As new home construction continues to falter and bank repossessions continue to rise, an interesting flip is taking place in the housing market which pits builders against banks.
Builders are already at odds with big banks, complaining that lack of credit is hampering growth.
Home builder sentiment did edge up a little in November, but, "builders remain very concerned about the lack of available financing for new-home construction at a time when inventories of completed new homes are quite thin; after all, you can't sell what you can't build," writes NAHB Chairman and home builder Bob Jones.
Builders are facing a lack of credit from banks, but they are also facing steep competition from banks. Banks are now in possession of thousands and thousands of foreclosed properties that they need to sell in order to recoup losses. Today I saw some new numbers that really put this into perspective.
In 2006, newly constructed homes accounted for one in five home sales. Today they account for one in ten. Hanley Wood Market Intelligence reports that out of the top 100 metros in America, just 17 closed more newly constructed homes than REOs (bank owned properties) in 2010 so far. Roes are far outpacing and of course out-pricing new construction. Many REOs are in fact relatively new construction.
As banks continue to take possession of more homes, they are trying ever more aggressively to market them.
Fannie Mae, while not a big bank, is one of the largest holders of REO. Just this week it announced a pilot program, "to collect and manage real estate purchase offers for Fannie Mae-owned properties in Orlando, FL, San Diego, CA, and in Wayne County, Detroit, MI. Through the pilot, real estate agents submit offers on behalf of their clients online, receive confirmations and track the status of submitted offers." It's all part of streamlining the process and getting homes sold more quickly and efficiently. Meanwhile the big banks are employing armies of REO sales agents to push their products.
We have said all along that the biggest competition for home builders is foreclosed properties and short sales (when the bank allows the borrowers to sell for less than the value of the mortgage). It's just an interesting conundrum upon us now, as the banks are both the hand that feeds the builders and their greatest competition.