Housing slump has grown to unprecedented proportions

By: Gene Hanson

The home building industry is going through a period of unprecedented challenges, Tim Underwood, executive vice president and chief executive officer of the Home Builders Association of Greater Kansas City, told the planning and development committee of the Northland Regional Chamber of Commerce on Thursday, Aug. 23.

“In my 24 years in the home building industry, I have never seen anything quite like this,” Underwood said. “This is having a widespread impact on businesses, jobs, taxes to taxing jurisdictions and on sales.”

His remarks were a departure from his normal positive reflections on the home building industry.

“I had hoped we would be out of this by now,” he said. “But I don’t see the housing market slump hitting bottom until at least the middle of 2008.”

New housing starts in July in the Kansas City area, according to the Home Builders Association, were down 8 percent from June, and off more than 31 percent from a year ago.

Underwood said housing construction in the Northland was down 36 percent from a year ago, and he said the number of homes on the market was double the number the market would like to see.

The chaos in the market is having an impact on local banking institutions as well.

“Banks make construction loans to builders building homes on speculation,” said Ed Bradley, chair of the Northland Regional Chamber of Commerce, and president of Liberty First Bank. “The banks are now taking over ownership of those homes through foreclosure.”

He said homebuilding locally was done by small builders, who have little equity to fall back on when the market goes bad.

“We are losing some good builders who are being forced to go out of business,” he said. “Another affect is that people are renting homes that have been foreclosed on. That impacts on home sales and the rental market.”

The housing turmoil has triggered widespread layoffs in the home mortgage market. Since the beginning of the year, more than 37,000 workers have lost their jobs at mortgage lending institutions, 21,000 since Aug. 1, according to Challenger, Gray & Christmas, a global outplacement firm. The August numbers reflect how rapidly the numbers are increasing.

At the same time, four major banks have each borrowed $500 million from the Federal Reserve to restore liquidity in the tightening credit market. And because of increasing mortgage defaults, bank profits have taken a hit, dropping 3.4 percent in the second quarter, according to the Federal Deposit Insurance Corp.

Business Editor Gene Hanson can be reached at 389-6638 or at ghanson@npgco.com.