While the housing bubble isn't bursting just yet, it's leaking a good amount of air. Just take a look at what the nation's home builders–among the biggest cheerleaders for the housing market–are saying.
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This morning, WCI Communities issued a profit warning for 2006, citing disappointing sales trends unfolding in Florida and the mid-Atlantic region. The Florida-based firm, which builds leisure and luxury properties along the eastern seaboard, said its number of new-home orders declined 55.7 percent in the first quarter versus the same period last year.
"During the quarter, we did not see the seasonal lift in demand for homes in most of our Florida communities that we expected, and demand for homes in the mid-Atlantic region dropped from prior periods," said WCI Chief Executive Jerry Starkey in a written release.
To be sure, new orders did rise in the Northeast. But Starkey pointed out that throughout the first quarter, the company used selective incentives to boost demand. And "as we move through the balance of the year, we expect to moderately increase the use of targeted incentives and discounts, particularly in our active-adult and second-home products."
Translation: The company is having difficulty generating new business, and like those in other struggling industries, such as automakers, the home builders will need to start cutting prices to move their products.
WCI is not alone in its struggles. Last week, Toll Brothers, a leading builder of luxury homes, reported a sharp decline in signed contracts in the six-month period that ended April 30.
As a result, the company had to trim its forecast for the number of new homes it would deliver this year–again. The Pennsylvania-based company had originally estimated that it would build between 10,200 and 10,600 new homes in 2006. But it later reduced that forecast to between 9,500 and 10,200 new homes. Now, Toll Brothers says it will deliver only 9,000 to 9,700 new houses this year.
Robert Toll, chairman and chief executive of Toll Brothers, said: "We are entering our ninth month of slower sales in most of our markets." He added that speculators are no longer driving this market. "Instead, they're putting the homes they've recently acquired back on the market or are canceling contracts in midconstruction." Meanwhile, "additional supply is also coming from speculative homes started by other builders," he added.
The bottom line: To add to the weakening demand, nervous investors and speculators are putting homes they've just acquired back on the market, leading to increased supply. And falling demand combined with increased supply is a recipe for disaster in any market.
