The ‘good news’ seems to be getting dosed out every day now… paraded out for the masses and the market seems all to willing to respond with manic glee. The latest news about a surge in residential construction is something I happen to know a bit about, and I fear that a lot of this good news might be a little more complex than at first glance.
Now this is obviously anecdotal, just my own experience in my small corner of the world working for a contractor who does floors/counter tops for new homes, so take it for what it’s worth…We have indeed seen an increase in new homes being started over the last six weeks or so, but as I talk to the builders who come into the office, there is a fairly common theme as to why. The permit and licensing process to develop land is onerous and long. Builders spend many months and sometimes years before the foundation for the first house in a development is poured. Therefore, they tend to have various projects in the pipeline at varying levels of readiness. What is happening right now with our builders is that they’ve been holding off on building hoping for a turnaround in housing prices. They’ve waited as long as they can, and the carrying costs of the land have become exorbitant, or in some cases they have agreements with banks to develop the land within a certain time frame or they lose it. None of the builders I’ve spoken to are optimistic about making any money on these new houses, and they are requesting the absolute cheapest materials possible to get the job done. They aren’t in this right now to make a profit, but only to get these lots built and sold before they lose the land or lose too much from holding the land. It is loss avoidance, not optimism about housing demand that’s prompting them.
None of them I’ve spoken to are looking right now to buy or develop any more land. I’m worried that after this wave is finished, and all these half finished developments are built out, then there won’t be a lot of work in the pipeline. It sort of feels like the tail end of an era, a wrapping up of loose ends. I hope not, but that’s what I’m hearing and seeing.
