Will new construction screw recent buyers?

Good article in the Sun the other day about the home builders having tough times and having to cut costs in Maryland. We all know this is because the craziness of the past couple years made a lot of people doing contractor work very fat and happy. Now it comes down to survival of the fittest as suppliers also have to cut costs.

M. Kent Thomas, co-chair of the construction services group with KAWG&F, which does accounting, tax returns and consulting for local building contractors and suppliers, said everyone selling to homebuilders will "need to find alternative types of work."

"The next couple of years are going to be quite challenging for our contractors," he said.

Talk about an understatement. The thing is that the over expansion and price run-up was not sustainable.

Jamie also talks to some of the challenges facing the folks because of high oil prices and the drop off in building materials .....the drop off in lumber is amazing.

Some material costs have plummeted. Lumber prices dropped from $475 per 1,000 board feet in the middle of 2004 to about $238 for the same amount last week, Markstein said.

But some material prices are still rising, either because they're also used by industries with stronger demand or because they're at the mercy of oil costs. Take asphalt, which is made from petroleum and requires gas-guzzling equipment to lay down. Pavement contractors are stuck between a rock and a hard place: penny-pinching builders and homeowners on the one hand, and on the other, material prices jumping along with oil.

"You can't even get a supplier to guess at what materials are going to cost in July," said Don Turner, executive director of the National Pavement Contractors Association.

Anyone trying to sell right now in the suburbs should be scared of the statements above that have bought in the past 2 years. The same floorplan in the same subdivision in places like Perry Hall and Owings Mills might be badly underwater, especially if they are not done with the build out. During the texas oil downturn houses built right beside each other were 1/2 price within 2 years.

Raw land has already dropped 40-50 percent. Now materials. That's like 50% less for lumber. Do not get me started on the labor aspect. There are guys who have not worked in months and will drive from the eastern shore for work.

2 years from now we will likely find a bottom IN NEW HOUSES ONLY. No one is building this year. Next year, I expect a couple smaller builders (the ones that are not bankrupt) to test the waters mostly because they need to revenue. The large builders....not so much. They are done building for a while and probably will overcorrect before they break construction ground gain.

Ability to offer incentives is also going to be a clincher. With the need for downpayments again I believe the builders will find a way to gives incentives to get people in. It's going to take the feeling of a deal for the qualified buyer to jump in.