Thursday, April 23, 2009

Home Building Declined, How Much ?

Just how bad did home building decline?

The construction industry took a beating due to the financial crisis. Just how bad did home building decline? It depends where you look and what part of the country that you look at, but over all, the numbers are very frightening.

In a report released recently, new order for homes built in the third quarter of 2008 was down 25% compared to 2007. In numbers, that is 2,002 homes for 2008 compared to 2,660 homes in 2007.

Because of what is happening in the economy, there was increase in the number of cancellations from 24% in 2007, to 27% in 2008. While real estate companies tried to curb the trend by offering it to other potential buyers, the market was not biting which is why there were a lot of homes that were not sold.

In terms of home building revenues, that roughly translates to $ 928 million. If you think that is still good, look back at the sales performance last year and you will see that it was lower by 27%. These figures goon and on and they are really depressing.

So are companies making money? No and the worse part is that construction companies have to layoff hundreds or even thousands of workers in order to stay afloat.

If you wanted to build a home, the only way you can do that is if you have extra money flowing around right now because most bank will not be able to loan that amount to you right now.

At this rate, the construction industry will only be able to produce 817,00 new homes this year compared to 1.98 million units in 2006. That is a lot and it is not expected to improve any time soon.

But are these numbers surprising? The answer is also no because it is the right reaction especially when the country is in a financial crisis.

Analysts believe this will change in the next 2 to 3 years because within this time frame, homes that were unoccupied will now have people living in them and only then will home building be once again on the upward trend.

What everyone is hoping for right now is a miracle because we are not yet out of the woods when we talk about the current financial crisis. Yes, a $ 700 billion bailout plan was approved and signed into law but just like Bernanke said, no one expects the recession to end overnight. It is going to take time.

Is the home building decline also happening elsewhere? In the case of Canada, the answer is no. In fact, the opposite is happening. If you were to compare the number of houses built for the month ending September 2008 versus 2007, 6,000 more homes were built in 2008 compared to 2007.

There are many reasons for this such like more people want to settle down so they move away from the rest of their family and most importantly the program they have in place happens to be much better across the border compared to what is available in the US.

But back to reality, no one can deny that over here, there is a sharp decline in home building. The only thing anyone can do is hope for the best in the months and years ahead so we can perhaps forget that this ever happened.

We would like to hear your comments.

copyright Dan and Deanna Finlinson "Marketing Unscrambled"

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