Magic 8 Ball Strikes Again

November started out a little slow so far as encouraging news about the home building industry was concerned, but by the end of the month I had way more items than I could fit in this issue.  So, the encouragement continues, and things are still looking up, and “The Great Recovery” is upon us – take a look and see what I mean . . .

#8 – PENDING HOME SALES

Pending home sales rose again, marking eight consecutive monthly gains – the longest streak since measurement began in 2001, according to the National Association of Realtors.

In the South, pending homes sales increased 4.9 percent to an index of 109.7 and is 22.8 percent above September 2008.

Qualified Remodeler Magazine, November 2, 2009

#7 – UNEMPLOYMENT

In a hopeful sign for the economy, the number of newly laid-off workers filing claims for unemployment benefits fell below 500,000 last week (466,000) for the first time since January.  That was the fewest since September of last year.  And it was far better than the number economists had expected.

Weekly claims peaked at 674,000 in March and have since been trending lower.

Jeannine Aversa and Martin Crutsinger, Associated Press Writers, November 26, 2009

#6 – FORECLOSURES

The latest housing data suggests things may finally be turning around (on foreclosures).  The inventory of new homes in metro Atlanta has shrunk to about 11,000, down 37 percent from a year earlier, according to real estate research firm Metrostudy.

“It’s just getting better and better,” said Eugene James, director of Metrostudy’s Atlanta division.  “There’s no secret here.  We’re selling houses.”

Paul Donsky, The Atlanta Journal-Constitution, November 12, 2009

#5 – EXISTING HOME SALES

Buyers clearly felt the clock ticking in October, snapping up existing homes at a seasonally adjusted annual rate of 6.10 million units, according to data released Monday by the National Association of Realtors (NAR).

It represented a 10.1% gain compared to the previous month and a 23.5% year-over-year increase in such activity.

Alison Rice, Builder Online, November 23, 2009

#4 – FIRST-TIME BUYERS

First-time home buyers reached the highest market share on record during the past year according ot the latest consumer survey of home buyers and sellers released at the 2009 REALTORS Conference & Expo.

“Tax incentives, record high affordability conditions and a pent-up demand brought a record share of first-time home buyers into the market,” said Paul Bishop, NAR Vice President of Research.  “These buyers are critical to housing and a general economic recovery because the market always heals from the bottom up – they absorb inventory, free existing owners to make a trade and stimulate related goods and services.”

The number of first-time home buyers rose to 47 percent of all home sales from 41 percent of transactions in last year’s study, and was the highest on record dating back to 1981.

Qualified Remodeler Magazine, November 24, 2009 

#3 – AFFORDABILITY

Nationwide housing affordability, bolstered by affordable interest rates and low house prices, hovered for the third consecutive quarter near its highest level since the series was first compiled 18 years ago, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index (HOI) released today.

Residential Design & Build Magazine, November 20, 2009 

#2 – HOME SALES

Home sales will increase 15 percent to about 5.7 million units and Realtor income will be up 20 percent in 2010, NASR Chief Economist Lawrence Yun told a packed room of Realtors today in a residential economic update at the 2009 NAR Conference & Expo.

Yun credited the home buyer tax credit with unleashing sales on the lower-end of the housing market this year, bringing up to 400,000 first-time home buyers into the market who wouldn’t have bought otherwise.  That influx tightened inventories of starter homes, shored up prices, and helped reduce households’ fear over continuing price drops.

Residential Design & Build Magazine, November 18, 2009 

#1 – LEADING INDICATORS

Two of the most prominent leading economic indicator indices are absolutely booming, indicating that strong growth may occur in 2010.  The primary reasons for the booms are 1) the rising stock market, 2) a drop in initial claims for unemployment, and 3) higher commodities prices.

Also, employment losses are bottoming out, and even previous months look better because of positive revisions.  The pace of job losses is moderating in nearly all sectors of the economy, particularly in Manufacturing, which has seen the greatest decline.  Finally, initial jobless claims and mass layoffs have slowed and are below peaks reached earlier this year.

The Leading Economic Index 6-month growth rate increased to 11.6% in September, recording the largest growth rate since 1983.  The ECRI Leading Index, which is a gauge of future economic growth, has risen 26% since one year ago, representing the largest growth rate since ECRI began tracking the statistic in 1968.  Stocks were essentially flat compared to last month.  Based on October data, all four indices we track have posted positive year-over-year gains – the first time since December 2007 – and have risen 4-19% compared to one year ago.  The S&P Homebuilding Index declined in October, falling nearly 9% from the prior month, yet has increased over 3% since one year ago.  CEO’s are now much more confident about the economy, according to the CEO Confidence Index.  CEO’s are now as confident about the economy as they were two years ago, and based on a recent survey 83% expect their profits to either remain flat or increase in the next 12 months and 84% of CEO’s plan to keep the same number of employees or increase the number of employees over the next year.

John Burns, John Burns Real Estate Consulting, November 20, 2009

I sure hope you are realizing some tangible results from all this great news.  We’re just small fish in a really big ocean, but I have to say that we are busier right now that we have been in a long while.  That’s just an indication of what is happening in our little part of the world, and certainly not quite up to where we were a couple of years ago, but it makes me hopeful that the glow I see at the end of the tunnel is daylight, and not a train!

Surely I’m not the only one that’s seen some encouraging activities.  This blog is a great place to post your thoughts and experiences for us all to see.  You never know how or who you might influence with your words of wisdom or stories of success.  Hundreds who will read your words, so come on, make an impact!

Dale Peek

President

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THE PERFECT STORM

Just as the bungalows of a century ago supplanted the Victorian painted lady, ‘Not So Big’ houses are likely to become the sought after alternative to the McMansion.

  Sarah Susanka, Author of “The Not So Big House”

 

Here are the stats:

• For the first time in almost 15 years, the size of new homes built in the United States is shrinking
•  New homes are now 7% smaller – down to a median size of 2,065 square feet in the first quarter of 2009
• In 2008, the median home size got smaller every quarter, marking the first year of declines since 1994

   

What’s the deal ?  Is the McMansion really history, or has it just been removed from the menu for a while?

If you ask me . . . well, you don’t even have to ask me – I’m going to tell you anyway . . . what we have here is an incredible combination of events all happening at the same time – to create . . .  

Just take a look at these factors:

• The Great Recession – It has affected the habits of spenders in every economic strata – whether the decision is regarding what groceries to buy or how much house is enough.
• Energy Costs – As fuel costs have continued to climb, buyers have finally wised up that less square footage is cheaper to heat and cool.  As architects, we have for years heard from clients that they no longer want the huge vaulted spaces and two story ceiling due to the incredible waste of energy that is required to condition them.
• The “Green” movement – The simplest ways to be “green” are to simply reduce the amount of building materials required and reduce the energy required, both of which are easiest done by reducing the volume/area of the house.
• Quality vs. Quantity movement – With “The Not So Big House” leading the charge as a New York Times Best Seller many times over, this mentality has gone viral – from HGTV to blogs to editorials to discussions around the water cooler.  It doesn’t take a rocket scientist (or even a builder, for that matter) to figure out that if you reduce your Quantity (square footage), and maintain your budget (total cost), then your Quality (price per square foot) will get higher – thus nicer finishes, more expensive furnishings – translating into a more desirable home.
• Land availability / cost – God ain’t making no more land, so as population increases, the amount of land per person continues to decrease.  As land costs continue to rise, affordability will drive zoners and planners and developers to design smaller lots, and smaller lots require smaller houses.
• Aging Baby Boomers – All our lives we’ve heard about how huge a group we are, and now as our kids are growing up and leaving the nest, the nest doesn’t need to be so large.  At some point, that big house that once served the needs of the family, just becomes a lot of cleaning of rooms that never get used anymore.  We’ll be looking to downsize – all the time hoping to reap some of that equity that has been growing for many years (until recently – that is).
• Credit / Mortgage issues – Have you looked into what banks are requiring for jumbo loans these days?  Sure, we’re going to have to work on educating the appraisers, but they’ll come around – eventually.
• Smaller household size – Due to several factors, the average household size continues to decrease – thus requiring less space to support the living needs of the family.
• The Craftsman Revival – As Ms. Susanka accurately reports, just about exactly 100 years ago, our forefathers, for some of the same reasons listed above, rebelled against the extravagance of the Victorian movement and the huge wasteful edifices that it had created.  Thus a grass-roots movement which had begun in Europe grew legs here and took great strides to create the most original and aesthetically pleasing and prolific design style to call America its home.  It is no fluke that the current revival of this period and the style that it created has flourished for so many years, and seems to continue to have a vitality of life that will extend it many more.  And, of course, one of the most distinct features of the Craftsman Bungalow is the small, efficient footprint.

OK, sure there will still be a market for the McMansion, and even jumbo houses on big lots, but make no mistake about it – the STORM is upon us!  I believe you have a choice of either learning from these factors to “surf” so you can get on top of the wave, or you will be swallowed up by the tsunami of public sentiment.  Many a builder has already been caught victim, and many more will follow before we all learn the hard way that coming out of this recession, things are just not going to be the same.

I’m guessing a lot of you have already formed some strong opinions about this issue – I’d love to get your take on it. Please share the wisdom of your experience and vision and how you see things evolving as we ease into the greatest housing recovery ever!  The time is upon us – what are you doing to prepare?

Dale Peek

President – Peek Design Group

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