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Home Builders Face Economic Challenges
Home builders continue to face numerous economic challenges that run
in stark contrast to the boom times of recent years. Exactly what the impact
and how long these challenges will continue is a hotly debated topic in real
estate circles. Some of these issues include:
• Economists and housing analysts widely agree that current unsold housing
inventory still remains at historically high levels. Data reported by the
Census Bureau and National Association of Realtors estimates unsold new
homes at almost a six month supply, while the supply of existing resale
homes approaches a seven month supply.
• While these numbers are troublesome, according to David Seiders, NAHB
Chief Economist, they do not reflect the huge number of pre-sold new homes
that have resulted in cancellations. With cancellations also running at
historically high levels, estimated to be currently around 25% for the
nation's largest builders, the supply of available homes inventory is
actually much larger than many reports reflect.
• Further, subprime and other aggressive mortgage programs that fueled the
recent housing boom are resulting in a significant increase in foreclosures.
This too is expected by many experts to increase the inventory of available
homes. It's estimated that as high as 50% of subprime mortgages that end in
foreclosure will result in those homes being owned by lenders REO
departments. These homes will also increase the current oversupply.
• At the same time these factors are occurring, the mortgage industry is
tightening up lending practices which is expected to have the effect of
reducing the number of buyers who can qualify for the purchase of this large
inventory.
• Some economists maintain that the loss of subprime mortgages would only
affect a small portion of builders, particularly those who focus more on
entry-level and affordable products. However, as the majority of new home
buyers are moving up from lower-priced homes, the ripple effect could be
felt in the higher-priced markets as well. Further, some analysts contend
that many higher-priced and luxury homes have been purchased with no-doc,
interest-only and in some cases, negative amortization instruments. Since
most builders do not break out sales on the basis of mortgage types, the
percentage of sales financed by more exotic mortgage products is difficult
to determine.
• Another factor difficult to measure is the impact of the large inventory
of investor-owned homes. Many sit empty waiting for a buyer, while many
others are being rented in hopes that market conditions will improve to
allow a more profitable sales price at a later time.
While debates continue to rage over whether our nation's economy is
experiencing a housing "bubble", many realities make it clear that we're
entering a very different business environment. More and more analysts are
also agreeing that a return to a healthy market may not happen for a number
of years.
One question that needs answering is: what exactly would a "healthy" market
look like? From my perspective, a market that operates with some measure of
balance between supply and demand would be a step in the right direction.
Further, a market where this supply was available at price points within the
affordability of the buyers in demand would also offer greater stability for
the long run.
With all of this in mind, I think it's important for us to recognize today's
market as the market we're living and working in – right now. Rather than
waiting for a healthier market to return, those of us who hope to survive
and thrive will accept the realities and build a business plan around
meeting the needs of those who truly wish to buy and sell.
Unlike many individual resale sellers, builders and developers must stay in
the market – they must continue to build and sell homes. More than ever
before, they're considering and pursuing whatever alternatives that will
allow them to continue to build and sell successfully.
What's great is that we can bring excellent solutions that will help them
meet their goals. Our assistance in helping builders deliver the "right"
homes at the "right" pricing in the "right" locations to meet the needs of
real homebuyers will bring tremendous value to all involved. As competitive
factors heat up, we can deliver sales and marketing solutions to support
builders, developers and their communities. We can also assist move-up
buyers in the marketing and sale of their existing homes, as well as
facilitate financial solutions to meet their needs.
Americans will continue to seek out solutions to meet their housing needs
while builders and developers will continue to work to meet these needs. Our
Certified New Home Specialists™ are trained to deliver the professional
guidance and service to help all achieve these goals.
So as today's housing market presents competitive challenges for us all,
these same challenges open up doors of opportunity. My advice: leave it to
the soothsayers to do all the "soothing and saying", and start knocking on
those doors!
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