Median Cost Tumbles 13 Percent
By Allan Lengel
Washington Post Staff Writer
Friday, November 30, 2007
Prices for new houses nationwide fell last month by their largest margin since 1970, when the nation was in a recession, providing more gloomy news for the struggling building industry and the jittery economy.
"The market remains quite weak," said Celia Chen, director of housing at Moody's Economy.com. "If builders are selling homes, they're cutting prices very aggressively."
The Commerce Department reported yesterday that the median price of a new single-family house in October was $217,800, down 13 percent from a year earlier, the biggest percentage drop in 37 years.
The supply of new homes for sale remained higher than a year ago, according to the Commerce Department. At the rate new homes are currently selling, it would take 8.5 months to clear that inventory, up from 7.1 months last year but down from 9 months in September.
Price cuts may be translating into some sales. The government reported a 1.7 percent increase in new-home sales in October from September to a seasonally adjusted annual rate of 728,000. That was down 23.5 percent from a year earlier, though.
Dee Minich, senior vice president of sales and marketing for K. Hovnanian, a builder that has a regional office in Landover, said the company sold 260 homes locally and 2,100 nationwide recently when they had a 72-hour "sale of the century" -- an example of the kind of aggressive price cuts many builders are making.
In general, she said, there are still a lot of people coming to see the new houses, but some shoppers are not able to sell their own homes. "I think people need to be more realistic about what they're getting for their homes," she said.
Analysts dismissed the reported national sales increase in October as a sign of a turnaround. Instead, they said, it was largely because the Commerce Department revised its September numbers down sharply. The new-home sales statistics are notoriously volatile and often revised.
"It's not anything to celebrate at this point," said David Seiders, chief economist for the National Association of Home Builders. "I'd say the mood of the builders is obviously well below par."
Yesterday's report came during a week of dismal news about the housing industry, including a number of different measurements of falling home prices. The Office of Federal Housing Enterprise Oversight reported yesterday that its measure of U.S. home prices experienced a quarterly decline for the first time since 1994. The agency oversees mortgage market giants Fannie Mae and Freddie Mac; its widely followed statistic tracks the resale value of the same houses over the years.
And the National Association of Realtors reported on Wednesday that the median sales price for existing homes in October dropped by 5.1 percent compared with a year earlier.
"Just as we saw for the existing sector, October was clearly a rough month for new-home builders," said Mike Larson, a real estate analyst for Weiss Research in Jupiter, Fla.
As the market weakens, he said, some smaller builders, such as Levitt & Sons in Florida and Neumann Homes in Chicago, have filed for bankruptcy protection. But he said the bigger builders have managed to hang in so far by selling off land and inventory at reduced prices.
However, the stock market has punished the shares of those bigger builders, and prices of many continued to fall yesterday.
Local and national builders in the Washington area acknowledged the trying times. Some say they are faring better than others.
John Monacci, vice president of operations for Winchester Homes in Bethesda, said traffic through his company's model homes is up 20 percent this year.
"But most people have a home to sell to move into our home and that's been challenging," he said. "I think it's going to remain challenging. Nobody knows when we're going to come out of the soft market."
Doug Monsein, owner of Douglas Construction Group in Potomac, has had a different experience. He said he builds 10 to 12 custom homes a year in the Bethesda area.
"It's really interesting," he said. "I have never been busier. I believe there's so many wonderful micro pockets that are not reflected or discussed when you talk about the region or national statistics.
"I cannot tell you everyone is saying the same thing," he said. "Many of my builder friends are concerned. Their business is off."
Anthony Paulos, president of Block Builders in Bethesda, who builds custom and speculative homes, said he has built six houses this year.
"As far as the spec homes, the market has been flat for the last year and a half," he said. Speculative homes are houses constructed before a buyer has been lined up.
Two years ago, he said, buyers snapped up the speculative houses before he finished building them. Now, he said, they can sit for months.
"My sense is 2008 is going to be more of the same," he said. "I'm hoping I'm wrong."
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