In Housing, Take the High Road

05/14/2007 12:00 am EST


Peter Slatin

Founder and Editor, The Slatin Report

Peter Slatin, editor of Forbes/Slatin Real Estate Report, says the housing market won’t recover soon, but the high end remains in good shape.

Perhaps most indicative of where things are headed in the new-housing world is the 1.4% decline in inventory against March 2006.

That's the largest one-year drop in inventory on record, and is another indication that most home builders have slowed building and are holding inventory off the market in order to give themselves time to trim the current glut of unsold homes.

The March sales pace was reported to have slowed to well below forecasts of 890,000 homes for the month, to 858,000; February's reported velocity had already been trimmed back to 838,000 in revised numbers.

That's the slowest annual pace since September 1999. With an anticipated election-year slowdown looming in 2008, the brakes could be on for at least 18 months.

One apparent anomaly—the median sale price for new homes rose a hefty 6.4%, even though sales volume was weaker than expected. Why? It's the money—those who have it aren't afraid to spend it on big-ticket homes. (That sentiment was also reflected in an up tick in durable-goods orders for March.) Buyers interested in higher-end or luxury homes are paying up.

That trend could bode well for hard-hit higher-end home builder Toll Brothers (NYSE: TOL). Toll's stock has already climbed out of a pit and is hovering solidly in the middle of its 52-week range. (It closed above $28 Friday—Editor.) And another positive factor in the mix for Toll is the robust condominium market in New York City.

Toll Brothers Urban is in full tilt on several high-rise luxury construction projects in Manhattan and on the East River waterfront in Brooklyn, both of which are experiencing solid sales volume and even some price growth.

[Meanwhile], younger family-oriented buyers who are looking to buy (and who can still get financing) are still more attracted to new single family homes and less likely to seek—at current prices—existing homes, many of which are being put up for sale by downsizing and urbanizing Baby Boomers and empty nesters.

The issue of pricing and affordability that is a huge factor for sellers of existing homes—and that could eventually create a major price down draft in that market—remains a less important element in sales of new homes. After all, large home builders, despite their recent troubles, remain well-capitalized and comfortable. D.R. Horton (NYSE: DHI) announced April 24 that it is boosting its quarterly dividend by 50% to 15 cents a share. (It closed above $22 Friday—Editor.)

The concessions to buyers that they are offering today can still be said to nibble at the margins, not gobble them up. Until a new generation discovers the pleasures of old homes, the pattern of bifurcated housing markets is unlikely to look much different going forward.

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