Based on current indications, this will be the weakest year for homebuilding in the United States since 1975 - perhaps even since 1957, if things don't improve soon.
That assessment comes from Gene Bishop, president of Lomas Mortgage USA, a Dallas-headquartered financial services company, based on research done for its publication, "U.S. Housing Markets."The conclusion is based largely on a 40 percent drop in first-quarter residential building permits, a certain forerunner of later activity. Total permit numbers have now declined in 17 of the past 19 calendar quarters.
According to Brian Bragg, editor of the publication, the declines come despite indications that markets in some parts of the country, such as Texas, are now beginning to show an opportunity if not a need for new units.
The outlook contrasts somewhat with that for existing home markets, which have shown faint signs of recovery, aided in part by lower interest rates, lower prices and improving weather conditions.
The new-home market, however, responds to a different set of economic considerations, especially in the multifamily sector. The latest burden, Bishop says, is a lack of funding.
From coast to coast, developers find few lenders interested in financing new projects, he says. Equity partners are hard to find. And the insurance industry, historically a good source of funding, has problems of its own.
Moreover, Bragg says, after nearly five years of industry recession, many builders have dissolved their operations or wound down activities to mere survival mode. In itself, he says, that could put a drag on recovery.
The report, based on counts of permits in major markets throughout the country, differs sharply from some other projections made in real estate markets, where a tendency exists to find some ray of hope in grim figures.
Bragg says he simply didn't see any improvement in the data.
Residential builders in California, the biggest homebuilding state, took out fewer than half the number of permits obtained in the first quarter a year ago, when the downturn already was deep.
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The collapse of residential construction in the Northeast remains deep, especially for multifamily housing, and Bishop says the area will have less apartment construction than in any year since World War II.
Chicago and Detroit, the two largest markets in the Great Lakes region, authorized 40 percent fewer one-family homes in the first quarter than in the same three-month period of 1990.
In Florida, the second most active home-building state, permits fell 30 percent. Even Texas, with a stronger economy, suffered a decline, although its 5 percent falloff in single-family permits was the smallest of any state.
In all areas, Bragg says, the greatest financing difficulties involved multifamily buildings, and there was little indication of any improvement soon.
In fact, the National Realty Committee, whose member builders view it as an advocate of public policy changes, believes immediate executive action is needed "across the entire banking system."
Robert C. Larson, chairman of the group and vice chairman of The Taubman Company, one of the nation's leading real estate owners, builders and managers, contends that lenders must re-evaluate properties over longer time frames.
He suggests that not only are banks reluctant to lend on new projects, they are equally determined not to evaluate existing properties on a sensible basis.
The cyclical nature of real estate cannot be ignored, he says, and he criticizes "myopic valuation systems" that appraise buildings on liquidation bases, confusing "temporary impairment" with permanent loss of earning power.