July 28, 2008

New House Sales Keep Falling

By Riddhi Trivedi-St. Clair, St. Louis Post-Dispatch

Jul. 26--When sales of new houses started to soar several years ago, Ray Johnson, owner of Overland-based Key Carpet, considered gearing his carpet installation business toward that market.

"I am very much glad I didn't," Johnson said.

Matching a national trend, the number of new houses being built in the St. Louis region continued its downward trajectory last month. In June, 459 permits were issued in St. Louis and nine surrounding counties reviewed by the Post-Dispatch. That's less than half the 978 permits issued a year ago, and the lowest June number in this decade.

For the first six months of the year, 3,163 permits for new houses were issued, compared with 5,496 last year and 5,678 in 2000, according to research by Rock Hill-based Zanola Co., a division of MarketGraphics Research Group.

Nationwide, new house sales in June fell 33.2 percent from a year ago, according to data released Friday by the Commerce Department. The Midwest fared better, with sales growing 2.5 percent.

Brian Bethune, chief U.S. financial economist at Global Insight, said the numbers gave a "few positive flickers, but the housing market remains extremely fragile."

The median price -- the price at which half the houses in the market sell above and half below -- of a new house fell 2 percent in June from the previous year.

New house sales for the St. Louis region weren't available, but permits are an indicator of sales levels. The drastic decline in permit numbers indicates that builders are slowing construction to match the sluggish pace of sales.

Jerry Rombach, executive officer of the Home Builders Association of Greater Southwestern Illinois, would rather focus on the market's future direction than its current troubles.

"All the fundamental factors that signal a healthy housing market still remain in place," Rombach said. "Households are still being formed, companies are still hiring, and unemployment is not that high."

The slowdown in housing construction was a conscious decision by most builders to help lower excess inventory.

The efforts seem to be working. According to Zanola's research, 2,962 unsold houses were on the market last month, compared with a high of 3,143 in November.

Permit numbers may start to pick up soon, Rombach said, as builders start gearing up for an upturn in the market.

"There are several builders who are looking for lots, dusting off development plans and putting them in play in anticipation of the market turning around in a year or 18 months," he said.

It takes about that long for a builder to get an undeveloped piece of property though the zoning and approval process.

Meanwhile, builders are offering free upgrades, discounts and other incentives like paying closing costs to attract buyers.

"Not every builder has the luxury to do that or do it to the same extent as other competitors. But to every degree possible ... builders are doing whatever they can to stimulate interest," Rombach said.

The Associated Press contributed to this report.


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