COLLEGE STATION, TX, – Nov. 8, 2007 – With new homes springing up across the country, it is easy to forget that the housing market has fallen on hard times. But economist Dr. Mark Dotzour says the continued construction is simply a matter of survival for home builders.
“As with any business, builders can cut production only so much before they can’t produce enough revenue to stay in business,” said Dotzour, chief economist for the Real Estate Center at Texas A&M University. “They continue producing houses even if they have to give most of their profits away in concessions (price cuts).”
Even so, high foreclosure levels, price declines and a slowdown in home sales indicate there is little need for new product in the housing market.
For weeks now, Dotzour has been calling for the reduction of home inventories as a means of stabilizing the housing market. His point was echoed earlier this week by former Federal Reserve Chairman Alan Greenspan.
Financial analysis company Standard and Poor’s recently identified Tampa, Fla., as having a 10.1 percent decline in home prices — the highest of any U.S. city — for the year ending in August. In addition, RealtyTrac.com shows the city as having 13,600 foreclosures listed.
Detroit, meanwhile, posted a 9.3 percent price decline and listed 41,300 foreclosures, and San Diego had an 8.3 percent decline with just over 26,000 foreclosures.
“The number of building permits has dropped by 48 percent in Detroit and 59 percent in Tampa compared with a year ago,” Dotzour said. “But the fact remains that in Detroit over 4,300 new homes have been permitted in the past year. In Tampa, there still have been over 9,000 houses permitted.”
Dotzour says that every month during which new homes are sold with substantial concessions is another month during which homeowners will have difficulty selling their houses without offering similar concessions.
“The longer this environment of price concessions continues, the more buyer psychology shifts to expecting price concessions from all sellers,” he said.
The Real Estate Center has been providing solutions through research for 35 years. Funded primarily by Texas real estate licensee fees, the Center was created by the state legislature to meet the needs of many audiences, including the real estate industry, instructors, researchers and the general public.
By Bryan Pope, Associate Editor, Real Estate Center at Texas A&M University