According to statistics from Dallas-based Residential Strategies, the top 10 home builder in volume cut new home construction in the Dallas area by 40% compared to 2006 new home construction numbers. A lot of people are reporting this as a really bad thing and yes, there were a lot of people negatively affected by this reduction. A lot of these new home builders not only cut new home construction but also cut personnel.
Truth be told, home builders got themselves into that position. Apparently, for the sake of growth and competition, they conveniently forgot about measured growth and how flooding the market with new homes will affect mortgages, resale homes and foreclosure rates. Now, I am NOT saying all of the problems in our current economy are the fault of builders. I am merely saying they didn’t help any… or rather, they did help but not in a good way.
Believe it or not, those cuts, however harsh were necessary in leveling out our housing market. By cutting starts, new home inventory has a chance to get back to normal levels allowing for the following GOOD things happen:
- Fewer new homes in inventory mean less discounting by builders who are pressured by their money-backers to reduce risk (aka inventory).
- Less discounting means the resale market doesn’t have to cut hard-earned equity just to compete.
- If the resale market isn’t competing as hard with new home construction then home prices have a chance to rise at a healthy pace.
- When resale home prices are rising at a healthy pace, consumer confidence grows and home buyers are more open to taking that big step into home-ownership.
Need I go on? There are other scenarios that will improve do to these cuts but I could go on all day. Our local Dallas housing market/economy is fragile, much like a saltwater fish tank… (now you think I am stretching, don’t you). Slight changes in salinity, pH balance, number of fish to gallons of water, etc will set of a chain of unhealthy events that will eventually wipe out half of the little lives you built that tank for. Everything needs to remain in balance for things to work. It is important for home builders to monitor job growth, income levels, current & forecasted resale inventory as well as consumer confidence before deciding on how many starts are in order. Instead of doing this only once a year, it needs to be done each quarter to make the adjustments as they need to be made, not after the fact.
Believe it or not, some builders actually do just what I am suggesting. Highland Homes is a good example of that. They ask Residential Strategies, Inc. to come in once a quarter to give them insight before making their next move. I wish all home builders in the Dallas area would follow suit.
Tags: Home Builders, Housing Market
This entry was posted on Wednesday, April 2nd, 2008 at 1:31 pm and is filed under Community, Dallas Fort Worth, Homebuilder, Housing Market. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.