“A tornado hit the housing sector in October”

From the AP:

5-year housing boom turning into ‘recession’

Housing construction plunged in October as builders slashed activity to the lowest level in more than six years.

Further declines were expected as the five-year housing boom turns into what is being called a “housing recession.”

“A tornado hit the housing sector in October,” said Joel Naroff, chief economist at Naroff Economic Advisors, a private forecasting firm. “Builders have seen the light from the housing market meltdown and are now moving as rapidly as possible to reduce supply.”

In New Jersey, Hovnanian Enterprises Inc. in Red Bank, the state’s largest home builder, warned last week that cancellations of orders continued to increase in its most recent quarter, “driven in part by the inability of buyers to sell their existing homes.”

Later in the week, Hovnanian notified West Milford officials that it will not be seeking a water permit to build a 288-unit town house project. The builder cited the difficulty of winning approvals, and the time it would take to sell the units.

Last month, Kara Homes of East Brunswick filed for bankruptcy.

Housing, which had been one of the U.S. economy’s standout performers during a five-year boom, shaved about a percentage point off growth in the July-September quarter. That pushed overall economic activity as measured by the gross domestic product down to an anemic rate of just 1.6 percent, the slowest growth in more than three years.

Many economists predicted that GDP growth would be trimmed by a similar amount in the current quarter as housing continues to act as a drag, through lower sales and reduced building activity. Construction in October stood at 27.4 percent below the level of activity a year ago, the biggest year-over-year decline in more than 15 years.

“The scale of the yearly decline is now in housing recession territory,” said Brian Bethune, chief economist at Global Insight, a Lexington, Mass., forecasting firm.

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8 Responses to “A tornado hit the housing sector in October”

  1. Ray says:

    The big question is: Will the housing “recession” push the U.S. economy into a recession?


  2. SAS says:

    ” Will the housing “recession” push the U.S. economy into a recession?”

    You bet it will…

    Housing has created a psychological “wealth effect” in many Americans minds. Therefore, they went out and bought all sorts of nick nack patty whacks at the Red China WalMart, and other places (mostly on credit). They did this thinking, “hey, I am a homeowner, and RE always goes up…I’ll come out ahead in the long run”.

    When RE doesn’t go up, they are going to pull back on spending, which will bite on the economey.


  3. FEWER BUILDING PERMITS: Down 21 percent in Ocean

    KARA HOMES: End of boom helped contribute to bankruptcy

    Housing market slows down
    Posted by the Asbury Park Press on 11/18/06

    The pace of new home construction at the Jersey Shore has slowed this year as builders put on the brakes amid turmoil in the overall housing market.

    The number of building permits issued in Monmouth County through the first nine months of the year fell to 1,103, down 12.9 percent, compared with the same period last year, according to the U.S. Census Bureau. In Ocean County, it fell to 1,503, down 21 percent.

    Nationally, construction of new single-family homes and apartments dropped 14.6 percent in October from September to an annual rate of 1.486 million units, the slowest pace since July 2000, the Commerce Department said Friday. Construction in October stood 27.4 percent below the level of activity a year ago, the biggest year-over-year decline in more than 15 years.

    “Builders have seen the light from the housing market meltdown and are now moving as rapidly as possible to reduce supply,” said Joel Naroff, chief economist at Commerce Bank. “A tornado hit the housing sector in October.”

    The slowdown in the housing market is said to have played a role in the downfall of East Brunswick-based Kara Homes Inc., one of the largest builders in Monmouth and Ocean counties. The company filed for Chapter 11 bankruptcy in October.

    Other large developers have said that while the market is slow, they remain financially strong.

    Nationally, the country has experienced the largest housing boom in history over the last five years, said Patrick J. O’Keefe, chief executive officer of the New Jersey Builders Association.

    New Jersey has not experienced that same record-setting pace, given the amount of the state that is already developed as well as restrictions on new development, he said.

    Still, building permits have declined consistently this year in New Jersey, O’Keefe said.

    “Builders are cutting back on the number of projects they are starting,” O’Keefe said. “Even within projects, they are aggressively managing inventory.”

    As a whole, the building industry in New Jersey was alert to a slowdown in the resale market, O’Keefe said. Typically, new home buyers are people who need to sell existing houses.

    “Builders took their foot off the accelerator,” he said.

    Earlier this year, builders began to see more order cancellations and more unsold lots, he said.

    “Builders across the board, every price point and every region of the state, have curtailed activity, and they will continue to do so well into 2007,” O’Keefe said.

    Companies feeling it

    At Red Bank-based Hovnanian Enterprises Inc., net contracts in the fourth quarter ended Oct. 31 were down 36 percent compared with last year’s fourth quarter, the company said in announcing preliminary results earlier this month.

    Buyers canceled contracts in part because of an inability to sell their existing homes, the company said. Hovnanian Enterprises is New Jersey’s largest home builder.

    “Our financial results for the fourth quarter continued to be negatively impacted by high cancellation rates and increased use of concessions and incentives, particularly on the resale of those homes which experienced contract cancellations,” said Ara Hovnanian, president and chief executive officer, in a statement.

    The company’s concessions vary across the company and include mortgage-financing arrangements, and free upgrades and options on houses, a spokesman said.

    Hovnanian expressed optimism that the company will see decreasing cancellations and improved sales in some of its more challenging markets. “However, we have not seen signs of such improvement to date, despite reasonably healthy levels of buyer traffic at many of our communities,” he said.

    The company also renegotiated some land option contracts and walked away from its deposits in some others, Hovnanian said.


  4. RentinginNJ says:

    ” Will the housing “recession” push the U.S. economy into a recession?”

    You bet it will…

    I agree. One of the typical happenings during a collapsing bubble is widespread reassurance by policymakers and economists that “the _____ market really wasn’t such a big deal to the overall economy anyway and the pain will be contained to the ____ market”. Just look at media reports during the months following the dot com bubble crash and the stock market crash in 1929.

  5. Ron says:

    My friend manages a branch for a large bank and what he has mention is staggering. People are barely scraping by. Now that the housing market has stalled, people are over extended and have very little cash to fall back on and are taking personal loans at ridiculous rates. 2007 will be the beginning of a long, ugly recession led by a major bear market in real estate. Don’t let anyone try to convince you otherwise.

  6. BC Bob says:

    Worldwide recession.

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