Homebuilder Woes Have More Than One Cause–And More Than One Effect

Homeowners, of course, aren’t the only ones who have suffered during the U.S. housing decline; and reports of builders struggling to make ends meet as residential construction dwindle are growing more frequent.

But lower community home prices and reduced sales of local homes aren’t the only factors to blame.

Take, for example, Texas. The state withstood much of the housing decline and actually added construction jobs: 23,000 since the end of 2006.

But in the first three months of the year, builders broke ground on 5,218 homes in the Dallas-Fort Worth area. That’s less than half of the construction starts in the second quarter of 2006, during the housing boom, according to Metrostudy.

As a result, several
homebuilders in North Texas–including
Goff Homes and Colonnade Homes–have gone out of business: No more marketing efforts, and the phones are disconnected, according to the Dallas Morning News.

Other builders are reducing jobs.

"Most of the builders I’ve talked to have
reduced their overhead by 30 percent to 50 percent,"
Ted
Wilson, an analyst with Dallas-based
research and consulting firm
Residential Strategies Inc. told the Morning News.

The bottom line: The housing slump’s effect is
widespread–and as it zooms through its second year, even states that
fared decently have been affected.

And the local market isn’t causing all of the problems Texas builders–and building-related industries–are facing. Silver Line Building Products LLC, a window-making unit of Andersen Co., announced recently that it would eliminate 250 jobs at its Garland, Texas plant. The job cuts aren’t a result of the drop in local building; they’re due to a reduced national demand for windows.

Lower building material demand isn’t the only ripple effect coming out of the building sector’s problems. A New York Times
article published today on the auto industry’s woes–which directly tie in to the
housing market’s decline–further illustrates that it’s tough times for
builders.

Vehicle repossessions, the Times said, are increasing in
markets where the housing slump has been most severe, like Florida.

The most recent repossessions, according to Fort Meyers, Fla. repo man Bill Glover? Cars owned by builders.

“Lately what we’re picking up is crew-cab pickup trucks,”
Glover told the Times, “and anything having to do with construction.”

And as repossessions increase, new auto loans are decreasing because of the risk–more of the same vicious cycle.

California and Florida have lost more than 80,000 construction jobs each since 2006, according to Department of Labor statistics; some were due to the housing decline. But others may be directly tied to the housing market’s growth years, according to the San Diego Union-Tribune.

Paul Tryon, chief executive officer of San Diego County’s Building Industry Association, expects fewer than 4,000 home-building permits to
be issued this year.

Yes, home starts are down in the area. And yes, many of the area residential builders are scaling back.

“Centex, KB Home, K. Hovnanian, William Lyon, Richmond American, Pulte–all have closed local offices, and pretty much every other builder
has reduced staff,” real estate analyst Peter Dennehy told the Union-Tribune.

But an additional reason for the decline may surprise you. According to the Union-Tribune, lower home sales are only partly to blame.

The other issue: The county used up much of its residential development-designated land during the boom years.

And the outcome? An industry shift from single-family, suburban tract homes to vertical, mixed-use projects, says real estate economist Gary London.

The recent Commerce Department results that showed multifamily units helped push new home construction up 8.2 percent in April would seem to support that–but is it feasible that buyers who once favored single-family homes, will embrace multifamily options?

Maybe. After two years (and possibly more, if the slump keeps going) of watching home equity decline, it’s entirely possible that buyers may be a bit gun shy about spending. Multifamily units are likely–depending on the market, of course–to be priced lower than single-family homes, and they require less upkeep.

But what do you think about the proposed shift London predicted? Do you think builders–and buyers–in markets like San Diego are going to decrease single-family starts and gear up to build more multifamily properties? Tell us what you think by posting below.