Home Builders Struggling Against The Tide

Figures for new home sales in 2011 are on track to reach a record new low, says the Wall Street Journal. Following a peak in 2005, when 1.3 million units were sold, the annual rate as recorded in July was just 298,000 units.

Most home building companies are struggling to compete with the tidal wave of existing homes on the market, which are selling at super-low prices, thanks to so many foreclosures, short sales and investors buying and flipping homes. This struggle has been going on for almost five years now in some parts of the country.

Some construction companies have resorted to desperate measures to avoid going under, such as pulling back on any more purchases of land in order to conserve cash. Many more have drastically reduced the number of staff on their books to stay afloat.

Other home builders, including the Pennsylvania-based Toll Brothers, famous for building their McMansions, have started looking at different money making avenues. They have began expanding into the condominium market in urban areas, a sector which is showing much stronger signs of life than home building right now. Other builders meanwhile, are coming up with ever-more diverse home designs, hoping the uniqueness of their properties will attract buyers.

The problem, according to Alex Barron of the Housing Research Center, is that “Current markets simply aren’t big enough to support all of the building firms we have. What we need is consolidation, which doesn’t necessarily mean acquisitions or mergers, but there needs to be some kind of shakeout.”