pretty clear on the graph, I think.
Of course, if we get a fast recession, we'll get quick drop in funds rate & housing will get some upward pressure... etc... etc....
Sorry for the long comment (again).
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