Housing Experts Wrong Again

Analysts were surprised that new home construction dropped 10.6% in April, and I am shocked that they were shocked.

It's no secret that the foreclosure crisis is still upon us. In fact, we are expecting approximately 1.3 million new foreclosures just this year alone.

How can builders expect to be growing their businesses when the number of existing homes on the market is still increasing?

It might work out if we had job growth, salary increases and liquidity in the market place offering home loans to qualified borrowers.

But that's not the case.

Banks are now beginning to unload some of their pent-up REO property after legal battles slowed them down over the past 6 months.

When a higher level of distressed property (foreclosures and short sales) hits the market, prices tend to go down. Builders just can't compete with todays low prices. In fact, in many areas, you can buy a home for less than half the cost to build it.

Banks are hesitant to give out construction loans nowadays, and that's a good thing. Banks were too eager to hand out builder loans in the early 2000's.

As a result, open land all around the country was gobbled up and spit out in the form of new subdivisions.

First-time home buyers got slick new digs and stock holders got fat and happy. That is, until everyone looked up and realized they hadn't considered whether enough people could afford to live out in the boonies.

Home construction has a big influence on the rest of the economy because of all the raw materials used in the process. That's why news of low housing starts tends to rock Wall Street every month.

But every month, I say, "Find a new gauge for economic development!” Builders and banks borrowed construction jobs from the future. They left us with more than enough housing inventory to last for several more years.