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VOL. 123 | NO. 157 | Tuesday, August 12, 2008

Builder-Sold Homes Drop 50 Percent

By Eric Smith

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LEADING THE WAY: The River Tower at South Bluffs led the way in sales by homebuilders in July with 12 units fetching a combined $2.2 million. Otherwise, the scene for builders was pretty bleak, with sales declining 50.5 percent from the same month a year ago. -- PHOTO BY ERIC SMITH

Count the area’s homebuilders – along with Realtors and mortgage bankers – as another group that sees the Housing and Economic Recovery Act of 2008 as a salve for the ongoing real estate crisis.

Doug Collins, president of the Memphis Area Home Builders Association, said the landmark bill is so crucial to the viability of his industry that he has been furiously studying the ins and outs of the bill since President Bush signed it into law late last month.

“My thoughts have been consumed by that,” said Collins, who also owns the real estate company Prudential Collins-Maury Inc. and building company Sovereign Homes LLC.

When looking at the latest statistics, it’s easy to understand why Collins has been examining the myriad ways the bill might help the building community.

Homebuilders in Shelby County sold just 96 homes in July, a 50.5 percent decline from the 194 sales in July 2007 and a 21.3 percent decline from the 122 sales in June of this year, according to the latest data from real estate information company Chandler Reports, www.chandlerreports.com.

Temporary spike possible

Can the housing bill turn things around for builders? Collins is counting on two components of the bill, among others, to spark a home sales revival. The first is its prevention of the Federal Housing Administration from insuring mortgages in which the borrower’s down payment is paid by the seller. That will begin Oct. 1.

While it is viewed negatively by some, especially in the long term, it does present an opportunity for builders. Since seller-financed down payment assistance will go away in fewer than two months, Collins said he believes there could be a rush to take advantage of these programs while there’s still time.

“There’s going to be a spike in sales and closings in September, trying to get under the wire before that October deadline,” he said. “That’s going to spur the market. Quite honestly, I think it will help builders at a greater percentage, because more builders are willing to fund that down payment than an individual seller.”

The other component of the bill that could help is the first-time homebuyers’ tax credit of $7,500 for qualified buyers who purchase a home between April 9, 2008 (retroactively), and July 1, 2009. If history is any indication, Collins said, the industry could be in for some brisk business.

“That tax credit was used in 1975, and in nine months the excess supply had gone away,” he said. “In ’75, it was a $2,000 tax credit. Now, it’s a $7,500 tax credit. I think we’ll see that play a significant role and it will play a role increasingly as it gets to that July deadline, because it becomes more urgent the closer you get to July.”

Slow correction

Urgency is an emotion many homebuilders have displayed in 2008 as they work to shed inventory and reduce starts. But the results have been mixed. While sales have outpaced permits for the most part, sales still aren’t significantly chipping away at the new housing stock, which sits at 21.3 months, according to the latest Chandler data.

Also, most of the county’s top builders for July saw declines from the same month a year ago, stunting the housing correction the industry so desperately needs.

The top builder in terms of total dollar amount for July was South Bluff, which had 12 sales totaling $2.2 million. That entity is related to Houston-based McCord Development Inc., which sold 20 River Tower at South Bluffs condominium units at a recent auction. (Because the units were converted from apartments, they counted as new housing and therefore were counted for this report.)

South Bluff was followed by Southern Serenity, which sold three homes totaling $1.6 million; Lenox Homes (nine, $1.4 million); Compass Point (seven, $1.2 million); Barry Watson (six, $1.07 million); and Charles Morgan (five, $1.05 million).

Rising

Morgan, owner of Vintage Homes, is another builder who is thankful for the housing bill. He sees the legislation – plus the coming November elections – as the proverbial shots in the arm for the industry.

“Consumer confidence should be boosted by the stimulus package, and what’s really going to help is when the (presidential) election comes – and it doesn’t matter who wins,” he said. “The constant state of flux that we’re in during the election creates a lack of confidence. We got the housing stimulus package for the short term, and then in November we have the election, and I think you’ll see a big improvement after that.”

Ever optimistic, builders have for months harbored the belief that things are about to turn around. With a monumental housing plan in place, for the first time they might be right. But even they know to temper their enthusiasm with caution, knowing recovery is going to be a slow, steady process.

“The general consensus is that we’re at the bottom,” Collins said. “It’s not that there’s going to be an immediate bounce straight up, but at this point we believe that we’ve bottomed out and we’re going to see growth going forward over the next year.”

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RECORD TOTALS DAY WEEK YEAR
PROPERTY SALES 115 270 19,843
MORTGAGES 141 311 23,225
FORECLOSURE NOTICES 23 71 8,375
BUILDING PERMITS 0 338 40,366
BANKRUPTCIES 74 196 13,300
BUSINESS LICENSES 25 48 6,185
UTILITY CONNECTIONS 40 125 13,120
MARRIAGE LICENSES 15 73 4,915

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