Metaphor Alert: New American Home 2010 Runs Out of Money
Every year, the International Builders' Show has featured a house that was built specifically for the conference. Offering the latest in construction technology, the New American Home (TNAH) was a yearly showcase of the best that the homebuilding industry had to offer. But this week, for the first time in 27 years, the house will not open in time for the show. The project stands unfinished because its builder, Domanico Custom Homes, lost their private financing.In a turn of events that is painfully reminiscent of the construction industry at large, Domanico's private lender had credit problems and had to withdraw funding. According to the International Builder's show website, "The banking industry's reluctance to make loans for acquisition, development and construction, coupled with the housing downturn in Las Vegas, made it difficult to find alternative financing for TNAH 2010. Domanico was not able to secure funding in time to complete the showcase home before the IBS begins on Jan. 19, 2010."Built to conform with the NAHB's Green Building Standards and the Department of Energy's (DOE) Energy Star efficiency programs, the 2010 home was designed to demonstrate the latest in green technology. But the Domanico debacle showcases another, less optimistic, part of the building trade: financing. According to the U.S. Commerce Department, construction spending fell for seven consecutive months in 2009, and is now at its lowest level in more than six years -- a seasonally-adjusted annual rate of $900.1 billion -- and is down 13.2% on a year-over-year basis.
Looking at the ups and downs of the building trade since 2006. the news gets even worse. Moody's calculated that from the first quarter of 2006 through the last quarter of 2007, builders wrote off $19.3 billion in land impairments, land option abandonment charges and joint venture charges.
In 2009, half-finished projects dotted many neighborhoods as bank funding dried up, and it looks like problem is far from a resolution. The National Association of Home Builders' Housing Market Index, which fell in January to 15, from December's reading of 16 -- the index's lowest level since June. Economists had expected the index to rise to 19 in the new year: the index was at 20 in October, after hitting a cycle low of eight in January. The NAHB Housing Market Index measures builder perceptions of current single-family sales conditions, sales expectations for the next six months, and the traffic of prospective buyers. Readings over 50 indicate that more builders view sales conditions as good than poor.
DailyFinance's Joseph Lazzaro concludes: "Given the downtrend since June, this unexpected decline in the NAHB housing market index can't be considered a blip. However, given other, more telling indicators that are pointing to stabilization, the bias remains tipped in favor of an improving housing sector."
So will we see improvement in 2010? Even if we don't see private multi-family housing, we will certainly see projects for developers funded by the U.S. Department of Housing and Urban Development. For example backers of the Encore project in Tampa just got approval for a $38 million project to redevelop the former Central Park Village public housing complex. The money will be used for infrastructure improvements including building roads and sewer systems. I also expect the tax credit for home purchases will be extended to keep the weak housing market moving toward stabilization.
