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Is new home construction doomed to never recover? Some think so

Is new home data even reliable?

This month marked a historic low for the new home construction sector with the lowest sales and permits in recorded history, and lowest prices and starts in almost a decade. Economist Barry Ritholtz says that new home sales are notoriously unreliable because the data relies on builders to self report to the Census Bureau which Ritholtz claims is fallible because of the “get to next month” mentality of builders and notes an average of three months together gives you a better data point.

Ritholtz points to builders suffering because it is cheaper to buy a 24 month old house in a subdivision than the brand new one next door and notes that despite the 90s bringing population growth and a “booming stock market [that] led to some profit rotation from Equities into Real Estate,” the sector has been an ugly one over the years.

But when will new home construction recover?

So data is shaky, times are unequivocally rough for builders, foreclosures have flooded the market putting builders at a disadvantage and renting is the new black, so what now?

Some are pointing to an uptick in builder stocks despite the downturn and claim that there is a rally, but according to CNN, “homebuilders may never recover.” Wow, what a headline. But is this salacious headline to get people to read or can they back it up?

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Regarding homebuilder stocks, the foundation of many of their decisions, the chart below illustrates “builder stocks got hit harder than the broader market – and it’s taking them a longer time to bounce back.”

Builder stocks and NAHB talking points

CNN points to speculation that some builder stocks are a cheap deal now, but they were an even cheaper deal back in the day, and hedging bets on a flopping market isn’t exactly smart.

Builder stocks may never be what they were at their peak, but their slow recovery doesn’t spell an impossible recovery and the foreclosure flood is as permanent as the HUD flood of yesteryear.

Where builders could really be in trouble is not just competition with foreclosures forcing the price point down in resale, but in financing. We’ve pointed out the National Association of Home Builders’ (NAHB) one talking point which is financing is tight to impossible which could be part of the broader problem. If NAHB screams that wildly enough, do they really think lending will loosen up, given their shockingly horrific state of affairs in production, sales, pricing and now stocks?

Is NAHB creating self fulfilling prophecy?

If you watch modern tv, you’ve heard the saying, “if you keep accusing me of cheating, I might as well.” This is what the NAHB is doing to lenders- reminding them via hundreds of press releases that their lending is impossible and tight, so maybe lenders are thinking (or will eventually think) that NAHB is right- they invested in a sector that turns out to have broken all records of failure and that they should probably remain as conservative as they are now, especially if they’re endlessly accused of it.

Perhaps if NAHB changed their talking points from “lending is too tight” to “we look forward to a loosening of lenders in time,” the self fulfilling prophecy will not come true and lenders won’t feel like they have a jealous spouse they want to spite.

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Lani is the COO and News Director at The American Genius, has co-authored a book, co-founded BASHH, Austin Digital Jobs, Remote Digital Jobs, and is a seasoned business writer and editorialist with a penchant for the irreverent.



  1. Susan Tongate via Facebook

    March 24, 2011 at 1:07 pm

    Some of the USA homebuilders might as well move their shops to countries where they are building homes.
    —–At the rate the USA Economy is recovering
    —–the GOP are striping everything possible from the middle class and the most needy USA citizens
    —–the GOP wants to eliminate the GSEs that back up most USA mortgages
    —–the financial institutions are wanting to only offer 15 year mortgages.

    Therefore, I don’t really see the housing market recovering any day soon as long as the GOP keeps moving this USA 50 years backwards.

  2. Susan Tongate via Facebook

    March 24, 2011 at 1:21 pm

    High end homes might be OK — because the divide between the Haves and Have Nots just gets wider and wider !!

  3. Anna Altic

    March 24, 2011 at 3:53 pm

    My over simplistic thoughts.
    -Everyone needs a place to live
    -If credit is tight then they rent, causing a premium in rental rates (huge jump last fall)
    -Even if you are forced to live with mom and dad(you want to get the hell out of dodge most likely) so you start stock piling cash.
    -Eventually you can afford a down payment on a home now and it’s likely cheaper monthly to own than rent
    – financially distressed properties get absorbed and it’s till cheaper to own than rent because sellers are tired and their is still some shortage in rentals
    -eventually there may be more qualified buyers (we hope) than inventory and lenders needing to be in the lending business will start lending to builders so they can continue to lend to buyers. Heck – we can hope they will accurately forecast this shift and start lending to builders sooner than later.
    -however it call comes down to everyone needs a place to live at least that’s what I tell myself.

  4. MH for Movoto

    March 24, 2011 at 4:38 pm

    I mean, yes, CNN and every other news source in the world likes to overshoot with the headlines (and it works on me, for sure). But is it really crazy to think that the insane building-boom of the late 90s is totally over and will never come back? I’m not saying I believe that’s definitely the case, I just don’t think it would be shocking. After all, it’s not just about banks and interest rates – it’s about consumer priorities which, I think we can all agree, have changed a lot throughout the recession.

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