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Building Market Momentum: What You Need to Know
Brad Hunter / Metrostudy / October 30, 2013
Construction markets are showing signs of building momentum nationwide. Inquiries with architecture firms are up, construction spending is up, and inventories of new homes are dwindling but demand continues to rise. So what’s stopping you from diving in and taking your business to the next level?
If you’re like everyone else, you’re probably skiddish about the stability of the market. You’re still aching from the hangover of the recession. What’s going to get you back in the saddle? Metrostudy’s Brad Hunter spoke with HW.com about the lessons learned and the trends that should give us all greater comfort with adopting growth strategies now.
HW.com: What lessons should we have learned from the downturn?
BH: That a rising tide lifts all boats and when the tide goes out, you will find out who has been swimming naked. I would like to urge everyone here to LEARN from this lesson, because it is very applicable today. “Caught Swimming Naked” is a good analogy, because builders who paid too much in 2013 for land might be caught with their BOTTOM LINE exposed and it might not be a pretty one. It might be a bit embarrassing because everybody will be able to see your… inventory.
The key to avoiding this problem is to understand very clearly: what is driving home prices in the submarket where your builder partner’s project is located, and base your pro-forma on a well-researched forecast of prices and absorption. If you have to lie to yourself or if you are not paying attention, it will be a very rough ride. The market study you get has to be quantitative and local-area specific. A general study will not be of any use to you.
HW.com: What surprising market trends have you seen?
BH: Two surprising trends: 1.) Sales would run so fast that builders would TRY to slow them down. 2.) Lot prices would get back to PEAK prices as they have in Phoenix, Denver, Dallas, South Florida as well as other areas.
As they say, though, “future results may not match past performance.” Watch for a sharp slowdown in Las Vegas, in terms of both housing starts and rate of price increase.
Question: What about community development going forward: Are we headed toward infill and density?
Brad Hunter: Yes, our data shows a significant move toward single-family ATTACHED in the higher priced markets, such as the Bay Area and San Diego, and in land-constrained places like South Florida. This swing is easily observed and measured.
HW.com: Is there still upside in land? If so, where?
BH: Look in the supply-constrained areas with proven demand. In areas that lack a constraint on supply, either physical or political, there may be limited upside. That said, the public builders have to keep building, and they will keep bidding higher until they get enough land. Stay in the path of high-housing-demand in any land deals.
HW.com: What are your recommendations for smart business strategies going forward?
BH: Pay close attention to the idiosyncrasies of the local submarket. West Riverside is very different than San Bernardino; West Miami is completely different than South Miami; Gwinnett County is completely different than Cobb County. Proper research can keep you from losing a lot of money. Keep in mind the classic blunder of General Motors trying to market the Chevy Nova in South America. Buyers laughed at it. “No va” means, “it doesn’t go.”
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