The third annual Tribute! Awards held recently were another smash success from the New Home Council. This sold out event at the Bellevue Westin paid honor to the top new home sales professionals within our industry. It was wonderful to behold. And a humble Thank You from yours truly, as well.
There were 3.65 million existing homes available for sale at the end of July, according to the National Association of Realtors (NAR). That is about 9.4 months in existing inventory. The slow summer has not been helpful to our industry. Locally, most reports I read suggest there is four to seven months supply available, depending upon the area. We always think that anything under six months communicates a shortage of supply, though these kinds of traditional ways of looking at things appears more shaky these days. One thing is for sure, however. With fewer starts, new homes either (a) are, or (b) about to be in critical short supply situation. There are simply not enough starts.
I just had lunch with a friend of mine who works for a terrific building company. Let me define terrific: They are still in business; all their bills are current; and they have some money in the bank. Their problem is similar to one that all of us have, namely, how in the world do we plan for the future? This month the market is down a little. Last month it was up a little. Next month, who the hell knows? After much discussion, our conclusions are that we are both lucky to be in business, and still profitable. Beyond that, we are perserving, and will continue to do so.
Where are the jobs? There has been a pronounced slowdown in labor force growth since the 1970’sk, according to new data from Wells Fargo Economics. For us, who are building and selling new homes, this is not good news. Job growth is fuel for our fire. Fewer jobs means less revenue to pay for and finance current and future public sector spending. Any politician who is not running on a Jobs platform should not get our support.
Since the 1970’s, America job growth as been declining on a percentage basis. A new study from Wells Fargo Economics has just been published, and it is chilling. Government, please listen! Less emphasis on entitlements and more attention to job growth, please. It is also interesting to note in the study that more older people are working, but fewer younger people. Extraordinary. The life blood of new home construction is family formation and new jobs. Where will they come from?
I just finished reviewing an interesting study on www.NewGeography.com concerning the impact on the actual effects of so-called ‘Smart (read: regulated) Growth.’ 40 years ago, Sir Peter Hall, one of the world’s leading urbanologists, wrote that soaring land and house prices “certainly represent the biggest single failure” of smart growth. The findings of Hall were echoed later by a Labour Government report in the mid-2000s which showed housing affordability had sufferered under this planning regime. Further and more recent reports from New Zealand and the USA all confirm the notion that prices tend to rise when supply is restricted, all things being equal. In Washington state, the 1990 Growth Management Act (GMA), which was modeled after Oregon’s law, has created a similar circumstance. The answer, of course, is for sensible people, supported by a common-sense legislature in Olympia, look carefully at either repealing, or at least modifying, the current version of GMA.
Numbers for the Seattle market in real estate continue to confuse, so my advice is just to ignore it all. The Stand & Poor’s/Case Shiller home price index show Seattle home prices down 6.9 percent from a year ago. But, the same index also showed that prices were up from March to April of 2011 by 1.6 percent. Go figure. We all know that we are just about at the end of price decreases, but none of us can quite predict when the bottom is actually reached. So let’s just concentrate on our core business. Perfection of our service is the goal today. If we work at it, we will all be here to reap the rewards of an improving marketplace, whenever that may occur.
Unemployment last month hit 9.1 percent, with fewer jobs than anticipated. By a lot. The Case Shiller Index for the first quarter of 2011 came out recently. It indicated a double dip housing slump, except for Washington D.C. and Seattle! In our market area, lot and land prices are beginning to increase, defying all logic. Will we recover? Of course. Will renting replace home ownership? No. It will be slow and steady and take several years. In the meantime, we will all run our businesses efficiently and effectively.
Most of us are feeling that the recovery will happen, for sure, but that it will be long and slow. Read what a DR Horton executive has to say on this topic. D.R. Horton CEO Don Tomnitz told analysts during that company’s conference call. “As we look forward over the next two to three years, we don’t expect a significant improvement in demand, because clearly one of the things that drives demand in our business [more] than most is job growth, and we’re not seeing the kind of job growth that I think will increase our sales dramatically,” Tomnitz said.
Most of the stats that come out these days show ever increasing consumer demand for new homes combined with ever decreasing production. This is a complicated issue, and most people in our industry ask each other the question, when will it return to normal, or something approaching normal? My answer? Not for a while. We still have heavy foreclosure action, especially in states like Florida, Arizona and a few others. There is ’shadow inventory’ lurking out there that is difficult to quantify. And sales, though picking up in some areas, are still quite slow in others. My take is 2014 – 2015. I define ‘normal’ as a market area achieving at least 80% of the past 10-year annual average of starts. Your thoughts?
