Contractor Update

From KGW.com "WASHINGTON, D.C. - Economic growth slowed to a crawl in the third quarter, advancing at a pace of just 1.6 percent, the worst in more than three years.

The latest snapshot of the economy, released by the Commerce Department on Friday, showed that the slumping housing market figured prominently in the economy's dramatic loss of momentum. Investment in homebuilding was cut by the biggest amount since early 1991. many economists were forecasting.

"The housing bubble burst and that really knocked down growth," said Joel Naroff, president of Naroff Economic Advisors. The third quarter's 1.6 percent growth rate was the weakest since the first quarter of 2003, when the economy grew at a 1.2 percent annual rate.

Spending on home building dropped at a rate of 17.4 percent in the third quarter. That was the biggest drop since the first quarter of 1991 when such spending was sliced at a 21.7 percent pace."

From the Oakland Press: "The number of permits issued for new Oakland County homes dropped by 51 percent in the year's first three quarters vs. that period in 2005 - a decline slightly greater than that of Southeastern Michigan as a whole.

Builders were issued 1,690 permits for Oakland County projects from January to September this year, according to Housing Consultants Inc., a Clarkston company that tracks those permits. That compares with the 3,446 issued to builders in the first nine months of 2005.

The totals exclude permits issued for rental units.

In Southeast Michigan's nine counties overall, builders got 8,256 permits from January through September. That represents a 46.3 percent dip from the 15,362 permits issued in that period in the region in 2005.

The region includes Oakland, Wayne, Macomb, Washtenaw, Genesee, Livingston, Monroe, St. Clair and Lapeer counties.

"Things have slowed down a lot," acknowledged James P. Babcock, president of Babcock Building Co. Inc. in St. Clair Shores and of the Building Industry Association of Southeastern Michigan. "We're hearing that from all our members. I think the affordable homes are still selling."

New builds priced at less than $200,000 - those that some first-time buyers can afford - are faring better than pricier homes, he said.

"Once you're in a move-up market, things have slowed down because people can't sell their existing homes," he said.

The weak housing market is tied to Michigan's sluggish hiring climate. Foreclosures have worsened the situation.

Michigan reported 7,846 properties entering some stage of foreclosure in September - a 14 percent increase from the previous month and nearly three times the number reported in September 2005. That's according to RealtyTrac based in Irvine, Calif. With one new foreclosure fi ling for every 538 households, the state has the third-highest rate in the nation, behind Colorado and Nevada.

"If (lenders are) selling a home for 80 percent of what a builder sold it for two years ago, how's the builder going to compete with that?" Babcock asked.

In the region, Genesee saw the greatest decline by percentage - 59.5 percent - as the number of permits issued in the first three quarters dropped to 595 from 1,470 in 2005's comparable quarters. Monroe saw the smallest percentage dip - 26.5 percent - as permits fell to 429 in 2006 from 584 in 2005.

Macomb County led the region in permits issued in 2006, with 1,962, followed by Wayne, with 1,838. Oakland County was third.

Only two Oakland County communities were among the top 10 in the region in terms of number of permits issued. Lyon Township was sixth, with 245, and Novi was eighth, with 215.

Macomb Township was the community with the largest number of permits issued in 2006 - 549. Detroit was second, with 471, but 281 rental units were included in the total.

Builders are now in "hunker-down" mode, Babcock said.

He said he's heard of builders who are considering leaving the state or getting into a different business.

"It's harder to make a buck as a builder," he said. "I don't know when it's going to turn around - maybe after the election."

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Some housing bubble reports from Wall Street and Washington. "M.D.C. Holdings Inc. reported third-quarter net income fell 60% as profit margins narrowed in more competitive markets and home orders plunged 40% from a year earlier. The 'operating environment in most markets became increasingly competitive in the face of continued expansion of unsold new and existing home inventories,' said CEO Larry A. Mizel."

"Margins thinned particularly in California, Nevada and Virginia, M.D.C. said. In the third quarter the company said it booked pre-tax charges of $29.4 million for inventory impairments and project cost write-offs."

"'Builder concessions and incentives continue to rise,' said CEO Mizel. 'Confronted with expanding inventories and increased uncertainty, many buyers displayed a wait-and-see approach to purchasing a new home.'"

"'M.D.C. said home orders in the third quarter fell 40% to 2,120 from 3,551 in the year-earlier period. The cancellation rate jumped to 48.5% from 25.7%."

"'We expect cancellations to remain high as long as home prices deteriorate,' wrote Banc of America Securities analyst Daniel Oppenheim. 'We believe land impairments will likely continue and increase from the $19.9 million charge in [the third quarter] due to the relatively young age and geographic concentration in stretched markets of the company's lots supply,' he added."

"Homebuilder Technical Olympic USA, Inc. reported consolidated net sales orders of 1,470 for the quarter ended September 30, 2006, a 19% decrease from the... quarter ended September 30, 2005. Joint venture net sales orders for the third quarter of 2006 were 125, an 86% decrease the third quarter of 2005."

"TOUSA's consolidated cancellation rate was 33% for the third quarter of 2006 compared to 20% for the third quarter of 2005. TOUSA's combined cancellation rate for the third quarter of 2006 was 44% compared to 18% for the third quarter of 2005."

"The Company anticipates a pre-tax charge in the range of $35 million to $48 million for the third quarter of 2006 related to land deposit write-offs and asset impairment charges."

Thanks to Ben at The Housing Bubble Blog for gathering the information.