The sound of hammering is far less frequent in the Upper Valley, as it settles into the worst home building slump in its recorded history.

Hidalgo County cities listed only 180 building permits for single-family homes in May.

That is by far the lowest total for the Rio Grande Valley since the U.S. Census Bureau started recording area data in 1994.

Builders say the new home sales slump is simply because fewer people can afford mortgage loans.

And industry observers point out that Valley developers and residents, much like those in the rest of the country, built too many homes during the real estate boom years.

At the current rate of home sales, it will take more than 15 months to sell all the ones on the market now.

Builders only have a third of the work they had during the same period last year and experts say the industry won't recover for at least a year.

"What's happening in McAllen is not unique," said Jim Gaines, a researcher with the Real Estate Center at Texas A&M University.

"Across the board, across the state, building permits are way down."

Existing home sales

Even though new home sales are suffering, McAllen's existing home market is holding steady.

Local home sales are almost the same as last year and the average home price has increased by about $400.

In April, Money Magazine said the McAllen-Mission-Edinburg area would have the strongest real estate market in the country during 2008.

But that hasn't spared new homes and the residential construction industry.

Between 2005 and 2007, nearly 20,000 single-family homes were built in the county. The boom was fueled by rock-bottom interest rates and increasing prices on new homes.

This year, A&M Construction didn't sign contracts for any new homes in April, although other work guaranteed before kept the company busy during the month, said Marissa Hanks, a co-owner of the Weslaco-based business.

"I just know that more of the lower-end home builders are struggling to get buyers approved," she said.

Indeed, the lower end of the market has been hit the hardest. Recent troubles in the lending markets, fueled by problems with sub-prime lending, are forcing banks and mortgage companies to tighten standards on mortgage loans.

Thousands of people who could have found loans two years ago now no longer qualify and people are being asked to put down larger down payments.

Scaling back

The average price of a new home in Hidalgo County has increased to $130,700 during the last year.

That's an increase of $12,900 from a year ago, according to Texas A&M.

But that's not because the price of homes is going up, say builders and real estate agents.

Fewer lower-end homes are simply being built.

"We are suffering at the moment," said Mary Guerrero, a secretary at Ornelas Builders in Mission. "It's really all kinds of prices and all locations that are down."

Ornelas, like many local builders, caters to first-time buyers and sells most of their homes in the $105,000 to $150,000 range.

Randall Allsup, who studies South Texas real estate markets for real estate analysis company Metrostudy, said sales of existing homes are OK, but builders have scaled down building model homes and homes without buyers.

"McAllen has had a good real estate market, but it will still take a while for things to correct themselves," he said.

"Just too many homes were built without people to move into them."

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Kyle Arnold covers business, the economy and general assignments for The Monitor. You can reach him at (956) 683-4410.