"The bottom [of the market] has not been reached," Seiders said succinctly after yesterday's report on housing starts. He stopped just short of using the ‘R' word, for recession, but he did say, "...we are in that league in terms of a setback."
That's scary, especially for homebuilders whose inventories of unsold homes have grown as competition from foreclosures has increased and as potential purchasers have decided to sit back and wait for things to sort themselves out. Although the rise in inventories had not caused a commensurate drop in prices, that is starting to change across the land as the odor of desperation grows in the new home construction industry.
For the individual or couple already thinking about relocating, this can spell opportunity. Here are few observations and ideas:
Permits misleading
Don't take heart necessarily in the reports that building permits rose last month nationwide. Most of the rise was permits for apartment buildings. Unless you are looking to rent, count on inventories of unsold new homes in the southern U.S. to begin to drop slightly in the coming months as homebuilders lower prices and grant concessions to purchasers. The near term may be the time to get the most concessions from homebuilders.
Illegal immigrants count for something
Generally, employers like to keep their employees working, especially in the housing industry, rather than laying them off and then having to fight their competitors to hire them back when things turn around. But there is nothing normal about these times in the industry. By some estimates, half the employees in the residential construction industry are illegal immigrants. No wonder the national unemployment figures haven't grown as housing starts have dropped; the undocumented workers weren't reported on the way in, and they certainly aren't being counted on the way out. By all logic, the housing mess should have caused a recession. How ironic -- illegal immigrants may have saved our economy! In short, larger homebuilders will furlough their illegal workers and keep building to ensure their documented workers stay with them.
Sell low, buy low
If you own a home in the north, do some research on local market conditions and calibrate what might happen to the price of your home over the coming months. Do similar research in the area you want to move to? If the predicted spread between price depreciation in your current market and in the potential one is wide enough, it may make sense to put your home on the market for a quick sale. Don't worry so much that you aren't wringing every last dollar from the house. You will have lots of leverage with the seller at the other end, especially if he is a homebuilder sitting on a new home. Insist on price concessions and upgrades (free membership in the golf club is a nice start); you will probably be successful.
Practical way to sit on the sidelines
Consider selling your current home and finding a one-year (or longer) rental in the community you think you might want to live in. This gives you time to sit on the sidelines with the cash proceeds from your current home and watch the market story unfold. The rental approach keeps your cash growing while the homes in your new community are depreciating. Observe the market from up close, and when it starts to turn around to your satisfaction, you can react quickly. This approach has the added benefit of giving you time to determine if you really want to live in the community; if you find it isn't what you expected - and many times that is the case - you won't be burdened with a house to sell. The only downside? You may have to store your furniture if you rent a fully furnished home.
If you have observations of your own, I encourage you to comment in this space (see below).