Pollster Bolster
From BUILDER, by Boyce Thompson: For many a U.S. resident, at least part of their American Dream is owning a home. That hasn’t changed, according to John Zogby, a noted political and cultural trends pollster who keynoted the Pacific Coast Builders Conference this week.
What has changed, per Zogby–author of a new book “The Way We’ll Be,” are the motivations driving people toward attaining their personalized version of the American Dream. Builder editor Boyce Thompson offers an analysis of Zogby’s remarks, with an eye toward connecting the dots between the pollster’s macro observations and specific opportunities and challenges for those trying to win new home buying and remodeling customers in the most dreadful of times.
Zogby outlined four pools of people who share this spiritual connection. A sizable portion of the population, he said, is now working for less. They have de-emphasized what they own or where they live to define themselves. “They are the new American consumer,” he said, adding that these are smart consumers who will shop for bargains but save money to buy something nice they really want. It’s a mistake to try to reach this group by marketing fantasy; reality is what appeals to them.
The blinding conclusion? Less is not only more; it’s all there is to bank on.
In Zogby’s own words:
Social Animals
Ara Hovnanian is following you on Twitter.
Or maybe not, because you’re not on Twitter, and he might find it to be unbecoming of a Fortune 500 CEO to follow anybody, let alone “friend” them.
Still, what may be home building’s darkest hours before its slow dawning days are dragging on, and the perennially progressive Pacific Coast Builder’s Conference is accentuating the positives in the Golden Gate City–what there are of them–in the market.
A trend that’s catching on faster than a pandemic virus is social media, and the San Francisco PCBC show floor is positively buzzing, or tweeting if you will, over the upside posibilities of applying social networking to the marketing and selling of new homes.
Get this: Big Builder editor Sarah Yaussi, was tweeting real time about a session about Twitter as the session facilitator was simultaneously chirping tweet-aways, or take-aways from the session.
How bleeping sweet is that!
Harvard Joint Center for Housing Studies Notes Duress
This release today from the Harvard University Joint Center for Housing Studies.
(New York) The worst housing downturn in generations continues to grind on, finds a study released today by the Joint Center for Housing Studies of Harvard University. Despite some stabilization in homebuilding and home sales in the spring, real home prices continued to fall and foreclosures mount in most areas in the first quarter of the 2009. With mortgage interest rates heading higher in June and the economy still contracting, a sustained recovery for housing still faces an uphill climb. “Although there are some signs of improvement or at least steadiness in new construction and sales,” says Nicolas P. Retsinas, Director of the Joint Center, “housing starts stand near 60+ year lows and any life in home sales is coming from distressed foreclosure sales, temporary first-time buyer tax credits, and low interest rates that moved higher in recent weeks.”
Housing demand has withered under the weight of crushing job losses, house price deflation, and tighter credit standards, the report concludes. First-time homebuyers are struggling to meet today’s stricter underwriting guidelines, household growth is well below long-term trends, and immigration has slowed; as a result, the share of homes for sale and vacancies stand at near record levels despite sharp decreases in housing production. “The best that can be said of the market is that house price corrections and steep cuts in housing production are creating the conditions that will lead to an eventual recovery,” remarks Eric S. Belsky, Executive Director of the Joint Center. “For now, markets remain under considerable stress.”
The housing downturn hit low-income minorities especially hard. With unemployment rates sharply higher among minorities, minority households are more likely than others to spend more than half of their incomes on housing. Also, higher shares of minorities live in neighborhoods with elevated foreclosure rates and where house prices fell the most.
Meanwhile, the number and share of households spending more than half their incomes on housing continues to remain at elevated levels. Before the economy began to shed jobs in 2008 and 2009, the number of households with such severe cost burdens, in 2007, stood at 18 million, up from 14 million, in 2001. Although renters are more cost burdened than homeowners, the most rapid growth in households with housing burdens, during the decade, occurred among owners.
Even though present housing challenges are legion—including still soaring foreclosures, millions of homeowners stuck in homes worth less than the amount they owe on their mortgage, and falling rental property values—the State of the Nation’s Housing report concludes that the demographic moorings of future demand remain strong. The largest generation in American history will be reaching young adulthood in record numbers over the next decade. As a result, even under a set of household projections that assume annual immigration falls some 40 percent below the average of the first half of this decade to just half of U.S. Census Bureau immigration projections, household growth from 2010-2020 should still rival the solid performance in the 1995-2005 period. Even if immigration slows considerably, minorities will still account for about three-quarters of household growth.
“With the echo baby boom driving demand for starter homes and apartments and the baby boom powering demand for homes suited to older Americans,” explains Mohsen Mostafavi, Dean of the Harvard University Graduate School of Design, “the design professions will be called upon to deploy new technologies and designs to meet the aesthetic tastes and functional needs of a new, more diverse younger generation on the one hand and a generation in need of home modifications to help them age more safely and healthfully in place on the other.”
Looking beyond the current turmoil, the report underscores the potential to reduce domestic energy consumption by making the existing housing stock more energy efficient and creating dynamic mixed-use communities. Bringing the efficiency of the existing housing stock up to that of homes built since 2000 could save as much as 20 percent of residential energy consumption and more compact urban development could cut vehicle miles traveled substantially. Getting there will be a challenge, cautions the report, because local regulations often discourage compact and mixed use developments. Further incentives may be necessary to get property owners to invest in meaningful energy upgrades.
Signs of Recovery Raise Old Questions Anew
The economy might be getting better, or the economy might be doing a head fake. It’s clearly an arguable issue. But, it doesn’t matter. Your next home sale–which may be your ticket to sticking around alive for the merry, merry month of May 2009, or not–is going to come out of somebody else’s hide.
The shoots may be green. The signs may be less worse. The upticks may be cropping up here and there. Fact is, most brutally realistic people–whether or not they have economics degrees–say that historically, trends revisit and retest their low points at least once before they get done forcing most players into capitulation. And most players need to descend into wrist-slitting capitulation before a business environment can restore willing buyers and sellers to the game of making a market.
Your next 100 or 1,000 home sales will each be at the expense of competition from used homes, from foreclosure sales, or from new-home competitors. Whatever the condition of your balance sheet today, you’re not going to make it if you can’t get some sales; and you’re only going to get sales if you beat somebody else to them.
No two ways around that. Consolidation in industries is not fair and balanced. Whose company survives to tell the tale of 2007 through 2010 will have nothing to do with having been better or more compassionate home builders. It will have everything to do with simply being a survivor. Suffice to say, it will take luck, but, too, you’ve got to be good to be lucky.
A threat to be lost amid the furor of the global credit and economic crisis are some simple levels of accountability that production home builders share in what led to housing’s Waterloo. Although those who endure the challenges of a 100-year storm battering the system may have grown comfortable with “taking a haircut” on their holdings, you still don’t hear of a lot of people talking about radical changes to their system.
Tad Leithead, a senior VP for Cousins Property Development in Atlanta, talked two weeks ago at the Urban Land Institute spring meeting about dramatic structural changes that would have come due whether or not the economy fell off a cliff two years ago.
To describe the changes, the raw material of his metaphor came from fast cars and faster jets. Leithead says, “we’ve gotten to be very good at a couple of things, like NASCAR drivers. They drive straight and then turn left at an average speed of 190 miles an hour. That’s what we’ve been like in housing. ”
The moment calls for something else. Careering at 200 mph on a straight and turning left is nothing compared to the complexity of dealing with today’s environment, Leithead says. “Today, it’s more like landing an SST with no control tower, and thirty other SSTs either landing or taking off at the same time in the same airspace.”
That’s complicated.
Here are some structural questions the moment begs to be addressed and resolved sooner than later while the ills of the broader economy still provide home builders a modicum of camouflage:
- Can public home builders turn into better, more transparent inventory managers to yield investors a clearer sense of their business across cycles?
- Will production home builders find a way to crack the code of building profitably “closer in” to metropolitan and employment centers, as opposed to more and more distant green field communities?
- Will buying scale ever mean more than national purchasing contracts in a dozen or so materials and product categories?
- Will home building company leaders recognize in time that the two most compelling prospect pools of the next 10 years–Generation Y and the Baby Boom–will not be interested in the product lines that are currently being offered?
- Will private home builders ever be able to turn their entrepreneurial edge and home court knowledge into greater leverage with capital sources?
Multi Talented: News About Us
We’re proud of our colleagues this week.
They’ve toiled long and burnt the midnight oil to bring audiences something bright and new–a sign of their redoubled intent to be the first, best source of insight on the multifamily housing management, economics, and leadership.
Here’s the topline thought on the new multifamilyexecutive.com Web site from the brand’s primary steward, editor-in-chief Shabnam Mogharabi.
But first a look at the fresh new design of mfe.com. Have a visit.
Click image for access to Multifamilyexecutive.com
Here’s how Mogharabi describes the new features and functions.
>> Real-Time Data and Research As mentioned above, our senior editor Les Shaver leveraged MFE’s strong relationships with the industry’s leading research firms to provide something no other multifamily industry publication can offer: Up-to-the-minute, real-time national and regional market research. Throughout the site, you’ll find built-in widgets from Real Capital Analytics, M/PF Yieldstar, and others that provide customizable, searchable data on occupancy and vacancy levels, transaction volumes, rent trends, and more. In addition, the new site features a live stock ticker with continuously updating information on publicly traded multifamily real estate companies.
>> Multimedia-Rich Experience With the re-launch, we are now able to offer enhanced multimedia offerings and interactive features such as slideshows, polls, and Webinars. We also have, through our newly launched MFETV platform, four new videos up on the site, including a 20-minute sit-down interview with Henry Cisneros conducted at the AFT Conference last month.
>> Local and Regional Coverage Since multifamily real estate is very much a local game, it was important for us to be able to have some locally focused content. We were able to modify a Flash-based map created for Remodeling’s Web site and modify it to link to lists of MFE articles about specific markets, both at the local and state level. This was a temporary solution that I think works well for us until we are able to build more targeted local markets pages.
>> MFE Top 50 Rankings Our annual industry benchmark—the list of MFE’s Top 50 Owners, Managers, and Developers—is now viewable in a user-friendly table format that allows for a quick scan to find the company or information needed from any year in which the survey was conducted. And the data can be downloaded into an Excel spreadsheet for easy reference.
>> Daily Exclusive News / Content Aggregation Our vision for MFE.com was to be news-heavy and a destination site for the industry. To do so, we needed to be able to offer folks in the multifamily industry everything they would need in one place. The site is rich with daily Web-exclusive news, features, and stories from MFE, each with its own RSS feed. But in addition to that, we have made a point of offering more aggregated news coverage from around the Web and article feeds than any other publication in the industry. Stories from every industry resource on the Web—including our competitors, national trade associations, and commercial news vehicles such as the Wall Street Journal—can be found on MFE.com. In addition, we offer links to industry blogs, calculators, resource centers, lists, and more.
>> Expert Opinions We have begun to cultivate a blogroll that includes perspectives and opinions from the editors of Multifamily Executive as well as multifamily real estate experts. Over the course of the next few months, we will be bringing together more than a dozen multifamily experts, architects, and consultants to share their insights on the site.
>> Streamlined Design and Navigation With the re-launch of the site, we have updated our color scheme and style. The sleeker, streamlined design allows users to easily locate the right content. And we developed a topic-driven navigation structure that focuses on vital areas of the multifamily real estate business with less of a focus on the magazine product itself.
We congratulate the team that brings you this Site, and we wish them all good luck as they work to bring you the smartest, best, and first intelligence on multifamily housing business and management!
Rental Decay Eases a Bit
There’s about two ways to look at data points that reverse a downward or upward trend. One way is to say, “nyah, nyah, nyah, seasonality’s skewing the number,” and count it as a blip in an otherwise uninterrupted further plummet. That way is for those who are unable to get out of the fetal position.
The other way is to note the ever-so-slight upward hook at the tale end of the vertical deterioration picture, and imagine, if nothing else, you could catch a fish with it… or it could be the beginning of a reversal trend. It might not proceed on an upward trajectory uninterrupted by occasional ups and downs.
The NMHC has released its Tightness data for February, which cobbles vacancy and rent price info into a healthiness index. Calculated Risk has tracked the data and created this analysis.
Click on image for Calculated Risk analysis of NMHC release.
It is common in a recession for apartment vacancies to rise, as households double up by moving in with a friend or family member. However an added factor in this recession is all the single family homes being offered as rentals. This is possible additional competition for apartments:
In a special fifth question to NMHC’s Quarterly Survey, one-third (33 percent) said such competition [from condos and single-family rentals] was unchanged. Another four percent thought there was less competition, and 11 percent don’t consider condos and single-family rentals to be significant competition for apartments in their markets. A slightly majority, 52 percent, did report more competition from condos and single-family rentals than in previous years.
Competition from condos and single-family rentals probably depends on location.
House Debate
Time to get in, or no?
CNBC hosts an ongoing debate over whether flickers and flashes of good news of late are false alarms or real harbingers of troughing, stabilizing, and ultimate recovery.
Here’s JMP Securities’ Jim Wilson taking up the rallying cry to move in now, as signs of uptick here and there gather into a sweeping rebound trend. He faces a stiff challenge from Mike Crofton, CEO of Philadelphia Trust Company, who doubts housing’s come-back can be near.
Clearly, the hurdle for housing will be how consumer sentiment — arguably the most powerful factor for home purchase decisions — fares against continued job erosion over the next 12 months or so. The track record for recoveries is that housing stabilization comes at the vanguard of a broader recovery, and that positive job formation is a lagger.
The question is will confidence trump the pink slips? Will fear of missing the “moment of the century” to buy a home take the place of the fear of losing one’s source of income? Will the 80-20 rule jumpstart “actual economic activity” in the months ahead, or will wary consumers stick their noses out briefly only to retract them back into the toroise shell for more of the storm?
JMP’s Wilson’s conviction would seem to affirm Pulte CEO Richard Dugas’s sense of timing–moving to take out Centex as a competitor, and take on its cash, its land assets, and its first-time buyer strengths sooner than later.
All we can do is recall that oft-repeated parental phrase of non-commitment in response to something we urgently wanted. “We’ll see.”
Good News du Jour Department
Real estate is local.
Real estate trends occur one local market at a time.
Here’s two upbeat notes from opposite coasts. A third would make a trend.
Mark J. Perry’s Carpe Diem blog reports the following: NoVa Home Sales Increase for 12th Straight Month.
Here’s the graphic he’s supplied, an oh-so-rare look at measurably higher sales volume year-on-year.
Click on image for Northern Virginia Association of Realtors site.
Here’s what Perry’s comment is:
The data suggest that the Northern Virginia real estate market is way past its bottom, and has been making a solid recovery and strong comeback for many months. And yet doesn’t much of the national news suggest that real estate markets in most parts of the country are still years away from a recovery?
It’s a different story on the Left Coast. A story of foreclosure sales. The question is, can foreclosure sales (and 60% sales of other existing for-sale homes) keep up with the pace of foreclosures?
Calculated Risk quotes this report from DataQuick.
The number of homes sold in the Bay Area rose for the seventh month in a row in March, the result of continued bargain hunting in the East Bay and other foreclosure-discounted communities. The past year’s steep drop in the median price slowed significantly, indicating that the market might be near its price bottom, a real estate information service reported.
Speaking of recovery, Builder magazine asked five real estate analysts to offer their take on which five markets might make it across the gulch soonest. Here’s their response.
One way or another, it’ll be a market at a time. With fewer local newspapers around, we can only hope that there’ll be headlines enough to take note when it begins to happen.
We Won’t Get Fooled Again… Or Will We?
Conundrum on a gloomy, rainy afternoon.
Housing is more affordable. But for whom? Which makes the first statement questionable, if not untrue.
Whether the statement–Housing is more affordable–is valid or not is a big question. Many of housing’s economists say that the degree to which housing affordability reverts to longtime norms–such as house price-to-household income ratios and house price compared with market rate rents–will tell when the housing correction is complete. Once the house price correction is complete, and norms are restored, the assumption is the housing economy will have troughed out, and transactions, absorptions, and an efficient market will resume.
People will buy because it will be the time to buy. But is that asking too much of an economy whose consumer sector–the engine that could…once–is under such duress as it is?
We like Irvine, Calif.-based real estate consultant John Burns; he’s smart, and he can be a help to clients on both sides of the bid-ask chasm that has paralyzed the central nervous system of real estate in the United States.
We also like CNBC real estate correspondent Diana Olick for her standup job of reporting on the housing landscape from both Wall Street and Main Street.
What’s more, we like good news, just as much as the next guy.
These three stars aligned today, but we’re not comforted.
First, John Burns released data that backed up his lead assertion. “We have the best housing affordability in 38 years…” That’s 1971, folks.
Burns trots out chart porn to illustrate the drama of his assertion.
Source: John Burns Real Estate Consulting
Here’s Burns’ commentary on the data.
The monthly cost of homeownership has fallen 43% from the peak in this cycle, with more than half of that due to the decline in price, and the remainder due to the decline in mortgage rates and increase in incomes. The median-income household, which earns $52,800 per year, only needs 25% of their income to buy the median-priced single-family home of $164,600. In July 2006, that ratio was 44%.
Those of us who are in the housing business know that the monthly payment is far more important than the price for entry-level buyers. Entry-level buyers compare the cost of homeownership to the cost of renting and have no idea what a Case-Shiller index means. Once the word gets out that homeownership is less expensive than renting, which is now also true in 54 of the 88 markets where we track this information, we expect buying activity to increase substantially (even in a horrible economy).
CNBC’s Diana Olick caught wind of Burns’ data and smelled a good news headline, which all of us wish for desperately. See earlier Wishful Sinful post. Here’s her take today in her blog: “Yes, You Can Afford A House.” Her evidence of the validity of that claim? John Burns, of course.
I know we’ve been saying over and over that home affordability is soaring to record levels, but a report today from John Burns Real Estate Consulting really puts it into hard numbers, which I thought I’d share.
Let’s start with the big number: the cost of homeownership has fallen 43 percent from the peak in this cycle, with more than half of that due to the decline in home prices and the rest due to lower mortgage rates and increases in income.
Still, realty reality is what it is, not some spin that gets a fleeting instant of attention and then goes away like so much in this throwaway society.
Affordability, by definition, is a real-world term, not a theoretical one.
For instance, what happens when you add home price depreciation rates to your mortgage rates to figure out your real monthly interest rate?
This is the real world way that Chris Flanagan, Asset Backed Securities Research chief at JP Morgan, advises us to look at affordability. Flanagan notes that that by adding the FHFA index’s current 7% YOY decline to a 5% mortgage rate, “real” mortgage rates are closer to 12%, which results in affordability being near the lowest level in the last 30 years.
The other issue is your cost-to-household income ratio. Just as the “V” in loan-to-value has been destabilized by deflationary forces, so too have household income data points been corrupted by galloping job loss trends, which also corrupt consumer confidence.
Fact is, the single most important data point for housing and real estate people to watch is industrial absorptions. This is where the rubber hits the road in non-cyclical job formation that will need to happen to turn the tide on real estate across the board.
All the jobs formed during the W Bush administration have been wiped out. Structural challenges with non-cyclicals that pre-dated the jobs and economic run up of the 2002-2007 period continue. We’re going to need to see non-cyclical industry sectors get well–and household incomes to normalize–before we’ll see the term “affordability” mean anything in the housing market.
We like Burns, Olick, and good news. But we don’t believe them here.
Multifamily’s Grip Versus The Single Family Sector
We’re out in Phoenix this next couple of days, hosting a conference for multifamily housing finance executives.
Like almost everything these days, the housing crisis and broader, deeper economic crisis have polarized people into opposing sides of an economically, politically, and emotionally charged issue. One one side, there are those whose businesses’ interests focus mainly on multifamily for-rent units, and on the other, those who make a living doing single family for-sale housing.
It’s popular among multifamily executives to lay blame for society’s ills at the feet of home builders and residential developers of for-sale communities. Here’s a multifamily executive’s oft-chanted refrain these days, referring to the damage single family for-sale companies have wrought upon the universe.
- They overbuilt
- They overcharged
- They took our customers by seducing them with false come-ons and fraudulent financial processes and procedures into a homeownership dream those customers could not afford
- They ran their companies poorly, and sapped perfectly good lending institutions of their ability to sustain good healthy capital investments in multifamily deals and projects
- They are part of a conspiracy to expand homeownership in America, which devalues our competitive offerings in responsible housing
From October 1, 2008 on, the volume of the antagonism aimed at home builders by the multifamily industry sector’s leaders and trade association leadership has increased. Here’s how the National Multi Housing Council promotes its 2008 Annual Report:
2008 will long be remembered as the year that the easy credit days of the first half of the decade came to a crashing halt.
The looming credit crisis quickly expanded into a global financial crisis and eventually into one of the worst economic downturns in decades. It is also the year that policymakers and consumers had to admit—as NMHC had been warning for years—that, yes, there is such a thing as too much homeownership.
Last year, homeownership rates posted their sharpest decline in 20 years, falling from a peak of 69.1 percent in 2005 to 67.5 percent in 2008, a level last seen in 2001 and erasing all of the much-touted homeownership gains of the last administration’s “ownership society” initiative. Meanwhile the number of renter households jumped from 30.9 percent to 32.2 percent.
Multifamily companies’ access to capital, their own balance sheet exposure, their redoubled challenge to cope with rising vacancy rates and deteriorating rent power amid a rising tide of unemployment in America, all got swept into the viscious-circle vortex of soaring foreclosures, declining home values, stress on mortgage lenders, and in turn stress on commercial real estate lenders… all impacting earnings, hiring, spending, and sentiment.
Still, we feel that it’s a red-herring and a misstep for multifamily strategists to pin responsibility for the enormous dislocation in the economy on their brethren and sistren from the single family side of the housing equation.
Multifamily operators, owners, developers, and builders have a long list of opportunities, challenges, caveats, missteps, and smart tactics for survival into the next up-cycle in housing whenever that might occur over the next couple of years. No need to paint home builders as part of an evil conspiracy to siphon away renters with a panacea about homeownership for all.
Housing’s crisis is, at the bottom, a household-by-household balance sheet correction that added up to global proportions. You can see this clearly in analyses such as the one Calculated Risk has done about how people–the you and I kind of people–save and spend.
In his post, Personal Saving and Mortgage Equity Withdrawal, Calculated Risk maps out the grim difference between where savings could and should have been as opposed to where it was and is. If people are spending the phantasmagoric appreciation on their owned homes as if it is income, then we get a glimpse of how far we need to correct to pay that back. People can buy a lot of things with play money if it’s accepted currency, but when everyone realizes it’s play money after all, the false economic bouyancy comes to a sudden end.
The aggregate saving rate captures the behavior of both savers (who probably didn’t change their behavior) and “dissavers” (who borrowed heavily). The saving rate declined to zero, probably because the dissavers were using MEW as income.
Now that the Home ATM is closed, the saving rate is rising because of less borrowing – as dissavers are forced to live within their incomes.
This is the current challenge. People, especially if they fear lost income or the lost ability to generate income, save cash. Banks act on similar fears, and so they’re stuck in the limbo of our current unemployment trends.
Savers and “dissavers” alike are saving all at once.
That’s not anyone’s fault, and it’s human nature, and it’s ultimately the source of opportunity for people in housing if they can get past blaming one another for what’s wrong. Housing has an over capacity problem. Too many companies can build and operate and develop housing, and that’s what our wacky market will correct.
Meanwhile, we’re seeing good examples lately of how pricing can be a lever to move inventory and close the huge gap between the number of vacant household units there are and the demand for them. The “V” for value is still hidden somewhere in that gap.