How Big U.S. Home Builders Plan to Ride Out a Downturn

Horton and other big builders are insisting that they can keep increasing their sales and profits rapidly even if the housing market slumps in the face of rising mortgage rates. They don’t believe that a downturn will last long, if one materializes, and they expect further consolidation in the marketplace so that they will be able to squeeze suppliers for lower costs, grab the best land available and take market share from smaller rivals. Horton says it will sell 100,000 new homes in 2010, roughly double the 51,172 it sold during the fiscal year ending Sept. 30, and it projects annual 15%-20% growth in earnings over the next five years. Pulte Homes, which is the No. 2 builder behind Horton in home sales, forecasts it will deliver 10% more homes next year than this year; and KB Home, the fifth-largest builder, projects annual earnings growth of 20%-25% during each of the next three years. Although there are about 80,000 companies in the U.S. home building industry, the top 10 builders now have a 25% share of the market, up from about 10% five years ago, and the big builders are predicting that they will exceed a 50% share within a decade. The top 10 had combined revenue of about $73 billion in 2004, up from $13 billion a decade earlier, according to Builder magazine. (www.realestatejournal.com)
RealEstateJournal.com/ Wall Street Journal Online (12/1/05); James R. Hagerty and Kemba J. Dunham

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Another Busy Hurricane Season Coming

Less than a week after the close of this year’s hurricane season, William Gray, Phil Klotzbach and their team at Colorado State University released a forecast for the 2006 season and it is expected to be above-average. The team expects there to be 17 named storms in the Atlantic basin — five of them intense — compared to 26 this year and 15 in 2004. The team is also predicting an 81% chance of a major hurricane with winds in excess of 111 mph making landfall in the U.S. during the hurricane season, which runs from June 1 to Nov. 30, compared to a 51% chance during a normal season. There is a 64% chance of a major hurricane striking the U.S. East Coast, which includes the Florida peninsula, compared to 31% in an average year. Klotzbach says his team looks at key weather patterns to determine its outlook and that there is no indication the increased activity is related to global warming because “the storms rely on much more than just warm sea-surface temperatures.” The team adjusts its forecast in April, May and during the middle of the season. (www.sun-herald.com)
Sun and Weekly Herald (12/7/05)

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Real Estate Investors Bailing Out?

Based on interviews with real estate brokers and analysts in such hot real estate markets as Las Vegas, Miami and Washington, D.C., the Wall Street Journal reported that fewer people are buying property as an investment vehicle with housing activity now showing some signs of cooling. In Phoenix, as many as 30% of the properties for sale on the market now are owned by investors, according to a researcher at Arizona State University, and Sandra Geary, a real estate broker in Sonoma County, Calif. reported that her sales to investors had dipped by 75%. Even interest in condos has declined in regions such as Washington, D.C. as cancellation rates have risen, according to NAHB. “It’s largely because of investors” pulling back, said Gopal Ahluwalia, the association’s vice president of research. (www.cnnmoney.com)
CNNMoney.com (12/7/05); Wall Street Journal, Ruth Simon

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Breadth of World Housing Boom Stuns Analysts

The U.S. is among 17 regions that have been moving simultaneously through a 10-year housing boom that is unprecedented in size, duration, synchrony and its independence from historic business cycles, according to a report from the Organization for Economic Cooperation and Development. Real gains in housing values, adjusted for inflation, range from 24% in Finland, to 53% in the United States, 137% in the United Kingdom and 243% in Ireland. Nicholas Retsinas, director of Harvard University’s Joint Center for Housing Studies, says that the trend is rooted in the money markets. “The people on Wall Street and in London are all looking at the same markets, the same investor pools,” he said. “In fact, a good part of the mortgage money pool of Fannie Mae and Freddie Mac in our country comes from central markets in China, Taiwan and South Korea.” Bankers seeking profits have discovered the humble virtues of the home owner market, according to Mike Kennedy, spokesman for the OECD. “People rarely default,” he said. “They’d pretty much do anything rather than lose their house. And that’s pretty much true everywhere.” (www.jsonline.com)
Milwaukee Journal Sentinel (12/6/05); Michele Derus

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Construction Draws Mexican Migrants

A new report from the Pew Hispanic Center based on 4,800 surveys in Dallas; Atlanta; Chicago; New York; Los Angeles; Fresno, Calif; and Raleigh, N.C. found that construction is the dominant industry for Mexican migrants in Dallas, accounting for a third of those working there who have been in the U.S. for two years or less. Among migrants who have been in the country for any length of time, 38% were working in construction in Raleigh, the highest among the cities studied. Migrants made the most money in the construction field. About 17% were making $500 or more a week. About 46% of the migrants in Dallas arrived there within the last five years, Pew found. Between 2000 and 2004, one in four workers being added to the labor force was undocumented, according to the Bureau of Labor Statistics. There are nearly 11 million immigrants in the U.S. and about 6.3 million come from Mexico, Pew estimates. (www.dallasnews.com)
Dallas Morning News (12/7/05); Dianne Solis

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Report Points to a Cut in Commutes

A sign that a decade or more of promoting live-work centers and mixed-used developments may be paying off in Atlanta, a study from the Georgia Regional Transportation Authority finds that from 1998 to 2003 the average distance each person drives per day has plummeted 19% from 47.2 miles to 38.3. “I think consumers have concluded they don’t want to spend 45 minutes to an hour each way between home and work,” said Sam Williams, president of the Metro Atlanta Chamber of Commerce. “Developers will always build things if people will buy them.” Planners see a proliferation of Midtown Atlanta lofts and some suburbanites choosing not to be so spread out. In a recent review of proposed developments, the Atlanta Regional Commission found that “for the first time in a long time, the city of Atlanta had the most, by far, of any jurisdiction in the region,” said Tom Weyandt, the commission’s director of comprehensive planning, including 6,000 new housing units. ARC figures show the city of Atlanta’s live-in population growing by 18,000 from 2000 to 2004. (www.ajc.com)
Atlanta Journal-Constitution (11/21/05); Ariel Hart

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