Pro Dealers Told to Expect More Tough Times

By Ryan Self
October 8, 2008
Meetings & Events

Chantilly, Va.–Lumber and building materials dealers heard sobering housing market predictions at the ProDealer Summit, hosted by the National Lumber and Building Materials Dealers Association and Home Channel News here last week. Ivy Zelman, CEO of housing research firm Zelman & Associates, rebuked the variety of “we’re close to the bottom of the housing slump,” predictions that have been made throughout 2008, saying "I wish I had better news. I was bearish then and I’m bearish now."

Zelman relayed her experience of talking to one builder, who spoke of the bank selling houses he had built just a few years ago for $220,000, and his frustrations in trying to sell the same new home just down the street at $280,000 to $290,000–a price which, even if low enough to compete with bank sales, still had him barely making any money.

Zelman said the only fix for the depressed housing market would be one that stopped or significantly slowed the flow of new foreclosed properties, which add to stock and depress prices. She also noted that while the troubles in former hotspots like Las Vegas, Phoenix and much of Florida were well-chronicled, those following the crisis have largely ignored new depressed markets such as Atlanta and Chicago.

“I’ve had a builder tell me that Chicago is the worst market in the country,” she said, noting that home prices were down 20 percent and land values were down 45 percent in the Windy City.

"What you see in the trends is what you already know–we’re in the third year of this thing, cancellation rates continue to be well above trend, builders have standing inventory and even when they have a qualified buyer, they’re often seeing the sucker punch of appraisals that are five to 10 percent lower," Zelman said. “I don’t deny that it’s possible that we’re getting closer to the bottom; I’ve certainly heard that. But the bottom has a new competitor; one that doesn’t have a floor: foreclosure.”

“It’s going to get ugly,” agreed Paul Jannke, senior vice president of wood and timber information with RISI inc. “It’s going to get much worse before it gets better; we’re going to see housing drop.”

“In order to get to the position where we fix housing, we have to solve delinquencies,” Zelman said. “It’s pretty ugly – you either stop the foreclosures and the defaults, or you have to burn them down and get rid of them. There’s no silver bullet.”

Zelman told the crowd about a builder in Phoenix, with 50,000 For Sale signs out. After selling 5,600 homes one month, a strong month by any measure, he was still left with 50,000 signs in the ground, because for every sale, a new home hit the foreclosure market.

Zelman cautioned attendees that the recently-passed $700 billion bailout plan will not suddenly stabilize the housing market.  “How does it fix housing?,” she asked. “It is supposed to take toxic assets out of balance sheets and free up capital. How does that help? Are they going to loan to builders, when the land is worthless?”

While the bail out plan helps in some areas of the economy, “it’s not going to solve housing,” Zelman added. She predicted that 2009 housing starts will be the lowest since World War II. “The banks won’t lend, the builders can’t get any money, and the economics wouldn’t make any sense even if they could get money,” she said. “Starts are going to plummet in 2009, and that isn’t necessarily a bad thing – we don’t need more starts.”