Texas homebuilders need to cut back, report says

Oct. 4--Texas' new-home market could be stuck in a prolonged downturn unless builders cut back further on construction, a new report by Texas A&M University warns.

"If homebuilding doesn't drop 25 percent from where it is now, the Texas home market could slow down for a longer period than we would like," said Dr. Mark Dotzour, an economist with Texas A&M's Real Estate Center.

"The inventory of unsold homes is rising all over the state," he said in the report released Wednesday.

At the end of August, almost a six-month supply of unsold new homes was on the market in Texas. That's about 12 percent more than a year ago.

While inventories have risen, the number of new-home sales has been dropping. In August, nationwide new-home sales fell to their lowest level in seven years. And nationwide new-home prices fell by the biggest percentage in 37 years.

The National Association of Home Builders doesn't expect nationwide housing starts to bottom out until the second half of 2008.

In the Dallas-Fort Worth area, new-home sales at midyear were down almost 20 percent.

Dr. Dotzour said that while Texas builders have done a good jobof cutting home starts to reduce unsold inventory, more cutbacks are needed.

"Such reductions will allow Texas to avoid price declines like those in other areas of the United States," the report said.

In the D-FW area, single-family home starts were down almost 40 percent at the end of June compared with a year earlier. Even so, more than 13,000 homes were under construction.

About 11,000 unsold new homes were on the market in D-FW at the end of the second quarter -- a seven-month supply.

North Texas homebuilders have already done a good job curtailing starts, said housing analyst Ted Wilson of Residential Strategies.

"It has subsided dramatically already and continues to come down," he said.

"It is clear that the production builders are not building speculative homes -- except for those unintentional ones where a buyer cancels."

Even so, Mr. Wilson predicts it will take six to nine months to reduce excess new home inventories in the area.

Dr. Dotzour warns that changes in mortgage lending have reduced the number of potential homebuyers in Texas.

"Clearly the recent chaos in the mortgage markets has closed the door for many entry-level new homebuyers," he said. "The buyers won't come back soon, if ever."

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