Investors have been speculating about the housing market decline for several months. Now that it appears to be in a full force downhill slide, many real estate businesses are falling down with it.
Unless there is a financial crisis in the household, home sellers will have to be patient with the weak market. Trying to sell now may result in a loss of thousands of dollars.
However, home builder can not afford to be patient. The housing boom over the last five years prompted many builders to expend their businesses and take on projects on a bigger, more elaborate scale. Many of these home builders are now finding that they are over their heads in a suffocating market.
The September 7, 2006 edition of The Wall Street Journal published the article, “Home Builders See Weak Results,” releasing devastating results of the slowing home market on some of the nation’s premier home builders.
“Home builder KB Home lowered its earnings forecast for the fiscal year, citing declining orders because of higher cancellation rates and weaker-than-expected demand for new homes in a slowing real-estate market.”
Many prospective home buyers and developers are cancelling plans to build because the market is currently saturated with new and previously-owned homes.
It just does not make much sense to pay full price to have a house built during a time when MLS listings are over-flowing with available homes virtually on every corner in every neighborhood. Many of these homes have also been on the market, for several months, prompting the owners to reduce, even drastically slash asking prices.
“KB Home cut its profit projection for the year ending Nov. 30 to between $8 and $8.50 a share, from a June forecast of $10 a share, reflecting what it called ‘an increasingly challenging’ housing market.”
The market is producing heavy rocks which are looming over home builders’ heads, forcing them to wonder if the rock will eventually fall.
This has lead to home builders slashing their own prices and project fees. This has generated some interest with future home owners, but the majority of sales are a result of commercial projects.
While the commercial real estate market has not been as affected as harshly, many builders rely on residential projects to keep their company running.
“Single-family home builder Hovnanian Enterprises Inc., meanwhile, reported a 34% decline in its fiscal third-quarter profit as the company struggled with higher costs, slower-paced orders and increased cancellations.”
“Hovnanian, based in Red Bank, N.J., reported net income of $77 million, or $1.15 a share, for the quarter ended July 31, down from $116.1 million, or $1.76 a share, a year earlier. The company booked $11.4 million in write-offs for walk-away costs and an additional $800,000 in land write-downs for the latest quarter.”
Each quarter has been producing scarier results for home builders. Many investors predict that the market is starting to correct itself after years of inflated sales. The market may continue this correcting pattern for quite some time.
Home builders were overwhelmed with the demand for homes and projects over a five year span that they had to grow and expand in order to accommodate consumer needs. Now, they must realize the market status and retract business.
This is good news, however, for buyers. All they have to do is be patent and wait for desperate builders and sellers to reduce prices.
Other Articles:
Selling a Home in a Cooling Market |
