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Housing Cooled in October; Tax Credit Extension Expected to Drive Improvements

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RISMEDIA, November 18, 2009—While the housing market cooled in October 2009, now is the time to look for improvement because the expanded tax credit appeals to a much wider range of buyers.

According to John Burns Real Estate Consulting’s November survey of home builders, the national rating of current sales dipped as buyers remained in limbo awaiting the outcome of the tax credit extension. “Our channel checks and survey participants describe cooling traffic and sales in many locations, particularly those with no spec inventory,” said Jody Kahn, a vice president with the firm. “Pricing power has also softened in the last 30 days.”

This month’s survey consists of 265 home building industry executives from public and private companies. In total, their insight is reflective of on-the-ground conditions in 91 MSAs and 1,768 communities.

Survey results showed that only 51% of this year’s builder sales have been to the entry-level buyer profile that could benefit from the tax credit. Most of the buyers profiled as young families, elementary families and singles tend to purchase entry level homes.

The remaining 49% of the new home market has been comprised of a typical move-up buyer – a segment that can now capitalize on a substantial tax credit as a part of the Worker, Homeownership and Business Assistance Act of 2009 which was signed while this month’s survey was underway.

“Most builders were anxious to see this critical legislation pass,” said CEO John Burns. “Especially those focused on move-up or active adult/retiree product. Now, those builders can anticipate a boost in sales. The looming question is whether the incentive is enough to motivate consumers to buy during the seasonally slow year end.”

Additional Survey Highlights Include:

-Average net sales per community held at 1.6 nationally, down from a recent high of 2.0 in September. Gains in net sales rates appeared in the three largest regions: Texas, Northern Florida and Southern California. Gains also appeared in Northern California and the Northwest, but were offset by declines in the Southern Florida, Southeast and Northeast regions.

-Southern California builders are reporting price increases, while the national average hovers near flat. The lowest price ratings are from the Southeast and Northwest, which slid into the housing downturn later than most. Southern Florida builders reported much softer pricing, which is confirmed by our channel checks. In almost all markets, the lower price points are faring better than the higher price points due to FHA financing and the Federal tax credit.

-The average unsold, finished inventory per community was unchanged at 2.8 units, after a substantial decline in the prior month. Builders continue to report that they are converting the speculative starts from the summer to closings, although we hear many reports of public builders starting huge numbers of spec units in the larger metros. Private builders lack the capital to start spec homes, leaving many worried about how they can compete for sales in an environment that demands finished inventory.

-Only the Northeast region reported a modest increase in starts this month. Many private builders lack financing to start new construction, but we hear numerous reports of some public builders starting significant numbers of speculative units and discounting them to sell.

For more information, visit www.realestateconsulting.com.

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