Home Builders Can't Compete With Foreclosures
Sentiment among home builders is still lousy and cheap foreclosed homes are a big reason why.
As U.S. home builders grew more wary of the housing market in March, besieged by competition from cheap foreclosures, real estate auction companies are booming.
Real Estate Disposition, a home auctioneer, has sold off 7,000 properties for $382 million so far this year, says spokesman Rick Weinberg. The total dollar value of auctioned properties is 10% higher than it was in the last three months of 2009 when Real Estate Disposition moved 6,351 homes across the U.S.
"The business is totally booming," says Weinberg. "Our auctions have been a boost to the economy both locally and nationally."
On average, one in 438 homes across the country was in foreclosure in February, according to RealtyTrac, but the number of foreclosed properties is down compared to last year.
"The continual flow of distressed properties priced below the cost of production is having an adverse effect on new-home appraisals and also making it tough for builders' customers to sell their existing homes," said Bob Jones, a home builder from Bloomfield Hills, Mich. and chairman of the National Association of Home Builders.
The NAHB/Wells Fargo housing market index, a monthly survey of home builder sentiment, fell 2 points in March from 17 to 15. All three components of the index slipped, including expected and current sales and buyer traffic, which fell to their lowest levels since March 2009. Overall the index is still up from a year ago, when it registered a record low reading of 9. A reading of less than 50 indicates that home builders still view market conditions as "poor."
"I'm pretty worried," says Jennifer Lee, senior economist with BMO Capital Markets. "You still have a lot more foreclosures coming to the market in the next months, as the government program to avoid foreclosures is not hitting as many homeowners as it could."
The report comes one day before the Commerce Department will publish its own data. According to analysts surveyed by Thomson Reuters, U.S. housing starts will drop 3.6% to 570,000 units in February because of bad weather, while building permits are seen decreasing about 1.9% to 610,000 units in February compared to the previous month.
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