It's little wonder the ball room is full of shell-shocked building industry types looking for any kind of good news at all. I took notes of both speakers and will offer somewhat of a transcript here of what was said about the national home building scene first, and then the regional scene. The forum was sponsored by the Propane Education and Research Council.
(Check back a little later, we are expecting to be able to upload a PowerPoint here to go along with this)
Boyce Thompson, editorial director of Hanley Wood's fleet of builder magazines, and editor of Big Builder Magazine, in particular, offered this national overview. (He, by the way, visited with principals of Sacramento's Township 9 infill project and toured downtown's successful Sutter Brownstones infill project).
8:06 a.m. Thompson: This is like the third or fourth time I've been here. My forecast is going to be decidedly optimistic here today. People are talking about W-shaped recovery..We've fallen so far there's nowhere to go but up. We've already started up. I just feel like things are going to get better.
Sacramento has received a lot of national press. Your land market is coming back, with lots of bids on land and that's one of the tell-tale signs of beginning recovery. I have a way more positive presentation this year..The last three years I have been negative about the housing market. Nationally, our fortunes are all tied to the national financial markets. We're going to see an uneven market..Some are beginning to recover. Others are still getting worse. Chicago, of all places, still seems to be getting worse.
The recovery is going to be slow. Housing starts usually bounce back in the first two quarters after recession, don't think it will be so much this time. We are kind of dragging along the bottom, and it looks like we're having a little bit of a W-shaped recovery, where it bounces down and up and down.
Headwinds: We still have all that unsold inventory. We've got 2.2 million extra (new and built) homes that we need to burn through. And the existing home inventory remains too high. A lot of people believe this is the single biggest problem in the market. There are too many existing homes for sale. Nationally, we have a nine months supply, compared to a usual average of 6.4 months.
We expect to get double-digit unemployment by end of year nationally. But the housing market always comes back while job losses are increasing....You still have 80 percent of households in decent shape. It's not going to take a lot of people to move that metric forward.. It's the reason the market rebounds before the economy in general does.
The foreclosure problems: The problem is the foreclosure problem is spreading from subprime to prime. There is the danger of anther flood of foreclosures from Alt-A and Option ARM loans. But there are so many government programs now to help people with these loans. It's hard to tell what will happen. I'm going to punt on that one.
Consumer confidence has improved.Mortgage rates are still incredibly low. We expect mortgage rates to stay in the low "fives" for the next two years as the Fed continues its policies...The other good news is the banks have loosened up somewhat. Over 70 percent in 2008 had seriously tightened credit; now they're starting to loosen somewhat and builders have found other sources of liquidity, too, somewhat.
Some market are going to recover before others..Texas, the Carolinas haven't had rampant price inflation so they haven't had corresponding deflation.Texas and Washington, D.C., have had strong job growth. The healthiest top 10 new home markets nationally are Austin, San Antonio, Washington, D.C., Houston, Oklahoma City, Baton Rouge, Tulsa, Salt Lake City, Dallas Fort Worth and Olympia, WA..
There are four Texas markets in top 10. Baltimore, too, is a place where sales are actually up year over year. It's an affordable market. New home sales are up 8.4 percent from January through July this year compared to last year.
Compare that to the Central Valley of California. Sales are down 48 percent from the same time last year. But at least that rate of decline is slowing now.
New home sales in Sacramento's six-county region are down 43.7 percent this year so far from the same time last year. Riverside-San Bernardino is down just 28 percent from last year. That's amazing.
There;s nobody who doesn't see the market coming back next year. Even Economist Mark Zandi of Moodys, who is usually a bear, thinks the market will come back in second half of 2010 and be strong in 2011. On the single-family home side, the National Association of Home Builders predicts 2010 will be better than 2008 again.
And for all the trauma there are still successful projects out there that sell eight to 10 homes a month.Most are aimed at at first-time buyers.They target tax credits. The old rules of real estate still apply: a great project in a place where people really want to live. That still works.
Transit-oriented development through this downturn has always done better than the rest.
All these projects were green. Well, it's not so much green, but energy efficiency. There's a lot of marketing going around green. You may think people don't really care about it, but what's the harm, it seems to be working for people.
Here's some big winners nationally:
- Mueller row and yard Homes, It's by Catellus in east Austin. Prices start at 269K. It's a five-minute drive from downtown.
- TLofts in West LA. CityView is the developer. These are lofts near Santa Monica Boulevard, starting at $415K. They sold 13 in first month in July. These are condos and lofts. There are 18 parking spots where you can charge an electric car and that's gotten a lot of media attention.
- Paradise at Ironwood Crossing, outside of Phoenix. It's in Pinal County and the San Tan Valley. The builder is Fulton Homes. It's selling 21.5 per month. It starts at $115,900 to $148,900. Single family homes.
- Ivy at Woodbury East. This is in Irvine; The developer is The Irvine Co. and the builder is William Lyon Homes..sold 21 homes a month in July to mid August. Starting in the mid 300s. Townhomes. A lot of these places have done price cuts to boost sales.
- Stafford Lakes: Fredericksburg, VA. Builder Centex is selling nine per month, with prices from $255K to $325. They're single-family homes. That's neat success story.
8:33 a.m. Thompson: We've done a survey of 660 people shopping for new homes in May and June in California, Nevada, Arizona, Texas, Florida and North Carolina.
Shoppers were pessimistic about the shape of the economy, but they were way more optimistic about the shape of their own personal finances. Only 31 percent saw their personal income situation as not so good or poor. A lot were in the market because they could get a lot for their money.
74 percent said they were not concerned about hitting the bottom of the market, but they were still very concerned about losing their job or their spouse losing a job. Sixty-six percent were up to somewhat concerned about job losses. So they don't want to stretch their finances too much to buy a home. That's a standard feature of downturns. When it starts rebounding people are really careful about their money. The starter market always comes back first because people feel that's where they can really get their value.
8:41 a.m: The capital regional market with Hanley Wood's Sacramento regional sales manager and analyst Kathryn Boyce:
Foreclosures: We're finally down to 11th nationally. We are at least out of the top 10 now. But notices of default are climbing again. Job growth continues to be negative. We're expecting 41,000 lost jobs in the region in 2009. We rank 58th of 75 job markets nationally for jobs. Our unemployment is projected to go to 12.9 percent by year's end.
We're in the middle nationally for population growth. But 27 percent of people coming to the Sacramento area are from the Bay Area. Proximity to the Bay Area is a really good thing for Sacramento. They're still relatively holding on for equity of their houses. It hasn't dropped as much as Sacramento so they're still able to bring some of the equity into Sacramento.
Our housing permit history is way off from 2008 even. We're down 50 percent. Overall, based on year to date we're projecting 3,400 sales for 2009. Sacramento can support about 8,500 sales a year. We stole from the future quite a bit from the hey day when we had our special financing. If they had a pulse we gave them a loan. But now Generation Y is coming in. It's bigger than the Boom generation.
They want to buy a house, but they're not looking for big 4 BR and 4BA homes. And they're holding back on marriage and having children.
Most sales here are in the $200-$300K range followed by $300-$400K. There's an under-abundance of new houses in the $200K and below range. We need to have some houses brought in there. Our median sales price for existing single-family detached homes is $218K. It's $330 for new single-family houses. We have to stay with that median income. There are no more rebates for California and no special financing. We need rebates or to lower prices.
Our sales rate: we're at a dismal 1.5 houses per month. But we're seeing it increase.
We have 1.9 months overall of standing inventory. There's just not that much standing inventory out there anymore. That's a great thing...You have 10 months inventory out there total. We're seeing builders picking up land, we're seeing Tim Lewis, Meritage, Homes by Towne and K. Hovnanian picking up lots. We're hearing now again about paper lots having some value.
Cancellations: We've had a downward trend. There isn't a renters mentality any more. Buyers cant come in without a percentage down. The people walking into these subdivisions are committed buyers. They are actually looking for a house.
Our top 10 builders represent half the sales market and only one is a privately-owned builder, JMC.
8:52 a.m.: The existing home market: Boyce: We now have 34.4 percent affordability for new homes and 78 percent affordability for existing homes. It's a big range there. We're going to be soft until we lower prices.
The notices of default are coming back and we're seeing here what might be another huge wave, depending on who you talk to, that there might be another wave of foreclosures coming.
The gap between the median is huge. It's $189k for single family median for existing.
There are 94,000 lots out there and 18% are finished lots. The bulk of the lots are in Placer, Sacramento and Yuba Counties.
Land values: We are having issues with land values. If you add in impact fees from our municipalities it them just right out of whack.. I know the North State Building Industry Association is working with municipalities to lower fees.
Our outlook and conclusion: We have a potential light in the economy. Demand is still weak, but it is turning. We've seen unemployment drop in July, but it's still up, and its still up higher than other places around the country. The stock market is rebounding. The Fed will continue to buy mortgage-backed securities. But there is still a large overhang of foreclosures and we expect Sacramento's mortgage delinquency rate to be 12.2 percent by the year's end. California's could be 14.2 percent by the end of the year.
Finally, it's a wild card if the municipalities will lower fees or not. We've seen a couple of them doing it, but we've seen a couple of them say no. In terms of consumer demand, the first-time home buyer stimulus was a plus. The impact was good for first half of 2009. We're hearing talk of the National Association of Home Builders going to Congress asking for a $15,000 tax credit for all buyers. That would replace what we have in California because I don't believe (the state of) California is going to be able to pick up that demand again.