For some strange reason, the WSJ published on Monday, when the markets were closed. If you missed that edition of the paper, you may have missed them this pair of worthwhile reads:

Home Builders Brace For a ‘Simmering Down’ of Sales As Few Fear a Serious Decline
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Home-Remodeling Boom Cools As Higher Loan Rates Begin to Bite
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It seems that Builders and Contractors are bracing for the inevitable:

"The home-renovation boom, spurred by low mortgage rates that made home-equity loans popular and cheap, appears to be cooling off.

The latest government construction-spending data — for November — shows spending on home renovations was down 4.1% from the month before, and down 5.6% from November 2004.

And the latest quarterly Remodeling Activity Indicator, a measure crafted by Harvard University’s Joint Center for Housing Studies to predict trends before the government releases hard numbers, suggests the pace of home-improvement spending continues to slow. "We are starting to see signs of softening in the remodeling market," said Nicolas P. Retsinas, the center’s director. "Rising short-term interest rates and slowing home-price appreciation have tempered homeowner spending on home improvements."

The center’s quarterly Remodeling Activity Indicator suggests spending on remodeling rose 4.3% in 2005 after a 20% spurt in 2004. Americans spent nearly $150 billion renovating their homes last year, the center estimates. The Harvard index is based on several factors — sales by building-supply retailers; average weekly hours worked by residential remodeling firms; sales of existing homes; shipments of electrical appliances and wood products plus construction-service-firm revenues; and a measure of overall residential construction spending."

Its  not just renovations; The entire home construction complex is starting to wonder how aggressive their posture should be looking into the near future:
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Housing_outloo_20060115184811
"But below the surface, there was an air of caution, which stemmed from an industry slowdown that began in the fourth quarter and uncertainty over what it will mean for home construction, as well as the overall economy. Hundreds of builders packed into an auditorium to hear three industry economists predict the first downturn in U.S. housing starts in five years.

David Seiders of the National Association of Home Builders predicted housing starts would fall by between 6% and 7% from last year’s torrid pace of about 2.1 million units — amid high home prices and rising mortgage rates. Although Mr. Seiders, the association’s chief economist, characterized the projected drop as only a "simmering down" of the white-hot housing market, his forecast included what he called the remote possibility of "sizable house-price declines" if the investors and short-term-interest borrowers who have helped fuel the boom start rushing for the exits. "The real question," he told the audience, "is where do we go from here."

One pessimist, Ed Sullivan, chief economist of the Portland Cement Association, suggested a recession-like housing spiral isn’t so far-fetched. He pointed out that the disparity between incomes and home prices is at its greatest level in at least a quarter century, and that the upward trend in rates could make it harder for adjustable-rate borrowers to keep up on their payments."

I cannot have been the only person who thought out how the real estate cycle might ultimately end. Its surprising we haven’t seen more of these sorts of articoles prior.

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Sources:
Home Builders Brace For a ‘Simmering Down’ of Sales As Few Fear a Serious Decline
JIM CARLTON
THE WALL STREET JOURNAL, January 16, 2006; Page A2
http://online.wsj.com/article/SB113736608933247148.html

Home-Remodeling Boom Cools As Higher Loan Rates Begin to Bite
JOI PRECIPHS
THE WALL STREET JOURNAL, January 16, 2006; Page A2
http://online.wsj.com/article/SB113737002488947244.html

Category: Real Estate

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

18 Responses to “Remodeling, Building Brace for Slowing”

  1. Emmanuel says:

    Nobody’s going to be surprised to hear me say that it’ll all end badly. If the NAHB predicts that housing starts will fall 6-7%, perhaps it doesn’t signal that house prices will collapse. Still, the knock-on effects of stagnation are potentially huge. If 40-50% of post-recession job creation is accounted for by housing-related activities, will stagnation in housing lead to lopping off new jobs by half? You don’t need additional construction workers, home improvement clerks, realtors, etc. when the housing market is just treading water. Worse yet, you might need less of these kinds of workers than those you’ve already got. Layoff city, here we come.

  2. me says:

    Centex new homes $60,000 off In Atlanta, up to $100,000 in California. That sounds like the start of a collapse. How can you have a resale when they lower the price of a new home right next door?

  3. B says:

    Post on Craigslist in Miami for a condo that was $499,000. New list says “$100,000 off. $399,000″. Uhhhh, can you say panic?

    I saw it yesterday but with a quick scan I can’t find the link this AM.

  4. Anonymous says:

    How about this for a bright spot… since so much of our construction labor around the country is done by illegal labor, maybe the real-estate collapse won’t hurt the job market as badly!

  5. David Silb says:

    Awhile back I mused about the inflated housing/condo market and someone wrote back saying something to effect, ‘housing need is always abundant and downturns a not in the forseeable future.’ Well, I live in Miami and there are a lot of condo buildings with no one living in them. They’re close to 100% sold but no one lives in them. You drive by at night and the floors are all dark.

    Plus if there was that many people living in those buildings we just could not move on the streets (we don’t have a good public transit system like New York.)

    I hate to say it. It might happen, a bust may be near.

    I hate sounding so negative!!!! I want some good economic data for a change. I want to see something long term, positive and lasting.

    What to you guys think??????

  6. anybody says:

    My buddy just bought a 2400 sq ft home in Tampa, FL for $210,000. The reason for such a deal: Current owners were about to be foreclosed on.

    All the real estate investors I know have been talking about a bust for some time now. In fact most are sitting on liquid assets waiting for more default prone, desperate situations.

  7. Lord says:

    Has there been any effect on construction materials prices yet? I would guess not for some time with the hurricane rebuilding going on.

  8. so should I be selling my block of home depot (HD) shares?

  9. howard says:

    Lord, my work brings me into contact with construction people around the country, and speaking entirely anecdotally, i haven’t heard of any significant falls in materials pricing yet….

  10. me says:

    clueless – HD has gone nowhere. As long as Nardellie spends more time raising money for republicans and trying to “manage” earnings the GE way its a sell.

    HD does nothing charitable for the community, much less for any corporation their size.

    Since they fired all the experienced help when he took over and hired part-times, Lowes is my store of choice.

  11. B says:

    HD is coiling on the weekly chart. It made a post bubble high in 2004 and has been unable to recover beyond that price since. That high is 44ish. The stock has also made higher lows as well. Hence the range of the stock is tightening. Without showing you a chart, the stock is forming a wedge where the price is getting tighter and tighter. Than usually means a move with some energy is likely to happen about 3/4 of the way into the wedge. That looks like within a month give or take a few minutes. :) I could presuppose that move’s direction given it is highly correlated (over 80% over the last four years) to the Philadelphia Housing Index….but…..I could be wrong so I won’t. ie, Don’t listen to the experts, listen to the price of the stock. And don’t listen to people tell you that HD is unaffected by a housing slow down. They aren’t looking at the price correlation to housing. If housing craters, so will HD. But, Housing has NOT cratered. The Housing Index is well above its long term trend line…..for now.

    Short term the stock is trendless as it has touched the 10, 20, 50 day moving average today. If the stock resolves itself higher than 45, an upside target near its all time highs would likely develop. That would obviously be bullish. If it breaks 40 and shows an acceleration down below 40, I’d consider taking some profits on some of your position. The issue you have with $40 is you might be juked out as there is strong support at $40 and it might bob below briefly.

    You won’t have to wait much longer. Likely within a month or sooner. Btw, this is NOT advice. :)

  12. me says:

    “listen to the price of the stock”

    b is right. If the stock has been basically dead money in the best economy in 50 years , with the housing boom, and like 7 hurricanes that hit the US mainland the last two years, amid multiple stock buybacks, why would you expect it to go up from here?

  13. Larry, Scottsdale says:

    LOL. I know that I am posting late, here. Just got off the phone with my lender at WAMU. He tells me that rates are actually down from 30 days ago and the 30 year rate has held in. RATES DID NOT GO UP AND THEREFORE DID NOT “BITE” ANYTHING.

  14. Larry, Scottsdale says:

    This is funny. On The Wall St Journal radio show this morning they discussed a new PMI report featuring two markets: Las Vegas & Phoenix. Phoenix was the hottest and Las Vegas the coolest in the country. What was their idea of a slowdown in Las Vegas? They predicted “decline” will be a 13% price appreciation in 2006 over a 36% price appreciation in 2005. Imagine that! Folks, that’s some compounding there.

  15. Nathan says:

    http://www.turnerconstruction.com/corporate/content.asp?d=20

    Check the link above for construction cost info.

  16. Lenny says:

    During 2006, I would watch, value of the US Dollar against, major currencies. Suspect US Dollar wil depreciate in value, as rising budget and rising trade defecits increase. Along, with increased in crude oil prices, back to previous highs, and beyond. Will, slow down the economy, and further depreciate value of the U.S. Dollar.
    As the U.S. Dollar depreciates, foreign investors, will withdraw some mone out of hard assets, including real Estate, in the U.S.A. Consumer, will have less spending power or money, and further weaken economy.
    Actually, good place invest, generally crude oil company stocks or related industries. Also, gold prices, will move up, but under a great deal of movement up and down. But new highs in gold prices are likely, this year.

  17. Bob the Builder says:

    I have worked in residential, commercial and heavy highway construction for the past 15 years and it is slowing down. We usually run between 50 to 64 residential projects in a normal year. We have 28 this year carrying us until the end of the year. We develop the ground and sell the lots to the builders. The housing bubble is about to burst in my opinion and I am one who definately doesn’t want to see that happen. STL MO.

  18. Home improvement is very famous in the summer because in this part of the year the families have more time to spend on such things and remodel their houses a little.I and my husband are doing the same too.