More evidence of cracks appearing in RE sector:
Unsold Homes Pile Up in Some Areas
The Wall Street Journal Online
By Kemba J. Dunham
Surplus at Entry Level
Prompts Builder Incentives;
Free Landscaping and AC
The housing market may be red-hot in most places, but newly constructed homes are beginning to pile up in some Midwestern and Southern cities, forcing builders to offer incentives to lure prospective buyers.
Much of the current weakness is in the market for moderately priced or entry-level homes. So far, sales are slowing mainly in areas where population and job growth have been relatively weak, such as Ohio, which has lost more jobs than any other state since 2000. Other lackluster markets include Michigan, Indiana and Kentucky. The Midwest economies have been hurt by problems in manufacturing, partly tied to the automobile industry.
Nationwide, home sales remain red-hot, and few economists expect the problems in the Midwest to spill over to the rest of the country -- at least not anytime soon. With the national job picture relatively healthy, real-estate experts expect sales to remain brisk overall.
Still, oversupply is hitting some markets with a robust employment picture. Charlotte, N.C., for instance, currently has a job growth rate of 3.5% -- higher than the national average. But so many builders moved into the Charlotte market hoping to capitalize on the expanding economy that competition for buyers has become fierce.
The recent softness has forced builders to offer an array of incentives to attract new buyers, ranging from small perks, such as swanky blinds, to ones valued at thousands of dollars. Developers are offering to pay closing costs, upgrade kitchens at no charge, subsidizing down payments, landscape the property or install air conditioning, or offer additional parking spaces in smaller subdivisions.
Builders have periodically had to resort to incentive programs to keep sales brisk, even in hot markets. The latest round, though, is mostly focused on entry-level homes.
During a period of lackluster stock-market returns, the strong housing market has been a big driver of both the economy and individual wealth. The National Association of Realtors reported this week that its index of pending home sales -- those for which contracts have been signed but transactions aren't completed -- in February was up 10% from a year earlier. The group also has reported that the national median price for previously occupied homes was $191,000 in February, up 11% from a year before. (In one hot market -- Los Angeles -- median home prices have shot up 166% during the past five years, by some estimates.) For all of 2004, there was a 4.3-month supply of homes available for sale, the lowest annual supply on record, the association said.
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