Home Builders Face New Hurdles

Builders are on track to construct the fewest single family homes in history this year. Total housing starts in July were down 1.7 percent, month to month, which may not sound like a lot, but when you break the number down, you see the problem. Single family starts were down 4.9 percent, while Multi-family starts rose 6.3 percent. Rental demand continues to rise, as consumer confidence in homeownership was decimated yet again by the recent debt turmoil in the economy. I am reporting these numbers today from a construction site. Mid-Atlantic Builders of Rockville, MD is putting up the last phase of a large single family development out in Bowie, MD, which is about 15 minutes outside the DC Beltway. According to executive VP Stephen Paul, "We started what we call the spring market in February. We started out very strong, we had a good February, March, even into April. What started to cause consumer confidence to wane was the escalation of gas prices, the debt issue with the government, and what's going on in Europe." In other words: Confidence. "We see people not sure what to do at this moment and a little unsure," adds Paul, though he is confident that things will pick up this Fall, but housing analysts aren't so sure. "The market is continuing to adjust to a reduction in the national home ownership rate at the same time the supply of existing single family homes remain excessive," writes Peter Boockvar at Miller Tabak. Builder Stephen Paul told me of a new trend I'd heard of only anecdotally: We're seeing more multi-generational families moving into our homes, so we're selling in-law suites, with the regular part of the house, and the parents are moving in and actually helping pay, funding the mortgage, so that's helping with the affordability." That's precisely why we are seeing a drop in household formation. Add that to the surge in renting and it's pretty clear why the nation's home builders are in for a long
haul back to recovery.