Did you feel the improvement?
New home sales rose by 2.0% in February, compared with January, according to New Residential Sales data released by the Census Bureau and the Department of Housing and Urban Development. This relatively “flat” result for the nation as a whole obscures a significant difference within regions. Sales in the west rose 38.5% while sales in the northeast fell by 24.2% and by 17.9% in the Midwest.
Many homebuilders saw lower traffic pass through their showrooms in February (possibly a reaction to the decline in the stock market), but March traffic has shown an uptick. The quality of traffic has improved, too, meaning that a higher percentage of people visiting builder communities have become purchasers.
Builders nationwide, and especially in Texas, have become more focused on first-time/entry-level buyers. The move-up and luxury niches have seen slightly less momentum, but entry-level sales are rising. D.R. Horton’s Express Homes line has received the most attention in the entry-level segment, but other national builders are targeting this buyer now as well. Lennar is now selling homes in Houston and San Antonio with average selling prices of $130,000-$170,000.
Metrostudy’s data show that single-family construction (and orders) are down by 10-11% in Houston. Dallas and Austin, meanwhile, have been stronger than anticipated.
In addition to the increase in entry-level demand, retiree demand is expected to see significant growth, Apparently, every 15 seconds, somebody turns age 55 in the U.S. People in this age group have higher income levels and higher credit ratings than the general population. Surveys show that they are 13% more likely to prefer a new home to an existing home than the average household.
Yet we are receiving conflicting signals about real estate activity.
FHFA House Price Index 0.4% in Feb. Home prices have stalled. The FHFA House Price Index showed not much of a lift at all in February, rising just 0.4% compared with the prior month. January was revised down to 0.4% from 0.5%. That number is seasonally adjusted based on purchase mortgages bought or securitized by Fannie Mae and Freddie Mac. February’s numbers were about what economists expected. The year-on-year gain was 5.6%, which is not spectacular but not overly weak given low inflation. This suggests that the slowdown in the housing market that began two years ago continues. There’s not much evidence of further weakening, however. Year-over-year gains have been steadily hanging on to around 6% for nearly a year.
New Data Reaffirm Strengthening Housing Market. The latest housing data points to a market where sales activity is experiencing a springtime burst of activity. However, one area in the market where the environment remained stagnant involved first-time homebuyers: March’s 30 percent level was unchanged from both February and March 2015. First-time buyers in all of 2015 also represented an average of 30 percent. “With rents steadily rising and average fixed rates well below four percent, qualified first-time buyers should be more active participants than what they are right now,” observed Yun. “Unfortunately, the same underlying deterrents impacting their ability to buy haven’t subsided so far in 2016. Affordability and the low availability of starter homes is still a major barrier for them in most markets.”
Is our tech world just too much?
One reason digital disruption hasn’t made much of a dent in housing up to now is that its capital, time, and talent-intensive upfront investment requirement makes housing a high barrier-to-entry space. The simplistic answer, it just costs too much, or rather exposes too much present and future value for digital to disrupt analog residential construction business models.
Here, from Harvard Business Review contributor and co-leader of Russell Reynolds Associates’ Digital Transformation Practice and Consumer Digital and Media Practice Rhys Grossman is a look at what 2,000 C-level executives say about the susceptibility of their respective industries and business communities to breakthrough disruptive innovations in their fields.
So, maybe it is too high a cost-of-entry hurdle for housing, and especially, residential development, design, home sales, and construction to yield itself to disruption. But, if ever there were a sector that has “large legacy business models” as the foundational capital and investment underpinnings of operations, it’s home building. Besides, much of our belief that home building, being local, being seated in generations of people buying, renting, selling, leasing, and living in homes largely the way they have, at least since the start of the industrial era, will essentially be the business it has always been is simply that, a belief.
The underlying needs our housing and new home industry communities serve are timeless–safety, hygiene, privacy, security, comfort, affordability, and a base of growth for our households. Until those needs and values change, why would the way we’re meeting them–with generations-old, established business, manufacturing, and operational practices–need to change?
But, then look at how we see smarter and smarter use of marketing and customer knowledge base systems and services “matching” people with properties, not so different than digital dating sites. Conventional marketing, advertising, promotion, sponsorship tactics may retain the fond value but they’re quickly becoming outdated. As we catapult into the future, homes will need to become progressively more adaptive, in both real-time and over-time, and more integrated as to how they use, reuse, and generate finite resources such as energy, air, and water. Ultimately, that translates to those working in the industry must be more adaptive than ever.
Morris Schwartz is dying and is on his deathbed. He is with his nurse, his wife, his daughter and 2 sons, and knows the end is near. So he says to them: “Bernie, I want you to take the Beverly Hills houses.”
“Sybil, take the apartments over in Los Angeles Plaza.”
“Hymie, I want you to take the offices over in City Center.”
“Sarah, my dear wife, please take all the residential buildings downtown”
The nurse is just blown away by all this, and as Morris slips away, she says to the wife, “Mrs. Schwartz, your husband must have been such a hard-working man to have accumulated all this property. Sarah replies, “Property shmoperty…the schmuck has a milk route.”
(Copyright 2016 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman. To subscribe please visit www.knowledgeforrealestateagents.com.)