Home Builders Say the Worst May Be Over

As reported on CNNMoney.com, many of the larger national home builders are saying that they are at or near the bottom, and expect the market to be better in 2007.

Toll Brothers reported a sharp drop in fiscal fourth quarter earnings early Tuesday and forecast a big drop in profits for the coming year. But despite that bad news, chairman and CEO Robert Toll said that the market for new homes may finally be leveling off after more than a year's worth of declines.

"Fifteen months into the current slowdown, we may be seeing a floor in some markets where deposits and traffic, although erratic from week to week, seem to be dancing on the bottom or slightly above," said Toll in a statement accompanying the earnings report. "The metro D.C. suburbs of northern Virginia, which was the first market in which we saw activity slow, seems to have stabilized, although at levels much lower than those we have enjoyed over the past few years."

This is certainly a good sign for the stabilization of the housing market. Indeed, the National Association of Home Builders is sounding a similar tune.

Jerry Howard, CEO of the National Association of Home Builders, said a turnaround should begin in the first quarter of 2007. "The market," he says, "is at the bottom now."

Favorable factors contributing to better times will be low (and declining) interest rates, solid wage and job growth and low inflation. Long term demographic trends also spell housing market growth.

Do not, however, expect a return to national, double-digit home-price growth. Those days may be over for a while, according to the NAHB's chief economist, Dave Seiders. Instead, the recovery will be marked by fewer houses sitting on the market. "Inventories will drop," says Seiders, "and prices will stay flat for a couple of years."

He points out that housing prices don't usually overcorrect after a long run up. Instead, "They generally decelerate and then grind along as income grows until they come into balance."

Indeed, the local inventory in the Pleasanton Area has declined, and we have seen an uptick in activity in the past 30 days as buyers have entered the market, mostly looking for bargains. This could be an indication that we could be at or near the bottom locally, and that better days are ahead in the real estate market.

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