Add to del.icio.us

Home-building industry slowing

The housing market has been slowing down during the past couple of months due to a variety of different factors.

One of these factors is that home-building stocks have decreased, causing less homes to be built so far this year. The reason for this is because there is an overstock of houses on the market, so no more new houses need to be built.

Now home builders are facing an even bigger problem, being that they are now having to “write down” their land values because they are not worth as much as they originally paid for them.

An article posted on the TimesLeader.com, July 30, 2006 by Rachel Beck titled, “Home Building Industry has rocky outlook,” gives a glimpse into the housing market right now.

“As if investors in home-building stocks need more to worry about. They’ve already watched their shares get hit by the slump in home sales and the weakening economy. Now add this concern to the list: Companies writing down their land values because they aren’t worth what they paid for them. It’s not a matter of if that could happen, but how serious and widespread those write-downs turn out to be and what they do to earnings.”

Skyrocketing mortgage rates have had a lot to due with the slowing market, because they affect how many people want to begin the home buying process.

If interest rates seem high, not as many people are going to want to take out mortgages, especially new buyers who do not know much about the changing market.

So, if less people are taking out mortgages that means less people are buying homes and less homes are being built. It is all a cycle in which mortgage rates, the economy and housing market are all tied together.

“The bursting of the five-year housing bubble is hard to miss. As mortgage rates have climbed over the last two years while the Federal Reserve boosted short-term interest rates 17 times, new home construction and building permits have sharply declined, and the demand for home loans has dropped. The National Association of Home Builders said its index of housing-market activity in July slipped to its lowest level since 1991.”

Many analysts are trying to figure out just how bad these land-value write-downs could be for investors and home building companies.

Home builders are already reporting a decrease in monthly earnings and profits, and stocks have also dropped.

“The concern on Wall Street is that more bad news could be ahead should there be a massive rise in land-value write-downs. Not only would that reduce already weak earnings, but it could lead to further erosion in the “book value” of many home builders — which is generally defined as the value of a company’s business should it have to be liquidated.”

Back to Articles