More Housing Construction Woes
(It’s become a regular routine in recent weeks to grab the newspaper along with your morning coffee and open up to read the business or real estate section, only to see that one of the major headlines will read, “Housing sales decline” or “Home prices fall again.”)
Since the beginning of 2006, it seems that there is a headline that facilitates the slowing market in every single paper, every single day.
Martin Crutsinger, writer for the Associated Press wrote the article, “Housing construction falls 6%,” which is located in the September 20, 2006 edition of The San Diego Union-Tribune, which further proves that the market is declining.
But when will it stop? The slowdown was unavoidable as the market peaked to unprecedented states of inflation. The market is now correcting itself but how drastic will the correction be?
“The Commerce Department reported yesterday that construction of new homes and apartments fell 6 percent, the third consecutive decline and a much bigger setback than analysts had been forecasting.”
“The weakness pushed the annual rate for construction down to 1.665 million units, the slowest pace since April 2003.”
This slowdown in construction presents good news only to prospective home buyers, as interest rates may be lowered to help spur real estate purchases once again. The Federal Reserve sets the prime rate and will most likely keep the rate on hold if not lower it for the next few weeks or months.
Today, September 20, 2006 marks the first time the Fed will meet to discuss the month’s prime rate since not raising rates in August, which broke a 17 consecutive streak of inflating rates.
The Fed wants to slow the economy to keep inflation under control while preventing a recession at the same time. But the steep decline in housing construction has prompted fears of a severe downturn.
“David Seiders, chief economist at the National Association of Home Builders, said the organization's survey of builder sentiment declined in September for the eighth consecutive month and now stands at its lowest point in more than 16 years.”
“We have been warning that the housing downswing seems to be deeper than the Fed has been expecting and that the downside risks to housing are substantial,” said Seiders.
The growing amount of unsold homes is a concern for home builders not just because of the immediate financial impact but because of its future implications.
“Construction of single-family homes fell 5.9 percent in August as builders struggled to get control of soaring levels of unsold homes. Construction of multifamily units fell by 6.7 percent.”
“In a sign of future activity, builders' applications for permits for new construction fell 2.3 percent, the seventh straight monthly decline in permits.”
But perhaps more importantly, customers are beginning to cancel construction plans. Home buyers now have ample opportunities to cash in on great deals with all the available homes on the market, especially with the ones that have been available for several months. They do not need to pay full price for something they can get for thousands less.
For those who still want a house built from scratch, home builders are offering substantial discounts to trigger purchases.
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