MARK H. LEFF
‘Not a critical month’
Reports that new-home sales plummeted in the Northeast in February may have disappointed some industry watchers hoping for a housing market recovery. But some local builders say they aren’t too alarmed by recently released figures.
The U.S. Commerce Department reported last week that new-home sales nationwide fell for a second consecutive month in February. Sales were down 3.9 percent from the prior month to a seasonally adjusted annual rate of 848,000 units – the slowest pace in six years. In the Northeast, sales plunged nearly 27 percent.
While the double-digit percentage drop in the Northeast was significant, some are more interested to see how the market will fare over the next two or three months, as homebuying traditionally picks up during the spring season.
“Relatively speaking, [February is] not a critical month in the homebuilding business,” said Mark H. Leff, a banker and president-elect of the Home Builders Association of Massachusetts. “It’s too early to draw a conclusion. Until you get into May and June you really don’t know where you stand.”
The number of unsold newly constructed homes nationwide reached 546,000 units, or an 8.1-month supply. That’s the highest level in 16 years, according to the Commerce Department.
Builders in Massachusetts have reacted to the market slowdown by pulling back on projects, which industry leaders say could help reduce the inventory of unsold homes.
“Home construction has slowed down in a big way,” said Jeff Rhuda, a development expert with Symes Assoc. in Beverly.
Permitting for new residential construction in Massachusetts dropped 19 percent last year. A total of 19,805 permits were issued in 2006, compared to 24,549 in 2005, according to figures from the U.S. Census Bureau. Permitting has risen slightly during the first two months of the year, when 2,827 permits were issued, up 1.3 percent from the same months last year.
Gary H. Ruping, president of Billerica-based Ruping Cos., said speculative building in Massachusetts has declined. “Builders are not building any speculative product, which is a big difference from the late 1980s,” said Ruping, referring to the last major downturn in the housing market.
And unlike other parts of the country where there is glut of unsold new homes – such as California and Florida – eastern Massachusetts has a much smaller inventory, according to Ruping.
“In our market, we don’t have the investor segment coming in trying to flip houses and condos. We also have supply constraint in this state,” Ruping said.
However, Ruping acknowledged that there has been a “downshift in pricing.” In one subdivision that Ruping is building, sales prices have been 9 percent to 10 percent lower than expected. But in a small subdivision he’s building, prices have been on target, according to Ruping.
Nationally, the median selling price for a new home slipped 0.3 percent from a year earlier to $250,000 in February.
Ruping pointed out that prices and sales activity levels are being compared to record-breaking years. “Those declines are coming off historically high levels,” he said.
‘Very Strong Activity’
With spring here, some builders are reporting that they’re seeing a pickup in interest from prospective buyers.
At a recent open house for an 11-lot subdivision in Burlington that Ruping is building, nine serious buyers emerged.
“What we’re hearing is that there has been very strong activity and a good number of sales in January and February. That’s not to say we’re not in a housing slump, but the news I’m hearing has been fairly good, particularly with interest rates remaining at fairly low levels as we enter the spring market,” said Leff.
A Fannie Mae economist recently presented a bleak forecast about the new-home market in Boston. Fannie Mae Chief Economist David W. Berson, who spoke at a Builders Association of Greater Boston meeting in late February, said new-home sales in the Boston area would be sluggish this year because of weak job gains, slow population growth and declines in housing affordability over the years.
Fannie Mae projects that new-home sales nationwide will fall 7 percent to 8 percent this year.
Wall Street investors reacted to last week’s new-home sales figures with trepidation. Investors have been troubled about rising mortgage delinquencies and foreclosures, particularly in the subprime lending market. Many fear that those problems will further weaken the housing market.
Leaders from the National Association of Home Builders believe that concern over lending standards is spilling over and affecting the building sector.
“Lending standards apparently are tightening not only in the subprime market but in other components of mortgage lending, as well, and this is creating tremendous uncertainties regarding the near-term outlook for home sales and housing production,” said NAHB Chief Economist David Seiders in a press release.
Seiders added, “While there was some weather-related impact on both the January and February sales numbers, it is obvious that the weakness is more fundamental and this apparently can be traced to the mortgage market.”
