Home Builders Gearing Up for 2008
Believing that the new-home market has turned the corner, builders in the South Bay, Calif. area are gearing up for 2008, when they predict the next housing cycle will take off. Sales in the area are up compared to a year ago, thanks largely to incentives offered to lure home buyers to new housing projects. “That’s gotten a lot of people to get off the fence,” said Paul Desmet, president of the Ryness Co., a data research company based in San Ramon. “The new home builders quite frankly are starting to run out of product.” According to data collected weekly by Ryness, more Bay Area buyers looked at fewer projects in the week ending Nov. 19 than the same period of last year, resulting in 32% more sales. Almost 7,000 buyers toured 200 projects, and more than 110 bought a house. “Most of us are positioning ourselves for 2008,” said Roger Menard, a housing industry veteran who now leads John Laing Homes’ Northern California division. “That’s the general wisdom among all of us as to when the market will rebound.” Desmet agreed: “The market will self correct in 2007 and that will be the foundation for the next cycle.” With 60,000 jobs projected for the area in the next year, “we’re very bullish on building housing next to employment centers,” said Menard, whose company plans to build about 1,000 units in the area. John Revells, of Palo Alto-based SummerHill Homes, said that he too has noticed that the cities closest to the job centers are doing better than outlying regions. (www.mercury news.com)
San Jose Mercury News (11/27/06); Katherine Conrad
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The Median Is the Message: Sales Volumes vs. Median Prices
Given the unprecedented run-ups in real estate prices during the boom years, the 1.2% decline in median home prices reported by the National Association of Realtors® (NAR) for this year’s third quarter — amounting to $2,700 — is really not shocking, but it is important because it is unusual and signals that something negative is underway in the marketplace. However, median prices actually increased in 102 of the 148 cities surveyed by NAR, 45 declined, and one — high-cost San Jose, Calif. — stayed flat. In other words, in 69% of the local markets where median prices changed year to year, the directional arrow was up, and in 30%, the arrow pointed down. Some of the median price jumps were surprisingly high: 14.6% in Seattle, 19.2% in Salt Lake City, 12.9% in Beaumont, Texas and 12.3% in Portland, Ore. Some of the most populous metro markets saw net gains: 3.6% in New York, 1.7% in Chicago, 5.2% in Los Angeles, 6.4% in San Antonio, 3.8% in San Francisco and 2.4% in Philadelphia. Median prices have held up even though sales volume in the frothiest markets has tanked, because absent severe reversals in national or local economies, housing prices and values move glacially in retreat. Most home sellers in stable local economies aren’t forced to sell if they don’t get the price they want; they can postpone the sale until market conditions improve. (www.washingtonpost.com)
Washington Post (12/1/06); Kenneth R. Harney
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Condo Developers Sweeten the Bait
With tens of thousands of new condominiums entering the Washington, D.C. market, some developers are moving beyond luxury cars, plasma televisions and other inducements to lure buyers. Instead, they are starting to negotiate the base price of homes, and those who are reducing prices say they are doing it to buck up the confidence of a large pool of jittery would-be buyers at a time when the economy is sound, jobs are plentiful and interest rates are low. “There’s now an offer/counteroffer mentality, a back and forth,” said David Mayhood, president of Mayhood, a McLean, Va. firm that has marketed condos since 1983. “That would have been unheard of as recently as six months ago.” The price of new condos fell 4.6% in the District and 2.6% in Northern Virginia in the third quarter of the year compared with the same period a year ago, according to real estate information firm Delta Associates. In Maryland, where the supply is relatively low, prices climbed 5.3%. Many condos remain to be sold. At this point, if no other condos were added to the market, it would take another three years to sell them. At the Park at Courthouse, a 98-unit project being built in Arlington, Va., the developer has slashed prices twice since it began marketing the condos in June 2005. It has sold 23 units. Condos originally marketed for $380,000 to $660,000 now sell for $317,000 to $565,000. Bargains and freebies won’t last forever, said Pat Peavley, a regional vice president at the Fairfax, Va. office of First Horizon Home Loans. “The incentives are just about maxed out because there’s only so much developers can legally give in order to entice consumers to buy,” he said. As for price cuts, “many of the developers are down to the bare-bones amount they can sell for and still stay in business.” (www.washingtonpost.com)
Washington Post (12/1/06); Dina ElBoghdady
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Housing Starts: Best and Worst Years
As bad as it sounds, the 14.6% decline in housing starts in October was nowhere near the levels of the worst months for housing starts in the past 47 years. The historical monthly median — based on data dating back to 1959 — is 1.529 million, just 2.8% higher than the annual rate of 1.486 million reported for October. Moreover, the past indicates that this downturn in home construction is, for lack of a better word, constructive. “It’s inevitable and good,” says David Seiders, chief economist of NAHB. “It would have been better not to have the binge, but we did, and now home builders are doing exactly what they should be doing.” Seiders added that housing is still recognized as the most interest-sensitive part of the U.S. economy. There have been seven housing cycles prior to the current cycle, in the time period between 1959 and the present, and the average peak-to-trough decline of these seven cycles is 47.3%, according to Paul Kasriel, director of economic research at the Northern Trust Chicago. In the current cycle, housing starts have declined 34% from their peak in February 2005 to October 2006 levels. To match the historic average, starts would need to bottom out at an annual rate of 1.166 million units, he said. (www.businessweek.com)
BusinessWeek Online (11/27/06); Maya Roney
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A ‘Foam’ Sweet Home Is Going Up
Habitat for Humanity of New York City is putting up a nine-family condo in Bedford-Stuyvesant using blocks made of environmentally and energy friendly Styrofoam. This is a first for Habitat, which has built or rehabilitated 165 units of affordable housing in the five boroughs, executive director Roland Lewis said. The polystyrene foam is effective at keeping out noise, mold and dust, while keeping in warm or cool air, according to Chris Pearson of PolySteel, the local supplier of the material. It’s also used for egg cartons and ice chests, and can be recycled. The total cost of the construction project, including energy-efficient appliances and sustainable wood flooring, is estimated at $2 million, Lewis said. That’s slightly more than convention construction costs, but the energy savings is conservatively estimated at 35%-40%. (www.nydailynews.com)
New York Daily News (11/21/06); Joyce Shelby
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Modular Homes Gain Favor With Builders
Modular homes, also known as “systems-built” housing, have been gaining ground nationwide in recent years. While they still account for only a fraction of total residential construction, the numbers have been increasing. NAHB estimates that about 44,000 modular homes were constructed in 2005, about 26% more than a decade earlier. Most modular homes are going up in Northern states such as New York, Pennsylvania and Michigan, where labor costs are high and winter weather makes conventional construction more challenging. But builders say the modular technique is likely to grow more popular in Florida and other states as well, as labor becomes scarcer and the industry continues to improve the product and its marketing. Bob Stroh, director of the University of Florida’s Shimberg Center for Affordable Housing, said that, while modular homes are crafted inside factories just as manufactured homes, or mobile homes, they have heavier components and compete with site-built construction. “They’re well-built and, once hooked together and connected to the foundation, they are just as strong as other houses,” Stroh said. “It says a lot that they are built under controlled conditions, not outside in the weather. They’re sealed up before they leave the factory floor.” Stroh said modular has other competitive advantages. “You can work two or three shifts a day” in a factory, he said, and the shorter on-site construction period reduces the potential for pilferage of materials. Transportation and other costs, though, can boost prices back into the range of site-built homes. (www.orlandosentinel.com)
Orlando Sentinel (11/6/06); Jerry W. Jackson, McClatchy-Tribune Business News
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