Jonathan Dienhart is the director of custom services published research at Zonda, where he provides housing analysis and insight, custom solutions, and oversees the compilation and production of hundreds of economic and housing market-related publications. A graduate of St. Olaf College, Jonathan has over 20 years of experience in real estate including market research, data, finance, and analysis.
The credit crunch and mortgage meltdown couldn't have come at a worse time for the housing market. Now, not only is it difficult for builders to sell homes, it is even more difficult to get buyers qualified for financing, especially first-timers who often don't have much in the way of a down payment.
Many of you who rely on the various housing data reports each month no doubt were mystified by the dueling headlines that showed up within days of each other in May. The first suggested that the drop in existing home sales was another sign the housing market was in trouble. But soon after came stories proclaiming that a jump in new home sales was a hopeful sign of housing market recovery. Which headline should you believe? Perhaps neither; after all, many of these articles neglected to mention that new-home sales are still down more than 10% from a year ago and more than 20% from two years ago.
As we look back on 2006, it's apparent the second half of the year was the most challenging period the building industry has faced since the early 1990s. New-home sales slid significantly in most areas, and builders pulled back on supply by dramatically slowing plans for additional construction activity. As a result, inventory levels have come off peak levels in most markets across the country. While different markets peaked at different times, nearly all markets now have inventory levels that are holding steady or in decline. The cessation of inventory growth is a positive sign that the market is beginning to move back toward equilibrium.
The second half of 2006 may very well wind up being the worst six-month period that home builders will see this decade. Home sales continued to slide, and builders pulled back on supply by dramatically lowering permit issuance. While the pace of the new-home inventory increase appears to have peaked, this is likely as much due to a lower rate of new-home supply as to any positive trend in demand, and builders will have a significant backlog of inventory to move once demand conditions finally do improve.