Housing is always affected by
national policies but not all local housing markets are affected the same way. Housing
starts and car sales are the true indicators of the economy – really? Not
anymore!
Managing the cost - price
relationship has always been important aspect of housing production but wasn’t
a major factor during the “bubble”. Because buyers easily qualified for higher
priced homes and builders latched on to an artificial market. Builders had
blinders on because it was more important to meet production demands than
maintain costs. When it is too good to be true, it generally is!
The importance of returning back to
basics will become the mantra for success in an ever changing regulatory
environment.
If you had your choice, which new home or car
would you buy?
A small home with all of the bells and whistles
(A “ FIAT 500L Pop”)
OR
A home with space with limited features
(A “Chevy Malibu”)
OR
A larger home with all of the features and all the bells and
whistles
(A “Mercedes-Benz E-Class”)
In the 1980’s recession, we built
homes with space and only the basics.
In the 1990’s recession, we built
smaller homes but with features.
Post great recession – “move-up”
homes seem to be the only game in town with homes with space and all of the features.
Say good-bye to the first-time homebuyer market.
Please review the cost breakdown
chart and study the percentage of costs for 2013. The land percentage has gone
down and the construction cost continues to rise.
Homes builders have to make product decisions
well in advance of market shifts, interest rate changes and extenuating
circumstances ....... i.e. government regulations. The selection of product and
features is not always clear because of the factors influencing buyers
decisions i.e. ability to qualify for a loan.
New home construction has seemed to always
follow auto industry trends. After all, the automobile industry was the
economic benchmark and prognosticator of the US economy.
Do you remember when the auto
industry dominated TV ad space?
Families used to be strong Chevy or
Ford customers and didn’t cross over!
When auto companies had price
rollbacks, builders followed suit by offering option packages at no cost.
Auto financing and price reduction
gimmicks used to boost car sales.
Today, cars include all of the bells
and whistles we may not want, we will probably never use, add to the base price
and are certainly nice but not necessary.
This is the same with new homes.
Cars with little to no driver input
will parallel park or stop on its own. Technology has moved from an option to a
standard i.e. rear view camera, gps mapping, etc.
Try to buy an appliance that is NOT
stainless steel!
Do you think Millennials know what
“keeping up with the Jones” means when everyone has the same choice?
My point, what used to be normal
isn’t. A new norm is being forced on to the consumer.
1. Why did the land percentage
decrease in 2013?
As we worked through home
foreclosures, builders have been working through failed subdivisions with
improved vacant lots owned by lenders. The inventory of finished lots is being depleted
and you can expect the land percentage to again increase. Builders will not be
able to adjust the price upwards to accommodate this increase. As you know, the
higher the price the less number of buyers can qualify to buy.
Builders will be fighting over the
move-up buyer.
If over 50% of the buyers can afford
to buy a home under $175,000, how many new homes are being offered in your
market below this price?
2. What will happen when the Fed policies
change and interest rates begin increasing?
The cost breakdown will not change
but the number of buyers that can afford to buy the SAME house will decrease.
An increase in interest rates used to cause a surge in buying because many
buyers are sitting on the fence. I don’t think this will unfold this way.
Housing – Next Phase:
We are headed toward another housing
peak and yes it will be a problem. I wouldn’t call it a “housing bubble”
because everything is still upside down. The housing market will have to
readjust to a new economy and this will take years before demand, supply,
financing, pricing, costs, regulations are back in alignment for a more normal
roller coaster; if ever again!
Interest rates will increase. The
key questions – when will interest rates start to increase and will buyers
start to buy?
This dynamic will put us into a
housing crisis never before experienced.
My 2014 – 2015 recommendations:
Buy a home (probably built before
1979 because over 60% of existing homes were built before 1979.) with land and located
most likely in a rural area.
Buy at the least price but with the
most land.
Baby-boomers: buy a move-up home
with space to provide shelter for you, your children and your parents.
Millennials – Rents will continue to
increase so buy what you can afford – now.
The following graph illustrates the
Charlotte market from the 1980’s to 2012 – the trend lines are hard to ignore.
How is your local market responding?
Yes, my charts and graphs may only
extend to 2012 but what has happened to your local market from 2012-2014?
“More
than half of the 20 markets tracked had double-digit year-over-year increases, the largest
being Las Vegas, which posted a 21.2 percent jump in March (2014)” Source:
Charlotte business Journal – based on Case-Shiller Data
2015 Housing Equation:
Salary
–
more taxes – higher
consumer debt – inflation
– higher health care costs – higher
interest rates
+
increased home prices
=
a
problem for homebuyers and sellers
