If You Would Not Start Your Company Today, Think Again About Trying to Stay Alive

As we finish up our March-April print edition of Big Builder, a world outside of home building concatenates profound, seemingly chain-reactive transformations–shatteringly new political, cultural, and economic forces and directions that sweep housing and its divisible industry parts into a tidal wave of moment.

On a map, North Africa and the Middle East may look like a world apart, but in life they are as intimately part of the here and the now as any feature of quotidian living that comes to us by way of our fossil-fuel economy can be.

As we write, of course we’re not privileged to know what the ultimate reset of leaderships will be for Tunisia, Egypt, Bahrain, Libya, Algeria, Morocco, and any number of other sovereignties shifting in the tides of change. We know only that in our Western way of life and climes, we’ll deeply feel and immediately see what develops, for that is how geopolitical dramas unfold nowadays. We hold speed-of-sound new of revolution in the very palms of our hands.

Like it or not, history has picked this time and this place to occur. We don’t get a lot of choices as to what’s going to happen; all we really get to choose is the attitude with which we experience it.

Volume home builders who trudge determinedly forward into the months that some distant fantastical era–five or six years ago–earned them the label Spring Selling Season can relate. They too have felt the ground beneath them buckle. They too have awoken to the slap of reckoning that their legacy—however noble, powerful, and entrenched—is now in many ways their most lethal enemy.

Four years into and hopefully 12 or so months out of a hell that has literally lopped off 80 percent or so of the livelihood of an industry, we’d be so bold as to say this: If you can’t start with a blank sheet of paper and validate your company today as if you were starting it from scratch, knowing all that you know about current conditions and future headwinds, the likelihood is that your organization will fall into the category of excess capacity in the tough months ahead.

Anyone who’s graced enough to have been active in any number of recovery programs knows this about them: they’re never pretty.

This explains, at least in part, why we’re focusing on Atlanta-based Ashton Woods to run metaphoric interference for all of those organizations in home building—public and private–that are capable and willing to make a go of it for this last stretch of darkest hours before the dawn of a rebound. To succeed, it’s going to take not just cash, not just patience to await an eventual rising tide, but an out-and-out skill at dealing well with what the market offers in little doses. This means “deals with lots of hair on them” that require more than throwing money at the challenges.

This is one of the reasons Ashton Woods could justify its existence starting with that blank sheet of paper in the gloomy days of late 2009, as it created its plan to multiply itself by five within five years.

Ashton Woods CEO Ken Balogh

Central casting for Ashton Woods had to pick its leaders with care, and has done so. With a current run-rate of about 1,200 homes and just over the $300 million mark in revenues, the masterminds at majority owners Toronto-based Great Gulf Group are fond of an Ashton Woods senior management that allows for exactly 17 corporate positions in the company’s Roswell, Ga. headquarters.

That rounds out to about 70 homes and $18 million in revenue per corporate overhead position, so it helps that the CEO has more experience with leadership and responsibility than his 40 years would seem to suggest.

Jerry Patava, CEO of the Great Gulf Group says, “When someone’s handled significant responsibility without having significant years of legacy issues clouding the picture, usually that person proves to be talented beyond his years. That’s what we’re finding with Ken Balogh.”

February 24, 2011 | Filed Under Financial Crisis, Home Builders | Leave a Comment 

Notes from the Selling Season Trenches

We know you’re busy these days. We thought we’d break in to let you know a little of what we’re hearing from behind the lines (the headlines)  of a time known as spring selling season 2011.

Is there one happening?

We’ve been told that the selling cycle to bring a prospect from start to finish through a new-home purchase has accordioned out from two to three months a few years ago to more than double that now–at six or seven months. Even then, there’s no such thing as a fixed price. So even one sale makes you twice as busy.

“From the get-go a prospect will come at you and ask what you’re willing to take off or add in for incentives,” says a division chief for one of the public home builders in a tough market. “If you say you’re not throwing in such and such, they’ll name you a builder down the street and say, ‘we’ll they’re giving us this for free, so maybe we’ll have to go back over there.’”

To get the anticipated 350,000 units into the new-home sales pipeline in the 11 months starting in February means that builders will need collectively to convert a little more than 1,000 a day from now through Christmas.

The forces against continue to be jobs instability, tight credit, a self-perpetuating real estate value destruction, continued high levels of household debt to deleverage, and wily excess supply poltergeists. Those forces against are entrenched and numbing.

The forces for are recession fatigue, changing household needs, new families starting up, job promotions (yes, they still happen), retirements (some of them early and forced), a birth in the household, a finally saved down payment, or a new job in a different market.

Job metrics and consumer sentiment measures haven’t become sustainably positive to a point where anyone can be certain of any specific direction, especially for home purchases, the biggest buy people make.

If anything, market conditions have hammered people with reasons not to decide that now is the best time ever to buy and new is the best way to buy home ownership. And now, since distressed real estate is so common in so many markets, any home buyer with an ounce of intelligence would have to include short sales and foreclosures as part of his or her house hunt or would be doing a disservice to themselves.

So, it’s not home builder competing with home builder. It’s home builder competing with every brand of residential property out there.

Here’s some intriguing topline themes emerging as we continue to talk with folks about their spring selling efforts.

“It used to be that resale was where buyers came in and made an offer and that started a negotiation, but that’s increasingly the way in new-home buying,” says our division president source.

What huge implications for divisional structures so stripped down that local support and management layers are no where to be found in the infrastructure. What it means is that for each one of the potential sales that now cycles to about six or seven months through the process, the sales staffer (and/or real estate broker) is in direct contact with a division president who’s added practically a full-time job to get buyers through to settlement.

We checked in with John Burns, whose John Burns Real Estate Consulting is running an ongoing telephone survey of home builders on their spring selling narrative. If you want to participate in John’s survey and hear all the local and national results, you can e-mail jkahn@realestateconsulting.com and let them know you’re in.

John gave us some topline observations from his round of calls in the past few days:

We contacted more than 85 builders yesterday and have concluded that the usual post-Super Bowl bounce isn’t much to get excited about.  National and regional builders we spoke with reported they were on plan last week, but their sales were nothing to be excited about.  While this confirms what most of our home builder clients have been telling us will happen, it is slightly worse than we were expecting and far short of consensus expectations on Wall Street and in D.C. 

We also confirmed that the national builders are discounting and running special marketing campaigns to drive the early spring season sales, even in stronger markets like Washington, D.C.  They simply can’t afford to miss their volume targets, and will not wait to see if “organic demand” rises week over week.

 Market Conditions This Week (from 85 building execs)

Strong week: Ft. Lauderdale, Denver, Washington, D.C., West Palm Beach

Good week: Charleston, Orange County, Orlando, Phoenix

Mediocre week: Atlanta, Austin, Charlotte, Chicago, Dallas, Durham, El Centro, Fort Worth, Fresno, Houston, Lakeland, Las Vegas, Maui, Nashville, Oahu, Philadelphia, Portland, Raleigh, Richmond, Riverside-San Bernardino, Sacramento, Salt Lake City, San Antonio, Stockton, Tampa, Wilmington

Slow week: Bakersfield, Hanford, Jacksonville, Minneapolis-St. Paul, Modesto, Oakland, San Diego, San Jose, San Luis Obispo, Sarasota, St. Louis, Visalia-Porterville

This pretty much matches what we’ve heard from various market sources. Minus federal tax credits, home builders are pumping whatever form of stimulus into the market they can to just get the spigot opened up a bit. They’re nearing a months’ supply flash point that could change the complexion of the market once there’s a national data point of less than six months’ supply.

Still missing in action is what real estate pros euphemistically say is a “sense of urgency.” In fact, we think the emotion that will galvanize sales is fear, and there are at least several balls up in the air right now that could release fear into the nearer term, even if there are several million foreclosure, short sale, and highly motivated sale homes to clear through the market over the next few years.

Fear motivators could be:

Meanwhile, while it has been noted that house price declines have vaporized zillions in household asset wealth, the stock market gains of the past two years have restored many people’s financial assets back practically to where they were before the trouble started.  This, some sellers of active-adult and move-up product have noted, can be a tailwind in itself, especially for older people who had been in homes so long that all they’ve lost is paper profit on them rather than hard cash equity.

The point in the early going is this. All is negotiable. What’s more, we’re hearing, it’s brutal out there on the Realtor front. If you tell them what you’re paying and it’s not up to snuff in their minds with the commission levels other home builders are offering, “they’ll drive right by your community without a second thought,” says one of our builder insiders.

Negotiability is right down to the homeowners association fees. Some buyers want to pull costs for items such as lawn maintenance and cable out of the association fees because they’d rather cut the grass themselves and get a dish than to face a monthly cost they think is too high. At the same time, “people are spending gobs of money on options because they want to get them into the mortgage” rather than to have to try to borrow later on to pay for improvements to the base house.

We’ll continue to update you on the themes of spring selling season 2011 as we talk with more builders in the weeks ahead. Meanwhile, the comments box is available below, and we hope you’ll add your observations on the market from your point of view.

February 17, 2011 | Filed Under Financial Crisis, Home Builders | 1 Comment 

“What We’re Seeing” on Spring Selling–Embrace the Reset

Traffic is up. Quality traffic is up. Despite bad weather in some parts of the country, traffic is better than it was at this time last year.

Sales are coming, but each one comes with work across all fronts: price, qualifying the buyer, meeting or beating the competition, and, ultimately, educating the buyer on the value.

The folks we spoke with about the first weekend of spring selling were hesitant to say they’re more than “carefully optimistic.”

Clearly, home buyers have begun self-identifying as that now, and they’ve got the message abundantly clear that there hasn’t been a moment better than this one to buy a home in a generation. As interest rates nudge up, there’s a double edged sword of motivation and disincentive. Rising mortgage interest rates certainly sparks a few people to move off the sidelines, but for those contingency buyers who may have locked in a below-5% rate, it’s getting dicey–they think they may have missed their window on a move into “new.” 

Here are some of the themes that come across as a number of home builders book sales in what may or may not add up to this spring’s modest turn toward a recovery cycle.

None of the builders we talked with would go so far as to say the 2011 Spring Selling Season will even match up to the home buyer tax credit-fueled paces of 2010. But they’re encouraged.

If home builders could wipe the slate clean and start their company in  today’s market with capital and a business model, what price points would direct costs, land-base, and SG&A come in at? And what value would that provide a home buyer who’s loathe to compare her purchase to the nightmare that was the middle part of the last decade?

That would be the right mentality, although realities are different than that, since home builders have to commit on the raw material land often before they know where demand is. One of the factors that gives builders who are on a solid footing confidence is that new-home supply is “dwindling.” 

One more short year on the supply side may be what it takes to clinch “new’s” ultimate role in this recovery.

February 14, 2011 | Filed Under Financial Crisis, Home Builders | Leave a Comment 

A Moment of Truth for Home Builders’ 2011 Starts Right About Now

The sensation today and tomorrow–on the eve of what home builders, developers, trade partners, manufacturers, Realtors, homesellers, banks, farmers, ranchers, distributors, toolmakers, earthmovers, sandwich trucks, and municipal treasurers hope somewhat against hope will be a bona fide Spring Selling Season–must be like the night before a bigtime parole hearing after a few hard years in jail.

Either you’re going to walk out of prison, and try to continue to make your way out of the shadow of the wreckage of the past, or you’re not. You’re not entitled to know based on all of the facts you can put together ahead of time.

With that feeling of suspended animation in mind, three stories we came across this morning as we assembled our Builder Pulse drill for the morning’s mailing began to weave together into a notion.

These are the three stories.

Here’s how these stories blend, especially as we continue to listen to public home builder company management teams discuss their quarterly earnings performance and talk about how their operations are going to rationalize themselves in the months and years ahead.

The stories each have a what-you-can-control and a what-you-can’t-control element to them. Pent-up demand is a delta of potential that could be a game-changer. The skill vs. luck in winning question is totally relevant for businesses whose mantra runs along the lines of “a bad market can take down a good builder.”

The story on the couple who’d take a loss on their current home to get a bigger win on a new one ties the other two together.

Let’s put this into some context.

In home building cycles past, the plotline usually works in such a way that home builders could roll back their pricing and narrow or even temporarily invert the premium that home buyers would pay for a new home. This would re-ignite demand for new homes, which would spark both construction and consumer spending and serve as a catalyst to the broader economy.

Assuming there’s not a structural change in the way that people who reach adulthood opt to make a home for themselves, the need for home building and home builders is defined by the present and near future demand for new-home construction. The marketplace can tolerate cyclical periods of excess capacity only for so long before it begins to ratchet down the capacity and the money locked up in supporting it.

This is what has been happening now for a few years, and it will continue. We don’t think the era of casualties among home building companies is over. There are still private companies who borrowed money, and whose collateral based on the value of their land holdings has fallen, and who’ll either figure out a way to come up with more capital from somewhere or who will go into default.

Now, in broad strokes, the trickle of demand for what new-home builders do has decimated one of the few ways to gain visibility into how the money will hit the books of the companies: backlogs.

Almost everybody’s orders were down all of the second half of  last year. The tide ebbed.

So, what most all of the companies did–given many institutions’ willingness last year to make a greater amount of money by agreeing to wait longer to get it back–was to shift short term debt to longer term debt and shrink their balance sheets to a best-guess at current pace of demand. If they could operated net positive exclusive of one-time charges or land write downs, they’d did the next best thing to growing. They had a water-treading plan that could get them the rest of the way across the abyss.

What public and private home building companies did during the 2000s was to become much better, or more professionally disciplined operators from a manufacturing process standpoint and a financial–debt and equity capital–management standpoint.

Which brings us to the pent-up demand story.

Here’s the graph the National Association of Home Builders’ economics brain trust of Dave Crowe, Robert Denk, and Robert Dietz put together.

Normal household growth since 1965 is 1.5% of households each year. But, between 2000 and 2007, the household growth rate averaged 1%. Looking at total households, that means that 2.1 million of them did not happen during those seven years, that if economic times weren’t so rough, may have formed.

Now, take a look at the story of the couple in Atlanta who were willing to sell their townhouse for less than they’d wanted for it because they knew that with today’s prices and today’s interest rates, they could net out a gain ultimately, because they’d get an even larger concession than they were giving, and they’d wind up with a lower interest payment.

“From a financial point of view, that could make a lot of sense,” said Karen Gibler, an associate professor who studies real estate at Georgia State University’s Robinson College of Business. “You hear people talking about how they don’t want to sell their home at a loss, but they want to move. If you wait for the market to improve to sell your home, the home you want to buy will likely go up in price, as well.”

We’re apt to think of “pent-up demand” as adult children living in the basement, or families doubled-up in apartments. But the example above is a kind of pent-up demand that’s not even counted in the 2.1 million that the NAHB economists have identified. It’s the people who have been antsy to move up or into more fitting homes, but have been waiting for the right moment to do it.

Now, just as on the negative side of the equation we see people willing to strategically default on a home loan where it looks as if the consequences of doing so will be more positive than bearing the weight of an underwater mortgage in a moribund housing market, so too, we may see a similar logic work in another way.

If people know the math of investment and return works out better to take a lesser loss on a current home for a greater gain on a next home, then all they need is the reason your company could give them to do it.

So, stepping back now to the eve of Spring Selling Season 2011, here’s what we’ve got.

In a foreclosure-dominated landscape, home builders need to do more than to motivate buyers with urgency around price as they may have done successfully in cycles past. Instead, they have to create urgency around value.

They have to reinvent value, especially in the minds of those who are among the ranks of the “missing but expected” household formers, and in the minds of those like the Atlanta couple who wanted their move-up home in spite of not getting the price they wanted on their currently owned home.

So if the 2000s were about home building’s coming of age in the disciplines of manufacturing and operations process–that balance of labor, materials, scalability, speed, and simplicity of design templates–as well as finance, the next stretch that will define successfull home builders will be their capability in marketing and selling their value. Their name, their quality, their service, their investment smarts, and their delivery of an experience.

If a rising tide lifts all ships, the home building’s next patch will be about seeing which ships can find the channel they need to navigate until the tide rises sometime hence. This is where the skill vs. luck story comes in, especially in this highly complex moment.

Increase complexity, and skill — broadly defined — takes on greater value. Luck still plays a role, but those who succeed in complex environments have talent and quickness on their feet. They can adapt. When complexity edges closer to chaos, luck may carry the day. But astute players know how to put themselves in situations where they are less at luck’s mercy and instead better positioned to affect the outcome.

Does this describe the eve of Spring Selling Season or what?

February 10, 2011 | Filed Under Financial Crisis, Home Builders | 1 Comment 

Thoughts about PulteGroup’s Plan to Close the Margin Gap

A few operational items of note jumped out of Friday’s PulteGroup earnings call in which CEO Richard Dugas addressed Wall Street’s front line of equity research analysts on how and why Pulte is “lagging its peers” on gross margin progress.

Without an almost-$1 billion NOL tax carry back benefit, Pulte faced the music on Friday, the refrain mostly being, “where are you going to find the gross margin improvement that’s been eluding you even as you’ve taken several hundred million dollars of redundant costs out of the Pulte Centex combination, and further sized down the balance sheet to reflect anemic sales velocities?”

As Big Builder reports,

“PulteGroup, Bloomfield Hills, Mich. (NYSE:PHM) on Friday reported a net loss of $165 million, or $0.44 per share, for the fourth quarter ended Dec. 31. The loss included $196 million in write downs, including $82 million in land-related charges and other costs associated with organizational restructuring, debt retirement and other financing amendments partly offset by a $35 million income tax benefit and a $10 million insurance reserve reversal realized in the quarter. Wall Street was expecting a loss of 9 cents per share, ex charges.”Dugas, who has become more hands on by virtue of some pretty heavy-duty management team cuts during the past eight months, says he’s personally out on a mission, convinced there are more expense opportunities in the home building operations themselves to hack away at and improve both directs and SG&A.

Still, beyond going from division to division to preach unity of purpose and pore over each of the divisions’ p&ls, Richard Dugas referred to one having to unwind a process he’d earlier been a champion of, and it has to do with the three home building platforms–Centex, Pulte, and Del Webb–that each gets its own real estate and capital resource strategy as well as its line of homes.

The reality of an agonizingly slow-absorption market, especially after the sunset of the home buyer tax credits program in mid-year last year, proved that the heavier hand of corporate control–on floor plans, operational systems, and purchasing–turned out to be a costlier alternative to forcing the nimbleness and opportunism of entrepreneurial de-centralization into its wide net of divisions.

It’s proven to be the case for many high volume builders that national purchasing contracts, beyond a few product categories, wind up costing more than buying the same items through distributors. More often than not, distributors carry more clout and get better prices than a national builder can.

So Dugas indicated that what had been a move to take more control into headquarters would move back out into the divisions, where not only real estate decisions but a whole gamut of community management executions would be turned over to the division chiefs.

This is a corporate cultural 180-degree turn, and it’s going to be interesting to see how well corporate can entrust more to divisions after spending the better part of the past two years saying, “you do what you do best, which is the real estate and home buyer segmentation analysis… we’ll take care of the rest.”

This means that division presidents won’t necessarily have to take a floorplan off the corporate shelf and make it work in his or her market. They’re going to have an opportunity to decipher more of what the particular market’s home buyer targets may be looking for and willing to pay for. Dugas hinted that base houses under the corporate control system had put costly features in that home buyers were not interested in paying for, which took its brand out of the consideration mix.

The second area of interest that came out of the call was an ongoing unsureness regarding the three-tiered brand structure that Pulte has embraced, with Centex and Del Webb flanking Pulte on the low end and the aging buyer end.

In an ideal world, Centex land positions and those of Pulte and Del Webb would each set themselves up with discrete buyer segmentation opportunities. Centex is the entry level brand now, but for many years, Centex marketed its homes not just to entry level buyers, but to first- and second-move up buyers as well. Many of the lots Pulte acquired with the Centex deal don’t nicely fit into an entry-level package, but nor do they pencil necessarily as Pulte style move-up positions.

What Pulte may be learning is that its ambitious triple-threat plan for three brands for three buyer types is one of those objectives that simply takes time, and we all know that “time and the tides wait for no man.” Reengineering up to 147,000 lots so that they’re each mapped to a brand simply can’t be easy, especially when it’s the minds of the home buyers that matter in the mapping.

We think that Pulte, just as it’s unwinding its plan for central versus divisional control, may also find that its big opportunity is to unify three into two. In other words, keep Del Webb, but make the rest just Pulte (over time) so that it doesn’t have to use the bandwidth nor resources to support three brands among three separate home buying audiences who consume different information largely through different channels.

We don’t know that Dugas will agree, as he’s a branding specialist, and he’s brought on Deborah Meyer from the Detroit auto business more than a year ago to make-over the company’s three-pronged brand strategy. Still, in this market, it may be an opportunity to capture more costs and unify its purpose around its strongest competitive position.

Lastly, we do find it encouraging that Del Webb may be gaining traction as the stock market picks back up and home buyers find that their stock assets are showing some of their bygone muscle.

It would be odd if, especially given the overwhelming atmospheric ooze of foreclosures, it’s a move-up and active adult home buyer’s needs and desires who puts the housing economy on his or her back at this point, as opposed to the traditional pick up from entry level buyers.

It looks for all the world as if federal policy won’t be planning any new creative financing ploys for first-time buyers looking to get into homeownership, at least for  some time. So, the Del Webb segment may be one of the most recovery-sensitive opportunities out there, since what may be pent-up at this point is older adults moving to a lifestyle they really feel they deserve, especially after a few years of pain and patience.

Still, PulteGroup faces more challenges to its operations, particularly if the overall rebound transpires as torturously as it seems to be setting itself up to do. The big strides it seems many of Pulte’s peers have made in the past 18 months or so is the assumption that things are going to be less-than for a while now, and there’s no getting around costing one’s business around less-than assumptions.

That may be difficult given the timing of Pulte’s biggest play to become America’s largest home builder a couple of years ago. But, it may be the reality America’s No. 2 builder (in unit volume) needs to face up to now.

February 7, 2011 | Filed Under Financial Crisis, Home Builders | Leave a Comment 

For New-Home Builders, Tomorrow’s Super Friday, and Sunday’s the Kickoff to Spring

Last year, as Super Bowl Sunday approached in the days ahead, two thoughts prevailed among home builders (especially those who were neither Colts nor Saints fans).

One was, “Have i built enough?”

The other was, “Have I built too much?

The extended and expanded, Sen. Johnny Isakson-authored, home buyer tax credit was set up to offer a cushion of psychological support for the month of December 2009, and then kick into gear in January.

Those who championed it banked on a theory that it would not just stimulate sales, but that it would, as had been the case in a prior recession, actually catalyze a daisy chain of economic reaction responses that would eventually ignite a broad-based rebound.

Now, we know. When a huge percentage of residential properties sold in a few-year period returns to the marketplace as a tsunami of distress, the theory of home buyer tax credits kickstarting economic traction goes soundly out of policymakers bag of tricks … at least until Congressional amnesia does its thing.

At any rate, what the home buyer tax credit didn’t do for the broader economy, quantitative easing 2.0 is doing. Nevermind that housing, and new-home building needed to take a step or two backwards before it could regain its own footing.

So, the two prevailing thoughts of last year–”have I built enough?” and “have I built too much?”–this year have blended into one thought. “Have I built what I can sell?” or “Can I sell and build enough to make money?”

Oversimplistic as this may sound, we believe this characterizes home builder sentiment every bit as helpfully as a number drifting in the mid-to-low teens month after month.

We know this. Any builder who can put their hands on the capital plans to do more building in 2011. Among the dozens we’ve met with and talked with, community counts will increase on an average of from 5% to 20% on a net operating basis in the next 11 months or so.

With absorption rates of just under 2 homes per month per community, you can do the math however you want, but you’re going to come up with an increase in the number of neighborhoods actively selling homes.

Last year, the three stars that stood in alignment that played a mind-game with home builders strategies were 1) home pricing was favorable, 2) interest rates were favorable, and 3) a federal tax credit was going to yank people out of their torpor and get them into the transactional marketplace.

This year, there are three stars aligned again, but one of them is different. Prices and interest rates are still favorable. In place of the tax credit, however, jobs numbers are beginning to stabilize.

Now, providing that seemingly endless stream of global or environmental “Black Swan” events doesn’t wreak havoc with this “little recovery that may be able” to sustain itself, jobs and income stability are going to lead into an inflection point. At this tipping point, whenever it occurs, we’ll see the household formation that has not been occurring for two years start to occur in earnest.

Then, scarcity, especially in new homes will become a factor. Maybe that won’t be this year, but we don’t believe that tipping point is factored into any of the technically designed housing economic models that draw on fundamental drivers of supply and demand. 

Supply will continue to be a mess for a couple of years, and why not. If for four or so years straight 20% to 25% of home purchases new and used were by either speculators or people who were financially incapable of reasonably following through on their mortgage commitment, then there’s a lot to clear.

Too, though, the U.S. has been adding roughly 2.5 million living souls a year to its population for the past few years, many of whom haven’t made their way into their own households at all.

There’s got to be demand. Much of the absolute demand pent-up out there will be fore rental housing. But once jobs and income start to stabilize; once that fear of getting laid off starts to come off the table, people will want to start buying again.

This image is Calculated Risk’s illustration of a weekly indicator from the Department of Labor that tracks initial claims for unemployment insurance. When the fever line tracks downward, it’s good, because it means fewer people have lost their jobs and are looking for unemployment benefits. The running average has been gaining positive traction, as have private payroll job creation data points over the past few months.

Tomorrow’s monthly employment report from the Bureau of Labor Statistics will likely move the equities market one way or another. Still, positive is welcome, but it’s not the juggernaut needed to bring down unemployment rates fast. Almost one in 10 potential workers being out of a job is still a heavy weight on the economy. But a slow turn to the plus-side is necessary before anything can improve. The question of the moment for home builders is, will mere stabilization on the jobs front cause qualified buyers to move off the sidelines and buy, even as pricing softness prevails due to distress? Jobs and income confidence on the one side and low prices and interest rates on the other could be the market’s elusive balanced equation.

Check out the new neighborhood models come Saturday, Lincoln’s birthday.

February 3, 2011 | Filed Under Financial Crisis | Leave a Comment