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News for Product Manufacturers from Hanley Wood CEO Frank Anton
Time to Get Real
From the mid-1970s until 2005 — when the housing market peaked — the ratio of existing home sales to new home sales was always about five or six to one. So, for example, if 3 million people bought an existing home in a given year, then about 500,000 or 600,000 bought a new home. But do you know what the ratio was last year? Twelve to one. Clearly, new home sales are losing the share of market game. For further evidence of that, consider the following:
• In 2009 existing home sales actually rose by 5 percent to 4.6 million. As for new home sales, they dropped to 373,000, the lowest level since 1963 and down 23 percent from an already abysmally low level in 2008.
• At their low point in 2008, existing home sales had declined 26 percent from their 2005 peak. At their low point last year, new home sales had declined a staggering 71 percent from their peak, also in 2005.
• This January the annual rate of new home sales — at 309,000 — fell to an all-time low, and the ratio of existing home sales to new home sales hit an all-time high of 16 to one.
• From 1995 to 2005 the average annual rate of new home sales was about 1 million units; right now the rate is about 62 percent below the trend line.
Doesn’t it make you wonder why new home sales have cratered and why existing home sales have been so relatively resilient? Two related reasons offer a partial answer. One, the avalanche of foreclosures hit owners of existing homes harder than owners of new homes, thereby flooding many markets with a big inventory of very low-priced older homes that attracted value-conscious buyers. Two, in part because so many existing home sales involved bargain-priced foreclosures, the median price of existing homes has declined by 28 percent since 2005. But the median price of new homes has declined by only 18 percent, thereby making existing homes considerably more affordable just when supply outstripped demand.
But there’s a third reason for the staggering decline in the share of market for new home sales. The whole industry has been slow to come to grips with the need to build smaller, more affordable new homes. In the four years from 2005 to 2009, American homeowners lost $7 trillion — as in "trillion" — in home equity. If that didn’t exactly drive a stake in the heart of the move-up housing market, it’s certainly a deterrent to any quick return to McMansion mania. What builder wouldn’t rather sell 10 $500,000 houses instead of 10 $300,000 houses, and what building product manufacturer wouldn’t rather supply product to 10 bigger, more expensive houses? But it’s time to get real. The worst of the housing recession is probably over, but a full-blown recovery won’t begin until the new homes being built match up with what buyers want and what they can afford.
Send e-mail to Frank Anton |
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News and Trends from Hanley Wood Magazines
The 20 Healthiest Housing Markets for 2010
Which housing markets are the best bets to recover first? We present our annual list of the 20 healthiest housing markets in the country. (BUILER Online)
Why Stop There? Here's 21 to 40.
Special Report: Meet Your New Customer
The housing slump has altered pro dealers' customer base markedly. Past customers don't do business the same anymore, and new revenue sources have popped up. Here's a guide. (ProSales, February 2010)
Groundbreaking Ideas
Citing low labor and material costs, recovering fundamentals, and a dire lack of competitive market supply, the progressive multifamily mindset says construction WILL start now. Here’s how they plan to pull new developments out of the dirt for delivery in 2011 to 2013. (MULTIFAMILY EXECUTIVE, MARCH 2010)
Rethink the Industry Mission
What home builders can learn from bankrupt airlines, automakers, and retailers. (BIG BUILDER, March 2010)
Seven Green Trends for 2010
Sustainable building experts offer predictions for the year ahead. (EcoHome Online)
Supply Side Economics
Remodelers need to remember the added value that lumberyards and manufacturers can bring to a sale. (REMODELING, February 2010)
Leading Builders on the Hill in Energy Push
The Leading Builders of America charter group of 16 large public and private home builders has joined the 33-year-old Alliance to Save Energy to strengthen its more direct line of contact with Capitol Hill. (Housingcrisis.com)
In the Public Eye
Lean times leave home improvement contractors confused about how to market their companies. (REPLACEMENT CONTRACTOR, February 2010 ) |
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Top Developments Affecting the Nation's Biggest Public Builders
Positive Signs Start to Appear in Florida
Market watchers in some Florida markets say the long-absent snowbirds are back this year -- and they're starting to buy.
USDA Loan Program Set to Run Out of Funding
The end of April may signal the end of the $8,000 federal home buyer tax credit program, but it's also increasingly looking like the end of the U.S. Department of Agriculture's Single Family Housing Guaranteed Loan program, which has become a critical source of mortgage financing through the housing downturn.
Ahead of the Call: KB, Lennar
This week should bring a first glimpse into how the spring selling season is working out for the largest builders in the country with both KB Home and Lennar reporting their first quarter results Tuesday and Wednesday, respectively
Housing Starts Slide 5.9% in February
Experts say winter storms in South, Northeast affected construction activity.
Senator Urges EPA To Delay Lead Rule
Agency isn't ready for this far-reaching regulation, scheduled for April 22, Klobuchar argues.
Brazilian Tile Industry Looks to Recover After Gloomy 2009
South American country ranks as one of the top producers of ceramic tile in the world.
High Housing Prices? Don't Blame Land Conservation
Stanford University refutes correlation between land conservation and expensive home prices in San Francisco Bay Area and Silicon Valley.
Wood Advocates Aim To Blunt Composites, PVC Growth
Groups for pine, cedar, redwood take steps to promote the natural stuff.
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Housing Statistics and Analysis from Hanley Wood Market Intelligence
- Despite a fairly positive week in equity markets, lackluster housing data remains a lingering concern. Both housing starts and building permits fell in the month of February, which is evidence that conditions in the housing market are still sluggish. Inclement weather conditions throughout the U.S. in February hindered construction activity as housing starts fell 5.9 percent from the previous month to a seasonally adjusted annual rate of 575,000 units. Building permits fell 1.6 percent last month to a seasonally adjusted annual rate of 612,000 units, which suggests that construction activity going forward will remain slow.
- A steady flow of moderately positive economic news, along with the Fed’s restated commitment to a lower interest rate environment, pushed markets higher.
- The inflationary environment as measured by weaker producer and consumer price data is seen as tame by the marketplace and in line with the Fed’s stance on lower interest rates. The board kept their target Fed Funds rate unchanged at a range of 0-0.25 percent in their second scheduled meeting of the year, and stated that while economic conditions are improving, they still vow to keep rates low for an extended period of time.
- While sales activity during March and April is expected to increase, demand may fall off significantly after the homebuyer tax credit expires at the end of April, and with interest rates eventually heading higher later in the year. The Fed is expected to conclude its purchase of mortgage-backed securities from Fannie and Freddie at the end of March, which many anticipate will lead to interest rates rising incrementally. Slower sales activity early in the year, along with weaker construction activity, sent home builder confidence lower in March. The NAHB Housing Market Index declined two points, and all three component indexes declined as well. The index measuring traffic of prospective buyers this month fell to its lowest levels since March 2009.
For more from Hanley Wood Market Intelligence, vist our Web site. |
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