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Remodeling, Building Brace for Slowing

Posted By Barry Ritholtz On January 17, 2006 @ 9:15 am In Real Estate | Comments Disabled

For some strange reason, the WSJ published on Monday [1], 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 [2]
                                        and
Home-Remodeling Boom Cools As Higher Loan Rates Begin to Bite [3]
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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 [4]
"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 [2]
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 [3]
JOI PRECIPHS
THE WALL STREET JOURNAL, January 16, 2006; Page A2
http://online.wsj.com/article/SB113737002488947244.html


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2006/01/remodeling-building-brace-for-slowing/

URLs in this post:

[1] WSJ published on Monday: http://online.wsj.com/page/past/2_0333-20060116.html

[2] Home Builders Brace For a ‘Simmering Down’ of Sales As Few Fear a Serious Decline: http://online.wsj.com/article/SB113736608933247148.html

[3] Home-Remodeling Boom Cools As Higher Loan Rates Begin to Bite: http://online.wsj.com/article/SB113737002488947244.html

[4] Image: http://bigpicture.typepad.com/.shared/image.html?/photos/uncategorized/housing_outloo_20060115184811.gif

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