New-home sales: ‘The industry has been basically obliterated’

[FarCenter]

By: Alby Gallun Feb. 01, 2010
(Crain’s) — Local new-home sales inched higher in the fourth quarter, but homebuilders will remain stuck in their slump until the economy recovers.

Chicago-area builders sold 584 homes in the fourth quarter, up 3.9% from 562 in the year-earlier period, according to a recent report by Tracy Cross & Associates Inc. It was a positive end to an otherwise awful year for local developers, who sold just 3,753 units in 2009, down 41.0% from the year earlier and 88.7% from the market’s peak in 2005.
Though a federal tax credit and low interest rates have propped up the market, high unemployment and a tight lending market have depressed demand, which isn’t likely to bounce back anytime soon.

“We see normalcy in the Chicago market probably being established in 2013,” says Tracy Cross, president of the Schaumburg-based consulting firm. Normalcy, he says, “will more or less look like ’93 to ’98 or ’99,” not the boom of the last decade.

Sales in the city fell 12.5% in the fourth quarter, to 21 units, while suburban sales rose 4.6%, to 563 units. For the year, city builders sold 848 homes, a 42.7% decline from 2008, and suburban sales totaled 2,905, a 40.5% drop.

<MORE AT>http://www.chicagobusiness.com/cgi-bin/news.pl?id=36933&seenIt=1

[phantom power]

1. Is anybody predicting a significant demand for new-home builds in the next couple years?

I can't picture any reason there would be any need for new home builds in the near or mid term.

[FarCenter]

3. I think that there will be more demand for apartments and condos

Basically multiple dwelling unit buildings close to mass transit, either bus or rail lines.

The rise in energy prices will require living in units with fewer exterior walls that are close to work and shopping. More people will rent so they can move close to whatever jobs they can find.

[CoffeeCat]

2. Previous levels will NEVER be attained...

It was bonkers-crazy around 1995-2005. EVERYONE had to buy their dream home, and the realtors and
bankers were happy to finance the craziness. The creative financing, made almost any home affordable
to a family making $50,000. It was NUTS.

When we purchased in 2005, our mortgage lender was ticked at us because we wanted to go with a conventional,
fixed-rate mortgage. She didn't even know how to fill out the application, and she had to search for the
paperwork for a half hour! Lenders were used to 3-2-1 buy downs, interest-only loans, no money down, etc.

The economy was booming off of reckless credit-card spending and people using their home-equity as an extension
of their income. Of course, people could afford "more house" when they were purchasing everything else with
credit or their home equity. It was all fake wealth and prosperity.

Those factors won't be repeated, and nor should they. It was all propped up on irresponsibility.

Now we learn that the banks couldn't get enough of those risky loans. They packaged up those headed-for-default
loans into AAA-rated securities and sold them in secondary markets. So, not only did they make money on the
initial mortgages, they made money selling the junk. They were driven, by profit, to give out as many mortgages
as possible.

It was all hot air and a place that the American economy will not find itself again. We shouldn't want to go there.

Instead of returning to the dysfunctional past, we should be creatively strategizing about moving forward in ways
that enrich our communities and help us heal--as opposed to only maximizing profit, without regulations.

[WCGreen]

5. I rec because of your comment...

[FarCenter]

6. It will be a long time before creative lending starts again

Currently there is no investor appetite for mortgage-backed securities other than mortgages backed by the GSEs and the Federal Government (i.e. the taxpayer).

[Dappleganger]

4. I think that houses will be smaller...

gone are the days of McMansions. We've already noticed that trend here in NE FL, the neighborhoods which are still building have MUCH smaller homes (although with open floor plans to give a spacious feel).

[tech9413]

10. Pretty sure you're right about that

I had downsized significantly in 2002 but had to move in with my octogenarian parents a few years ago. The 100 something year old house is an energy sieve. If I were in a position to want a new home it would be something along the lines of what they're doing in Germany. Small, extremely energy efficient and with cheap passive solar and mabey wind would do the trick.

What bothers me is cost of retrofitting older homes. Anything past twenty or so years old cost's a small fortune to make more energy efficient. Most people in these homes don't have the money set aside to do the work and financing puts the ROI at something like 10 years.

[CoffeeCat]

12. There are many VERY large homes...

...in our suburb. Some of them that were built 10-15 years ago, are looking dated--even ridiculous. These
homes represent excess--and fortunately, excess is seen as reckless now. The floor plans aren't
as ultra-modern and open as a newly built home. Plus, people are moving into homes with fewer bedrooms. Before,
if you had 5 BRs, that was considered "in". Now, it's seen as wasted space. There is an entire neighborhood
of homes in our area that took a huge hit on their values on the latest assessment. Most of these homes are
around $300,000-$500,000 and they depreciated nearly 20 percent.

These homes just aren't selling. Why buy a 15-year old house that symbolizes excess, with an unhip floor plan, when
you can buy new and streamlined?

Also, many of these homes were built on the cheap. The siding is Masonite. Anyone who has Masonite siding understands
what this means. Most people are finding that 10 years in--all of their siding needs to be replaced. They must
eat the cost because the class-action lawsuit has run out of money. A friend who joined the lawsuit got her settlement---
a whopping $200. It will cost them $20k to replace the siding. She mentioned that almost everyone she knows is replacing
their siding--and they're in crisis because they are all nearly upside down on their houses. Because values have dropped and because many
of them financed with interest-only loans--it's screwed city over there.

There are a lot of people in real trouble--and this really is hidden trouble. It's part of the reason that the economy
isn't doing well. These people used to spend like drunken sailors and put everything on credit cards. These former-spenders
are all scared shitless--and using their extra dollars to save their crumbling siding.

[Dappleganger]

13. Out of curiousity,

what area of the country are you in? I've read some about the Masonite issue and wondered if it was mostly common in a particular area (like the NE or MW).

We have the 2nd smallest model home in an HOA. The smallest has 3 bedrooms (ours is 4 with a study being used as a 5th bedroom for now, 2400 sf). Over half of the other homes have 5 bedrooms with nearly 4000 sf. There are multiple homes in the higher range which have been on the market for over two years OR have gone directly into foreclosure or short-sale. The middle homes are doing very poorly as well, while the small ones like our stay on the MLS for just a couple of months and sell for very close to asking price.

With 6 in our family and quite often another teen staying with us I have often coveted my neighbor's larger homes, but at this time we think we're doing ok. We may have to sit on each other's laps to watch tv at times, but hey...we're hanging in there even after dh was laid off a year ago and we are pinching everything which looks like copper. ;)

[Romulox]

7. The quality of the recently built homes is low compared to older stock.

In this buyer's market, they simply don't represent a good value.

[FarCenter]

8. Glued up chips and sawdust covered with plastic

No more permanent than a Mongolian yurt. You are lucky if there is a 2x4 of solid wood.

[Romulox]

9. My house is full of poured plaster, decorative arches, and coved cielings

It's nice, but by no means anything other than a tract home (approximately 70 years old.)

Try getting those features in a modest newly built home. Can't happen; you get the moldy Chinese drywall!

[Edweird]

11. Yes. I was in business here in FL. Lost it all.