"It would be difficult to characterize the position of
home builders as other than in a hard landing," says Robert Toll, chief
executive of luxury home builder Toll Brothers Inc., which reported yesterday that net income fell 19% in the third quarter ended July 31. (See related article.)
In his 40 years as a home builder, Mr. Toll says, he
has never seen a slump unfold like the current one. "I've never seen a
downturn in housing without a downturn in employment or... some
macroeconomic nasty condition that took housing down along with other
elements of the economy," he says. "This time, you've got low
unemployment, you've got job creation, you've got a stable stock market
and relatively low interest rates."...
In much of the country, property markets began cooling
rapidly in the second half of last year. Home builders were still
turning out houses at a rapid clip, and the surge of new and previously
occupied homes on the market convinced buyers there was no need to
hurry. Over the past year, the number of previously occupied homes
listed for sale nationwide has risen nearly 40%. In some metropolitan
areas, including Orlando and Phoenix, the supply has quadrupled.
I never got that excited about the run-up in the price of my home, so I won't worry too much if it falls again. For the average homeowner, the paper-price run-up of housing prices doesn't really have much meaning unless they are considering moving soon to a lower-home-price area or they are going to retire and downsize. My house supposedly doubled in value in the last four years. We went out shopping for a home in the area, and you know what? All the other prices doubled too. I could trade my current house for about the same house I could trade it for four years ago. The only really beneficial effect was that the increase in home equity made for useful collateral in a business loan I took out.
Of course, the home speculators may take a bath - there are several latecomers to the speculation / spec home business in my neighborhood who are holding houses that won't sell for the huge prices they are asking. I posted that this was coming over a year ago, using a model for contrarian investing I learned at the Harvard Business School: Do the opposite of what doctors and dentists are doing.