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Bay Area Has Worst Hit Ever As Housing Slump Continues

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By SHANNON BEHNKEN, The Tampa Tribune

Published: January 18, 2008

TAMPA - In the face of rising inventories of vacant homes and declining orders for new ones, Tampa Bay homebuilders slashed construction 59 percent in 2007, according to preliminary data released Thursday by Metrostudy, a Houston-based housing research firm.

In the fourth quarter, they broke ground on 1,523 single-family and town homes in the combined markets of Hillsborough, Pinellas, Pasco, Hernando and Citrus counties examined by Metrostudy. That's down 50 percent from the same quarter a year ago.

"The good news is that the fourth-quarter drop isn't as bad as the yearlong drop," said Tony Polito, director of Metrostudy's Tampa Bay division. "We think builders are trying to build to demand."

The Bay area isn't in a vacuum. Nationwide, the prolonged slump in housing pushed construction of new homes in 2007 down by the largest amount in nearly three decades, according to figures released Thursday by the U.S. Commerce Department. Analysts forecast more bad news in the months ahead, leading to bigger questions: Will the housing slump be severe enough to push the country into a recession, and how much more will prices fall?

Mark Zandi, chief economist at Moody's Economy.com, is forecasting that median sales prices for existing homes will fall by 2.5 percent for all of 2007, which would be the first annual price decline on records that go back four decades.

For the Bay area, prices are expected to fall even more during the coming year. Mike Larson of Weiss Research in Jupiter has said that Bay area home prices could drop as much as 10 percent in 2008.

Cut In Starts Doubles National Average

Zandi said the housing downturn will be unprecedented in its breadth across the country and its severity.

"I don't think we have seen anything like this, certainly since the Great Depression, and back then housing was much less of a factor in terms of the overall economy because fewer people owned their own homes," Zandi said.

In Florida, the cut in housing starts was more than double the national average, said Chris Lafakis, who covers Florida's economy as an associate economist at Economy .com. To adjust, Lafakis expects Florida homebuilders to continue their construction slowdown until the fall.

"Tampa is ahead of the curve," Lafakis said. "The only way to rid ourselves of this situation is to cut back. We have too many homes for sale and not enough buyers."

Polito said there are signs that inventory is starting to dwindle. Metrostudy, which plans a more detailed report next week, said there are 3,551 completed, vacant homes in the five-county Tampa Bay area. That's 235 fewer homes than counted in the third quarter. These are homes that no one has lived in and are either owned by builders or investors. Such inventory peaked at just more than 4,700 units in the first quarter of 2007, according to Metrostudy, which has tracked housing starts in Tampa Bay since 1986 and measures housing starts when builders begin construction.

Joseph Narkiewicz, executive vice president of the Tampa Bay Builders Association, said the majority of the inventory is made up of homes bought by investors, not homes that builders have been unable to sell.

"And we're not talking about New York investors," Narkiewicz said. "Look around at the next barbeque and ask your neighbors how many homes they bought. That's a big part of the problem."

On the national front, the Commerce Department reported Thursday that construction was started on 1.35 million new homes and apartments last year, down 24.8 percent from 2006. It was the second-biggest annual decline on record, exceeded only by a 26 percent plunge in 1980.

Drop Was Larger Than Expected

The year ended on a weak note with construction dropping by 14.2 percent in December and applications for new building permits, a good indicator of future activity, falling for a seventh consecutive month, indicating that activity will be weak at least through the spring of this year.

The drop in construction in December was bigger than economists had been expecting and reflected weakness in all parts of the country, although the decline in the South was the smallest at 3.3 percent. Housing construction fell by 30.8 percent in the Midwest and was down 25.8 percent in the Northeast and 19.6 percent in the West.

Economists said the weakness showed that the housing correction was getting worse since the turmoil in financial markets hit in August. Those problems, which have resulted in billions of dollars of losses at financial institutions, reflected rising defaults for subprime mortgages, loans offered to borrowers with weak credit histories.

Those defaults have dumped even more houses on an already glutted market and prompted banks to tighten their lending standards, making it harder for potential buyers to qualify for loans, delivering a double whammy to builders.

Information from The Associated Press was used in this report. Reporter Shannon Behnken can be reached at (813) 259-7804 or sbehnken@tampatrib.com.

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