Housing may be the current economic bright spot, but new research suggests that the new home sector may be losing some of its luster.

The National Association of Home Builders is putting a good face on its latest Builders Economic Council Survey in which four out of ten respondents said sales and traffic have declined since the Sept. 11 terrorist attacks. One in four said sales and traffic are off "significantly."

Gopal Ahluwalia, director of research for the NAHB, admits that "on the whole," the findings are negative. But he insists the latest numbers, some of which reflect the normal seasonal downturn, are "not that bleak."

"From the rate we were at, a 10-15 percent decline is not the bad," the economist says.

The NAHB continues to predict that the new home sector will be in full bloom again by the spring. That still might be the case, but the BEC survey, which was tabulated earlier this week, shows builders are clearly concerned.

More than half of those who start houses before they have buyers says they are cutting back on speculative building. "They're becoming very careful," Ahluwalia says.

Also, about one in four plan to build fewer homes through the first half of next year, and half the others are still considering whether to slow down production.

The survey also asked builders about their cancellation rates and marketing strategies they are employing to lure customers to their models, and their responses to these questions also speak to a worsening market. A total of 379 companies from all parts of the country answered the monthly survey.

Between August and October, 36 percent of the respondents have seen no change in sales, and 14 percent have actually seen sales increase. But 44 percent have seen sales slide 21 percent by 5 to 10 percent and 24 percent by more than 10 percent.

The market was already slowing, Ahluwalia pointed out, and there's no question that the events of 9/11 and thereafter pushed it down even further. But the key indicators, he added, are "still pretty strong."

Indeed they are: Single-family permits dipped just 2 percent between September and October, and starts are down by only 1 percent. The latest sales figures will be released by the Commerce Department tomorrow, but they fell only marginally in September, to 864,000 from 876,000 in August.

Still, the latest NAHB survey shows that two-thirds of the builders queried saw their traffic decline from September to October and four in ten said traffic slipped again between October and November. The fall-off, moreover, was not confided to one region, a finding that surprises the builder group.

"We though the Northeast would be the worst hit, but that's not the case at all," according to Ahluwalia. "The trend is the same everywhere."

In addition, 24 percent of the respondents said there cancellation rate is up -- significantly for 7 percent. But again, the NAHB downplays the importance of this finding. Noting that 20-25 percent of all sales contracts fall by the wayside even in strong markets, the economist said "we don't think this is significant."

Nevertheless, more builders are resorting to sales incentives to boost sales. Twice the usual percentage are offering free options and upgrades, and four times the normal percentage are offering to buy down interest rates for buyers.

For more articles by Lew Sichelman, please press here.

Published: November 28, 2001

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When Lew Sichelman first started writing about housing in 1969, he was the youngest real estate writer in the country. Now, 37 years later, he's one of the oldest -- and most decorated. He has been rated the top housing columnist in the country by the National Association of Realtors as well as by his peers in the National Association of Real Estate Editors. Indeed, NAREE has recognized his work on numerous occasions. One year - due to his advancing age, he can't recall which one - he earned top honors in the annual NAREE Journalism Contest in three out of the four major writing categories. It was the first time one writer has won so many NAREE awards in a single year. Known for his ability to make even the most difficult topics understandable, Sichelman also has been honored by the National Association of Home Builders and the Mortgage Bankers Association. He began providing in-depth coverage of and consumer-oriented information about housing and housing finance at the Washington Daily News, where he was real estate editor. He held that same position for nine more years at the Washington Star, which purchased the News in 1972. The Star, a so-called "writer's newspaper" which also had the misfortune of being an evening paper, was put out of its misery in 1981, and Sichelman, who had begun self-syndicating his column in 1978, decided to become a full-time columnist. Today, his column, "The Housing Scene," is distributed by United Media to newspapers throughout the country. He also is on the staff of National Mortgage News, an independent newspaper which is considered the bible of the mortgage business. And he writes for numerous other publications, including MarketWatch.com, where he answers readers questions once a week, Sports Illustrated (don't ask), RealtyTimes.com, BigBuilder and others. Sichelman is married, the father of five and grandfather of eleven.