WASHINGTON—Sales of new single-family homes fell 12.4 percent to a seasonally adjusted annual rate of 276,000 units in July, according to data released by the U.S. Commerce Department on Wednesday.
The sluggish sales rate marked the lowest on record dating back to 1963. The previous three months collectively have been the worst on record for new home sales, according to the data.
The report showed that sales dropped in all four regions of the nation. Sales fell 25.4 percent in the West to record low levels; 13.9 percent in the Northeast; 8.3 percent in the Midwest; and 8.7 percent in the South.
Hardships in the residential security market caused by the declining home sales were echoed by several installing dealers SSI spoke with following the release of the Commerce Department’s housing report.
Most of the dealers SSI spoke with report it has been especially challenging since springtime to find projects in new construction.
The industry received a boost earlier this year when the government offered tax credits to homebuyers. But since they expired in April, the number of prospective buyers has dropped sharply, despite bargain prices and very low mortgage rates.
“What the tax break ultimately did was accelerate the dropoff [in new home sales],” says Bob Michel, president of Sun Valley, Calif.-based Valley Alarm, located near Los Angeles. “People who wanted to buy were incentivized to do it sooner, but all it did was accelerate the purchases and now we’re in this dead spell.”
Certainly many residential security dealers have continued to prosper during the recession by making adjustments to their business strategies and maintaining successful ones.
“Our company was hit pretty hard in the residential market last year, but we have been able to snap out of it and we’re actually up about 40 to 50 percent in our residential business,” says Will Fleenor, vice president of Johnson City, Tenn.-based Fleenor Security Systems.
With new residential construction “still very low” in eastern Tennessee where the company is located, the retrofit market has nevertheless been brisk as of late, Fleenor says.
Fleenor cites the company’s steadfast approach in continuing its marketing efforts throughout the down economy.
“We have stayed the path. Just because times have been tough, we didn’t start pulling the plug on our marketing efforts,” he says. “We kept marketing like we always have and I truly believe that has paid off.”
Compounding the market’s troubles, the latest figures indicated that builders have sharply scaled back inventory. The number of new homes for sale remained unchanged at 210,000 units in July. Still, because of the sluggish pace of sales activity, there is a more than a 9-month supply of homes on the market. That’s compared to an 8-month supply the previous the month.
The bleak report on new home construction follows on the heels of a National Association of Realtors (NAR) report this week showing that existing home sales, which account for about 90 percent of housing transactions, dropped 27.2 percent to a seasonally adjusted annual rate of 3.83 million units in July.
This all amounts to a snowball effect across the nation for security dealers, says Stephen Merola, proprietor of Long Island, N.Y.-based Futuristic Homes Inc.
“Any time anything happens like this it does several things. It thins out the crowd a little bit; the good [security] companies rise to the top while others fail,” Merola says. “It also makes people aware of how fragile they are and forces companies that weren’t diverse to start to diversify and position themselves for the future to be more viable.”
Although his company has long provided various nonsecurity-related design and installation services, Merola remains compelled to branch out further as a result of the troubled residential market.
“We are taking a closer look at vendor companies that do more retrofit products and also the energy and health-care arena,” he says. “We are very interested in assisted-living programs. We’ve done our own design and from scratch designed assisted-living installations for people who are extremely limited to control their own homes and their environment.”
The sheer duration of the residential market calamity has proven to be unexpected for many in the industry who otherwise had anticipated a recovery by now.
“We were given the impression from a lot of vendors that this was all going to be over by the first quarter of this year,” says Chet Donati, president of Midlothian, Ill.-based DMC Security, located about 20 miles south of Chicago. “And now we’re into the third quarter of 2010. I don’t see any light in the tunnel until maybe the end of the year or the first quarter in 2011. And that’s a big if.”
Donati, who is president of the Illinois Electronic Security Association (IESA), says the new-home sales slump has adversely affected numerous IESA member companies - and exposed the industry as vulnerable to a level not seen before.
“A lot of my members have told us they are surviving, but just barely. But it’s more than that,” he says. “We’ve long thought this was a recession-proof business. We may be bullet resistant, but we’re not bulletproof like we all thought we were.”
Rodney Bosch is Managing Editor for SECURITY SALES & INTEGRATION magazine. He can be reached at (310) 533-2426 or [email protected].