Monday, May 5, 2008

Housing Slump Hits Detroit Builders - Detroit Housing Market

Metro Detroit's dismal residential housing market -- gridlocked and stagnant amid a global mortgage loan crisis, consumer sentiment at a 26-year low and a glut of unsold and foreclosed homes -- has cast a pall over local builders who only a few years ago were enjoying boom times.

Now, half-built subdivisions dot the region, construction workers are fleeing south and companies from family-owned shops to global firms like Pulte Homes Inc. are bracing for what could be their worst year yet.

One national player, Dallas-based Centex Corp., has decided to leave Michigan altogether. The company has built 4,400 homes in Metro Detroit since 2001 but no longer sees prospects here.

Said Centex spokesman Eric Bruner: "We are in the middle of the worst housing market in modern history."

Pulte Homes Inc. on Wednesday posted a $696 million loss for the first three months of the year; the Bloomfield Hills-based builder has lost more than half a billion dollars in each of the past four quarters.

Last year, Pulte closed on 499 homes in Michigan, less than half the number of the previous year. The company laid off 1,900 employees, 16 percent of its U.S. work force, in 2007.

"The difficult housing environment continued to erode during the first quarter of 2008," Richard J. Dugas Jr., president and chief executive, said in a statement. "Buyer demand for new homes continues to be soft, home prices remain under pressure, and overall buyer confidence is weak."

Small builders who rely on a warm-weather boost aren't getting it in Michigan this spring.

One is Jack Traggel, a roofing contractor formerly of Allen Park. In the early 2000s, he worked on about 50 homes a year. Last year, it was 15. This year, he found two jobs; two weeks ago, he moved to New Orleans.

"I've got three jobs lined up," said Traggel, 38. He hopes to move his wife and son to New Orleans later this month -- which, in turn, will likely result in another empty home in Metro Detroit. In Louisiana, "I've met about four guys I knew back in Michigan," he said.

Signs situation may worsen
There are dark signs that 2008 could be the toughest year this decade for builders.

In 2007, a paltry 5,556 permits to build new homes were filed in the nine counties that make up southeastern Michigan, according to Clawson-based Housing Consultants Inc. That was nearly half the number of permits filed in 2006 and 20,994 less than in 2004, the best year this decade.

In the first three months of 2008, fewer than 1,000 permits have been filed, a 25 percent drop from the same period last year.

"You're finding skeleton crews everywhere," said Mark Kwolek, co-owner of Planned Home Improvement in Westland. "You go to a supplier and the business is closed with no warning. You try to call a contractor and you find he's moved out of state."

About 69,000 jobs directly related to the home building industry have vanished since 2000, according to the state's Department of Labor & Economic Growth.

Stalled subdivisions abound -- a boon for companies such as Pinnacle Homes of Farmington Hills, which step in to buy unfinished subdivisions from banks and attempt to build homes for much less than just a few years ago.

Pinnacle is run by a former Pulte executive, Howard Fingeroot.

"I knew the market well enough to know that this was an overall downturn and one that was going to be around for a while," said Fingeroot, standing amid the empty lots of Kirkway Estates in Lyon Township. "The only way to compete with the foreclosures was to get closer to their prices."

In a venture with AmTrust Bank of Cleveland, Pinnacle will build 85 houses in the 100-lot development. The homes will be from 2,800 to 3,400 square feet and will list for around $330,000, Fingeroot said.

The 15 homes already standing, he added, sold for more than $450,000 each just a few years ago.

"There are still plenty of people who want to buy, and now is the time," Fingeroot said. "I think this is good news for the consumer."

Most home builders have already cut prices in an effort to boost sales. Prices on new dwellings already are down about 15 percent from their peak, according to Deutsche Bank analyst Nishu Sood.

The big worry is that existing home prices might fall further.

The National Association of Realtors says the median home price fell 1.7 percent last year and may hold even in 2008.

But many analysts contend homeowners might be forced to sell at lower prices as millions of mortgages reset to higher interest rates later this year.

Lombard Street Research analyst Gabriel Stein expects house prices nationally to fall for another year, off more than 10 percent or possibly even more than 15 percent, from their peaks.

If existing home prices start to plunge, home builders and the many companies that rely on new homes could feel even more pain.

"The adjustment process will shrink demand further for the builders," analyst Sood writes.

He predicts orders for new homes could fall another 10 percent to 15 percent nationally in 2008.

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