NO KISS GOODBYE

National real estate woes have reached the Rio Grande Valley as the region lies on the brink of its worst home building decline in more than a decade.

One of the country’s largest home builders, KB Home, has announced that it will stop building homes in the area, and other builders are reporting a continued decline in the demand for homes

“The market just isn’t where we need it to be to continue selling homes there,” said Cathy Teague, a spokeswoman with the company’s San Antonio office.

KB laid off its salespeople and other employees earlier this month. Teague wouldn’t disclose the number of employees here or the number of homes built.

The company, which has been here since 2002, also plans to shut down its office and showroom near Expressway 83 in South McAllen.

Teague stopped short of saying KB had completely abandoned the market. She said the company is optimistic it could return once market conditions improve.

Construction crews and foremen will remain in the Valley to finish homes currently under construction.

Los Angeles-based KB is the nation’s fifth largest home builder, according to Builder Online Magazine. With the nationwide housing crunch, KB has been hit hard in almost every market. On the company’s third quarter earnings report, it cited a $478.6 million loss and said it would ramp down building in several markets.

KB’s departure marks one of the steepest home building declines in recent history. After the six banner years that started the decade, the number of building permits in Hidalgo County declined roughly 30 percent this year compared to 2006, according to statistics from the Real Estate Center at Texas A&M University.

Hidalgo County hadn’t experienced a significant year-to-year decrease in home construction since 1994.

Builders and real estate experts blame the decline on the nationwide foreclosure crisis sparked by subprime lending. Amid the subprime problems, lenders are tightening mortgage requirements and loans have gotten more expensive, resulting in lower demand for new homes.

“There’s been clear reductions in the number of new housing starts Valley-wide and a reduction in the number of new developments,” said Mike Blum, a broker with McAllen real estate firm NAI Rio Grande Valley. “It’s driven by the marketplace and the credit crunch.”

But while the number of new homes is on the decline, the value of those homes is actually increasing. Blum said that’s because fewer cheaper homes are being built.

The hardest hit segment of the market is homes in the $125,000-and-under range — homes typically purchased by the very people who are now having trouble getting loans, Blum said.

“There’s a lot of people in that price point, and a lot of the building in that price point stopped,” he said.

Prices for existing homes, meanwhile, are holding relatively steady. The average existing home in Hidalgo County sold for $140,050 in November, according to the latest statistics available. That’s a $5,000 increase from November 2006.

Like KB Home, Houston-based Obra Homes has also noticed a marked decrease in new home sales during the last year, said Lyle Jackson, vice president of sales and marketing for the company’s Rio Grande Valley market.

“It’s a market correction and everyone is optimistic,” Jackson said. “But I don’t know if it will end in the first quarter (of 2008) or the end of (that) year or the next year.”

With a tighter market, Jackson said builders, including Obra, are more deliberate about where and how many homes they build.

“We have to be more careful. …

“You definitely can’t do any spec building, because there is inventory on the ground,” he said, referring to the practice of building homes on a speculative basis, before lining up the buyers.

Tony Domit, president of McAllen-based Domit Construction, was once one of the Valley’s most prolific home developers and builders until he abandoned home building for the more favorable commercial construction market.

“There isn’t as much money (in home building) anymore,” he said.

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