Housing and Government Stats

A Rare American Species

For the last few months I have been trying to figure out a pithy article on the current state of housing in the United States. But all I can see, based on news programs, news articles, and self-serving government reports is confusion and conflicting statistics.

Here is what we think we know: current 30 year fixed mortgage rates are in the very low 4's (4.13% to 4.20%). 15 year fixed loans are 3.17% and adjustables are in the 2.75% to 3.00%. And the trend over the last few weeks seems to be down or at least steady. Even equity-based loans are in the low 4s. From where I sit loan rates do not seem to be the reason for the lag in sales.

The weather? Potentially this is a big reason, anyone east of Reno, Nevada has seen a winter that blows through once every twenty or thirty years. People in the lower, middle, and upper Midwest stayed in and those in the east never left their fireplaces except to go to work. The last thought for everyone was house hunting. Most were trying to keep warm.

Employment? No one knows how many are really unemployed or underemployed. The government drops from the rolls and stats those unemployed after a period of time; the reason for this is lost to the world of stats and figures. But those are real people and are still living and breathing – but unfortunately they are also not in a position to participate in new homes. So until employment comes back to the historic norm, this will continue to be a drag on construction and sales.

Technology? Here's a thought: Businesses once moved employees to match job needs. This was a serious driver of home sales in suburban areas during the 1950s, 60s, and 70s. This promoted the old saw about home sales peeking in summer to prepare for families moving in before the next school season. This drove a lot of home sales. Now with technology these employees can often stay in place, communicate, and manage projects and employees long distance. The Internet and other protocols allow face-to-face meetings with Cisco and Skype systems. How much this affects new home sales is yet to be determined.

Home Prices: Home prices continue to rise in most parts of the country. But remember that ALL home pricing structures are local. Detroit? Buy a huge home needing some fixing up for less than $30,000. Same home in Pleasanton, California - $1 million plus. Think local! But it is the trends to look at for overall economic activity, for the past year average existing home prices are up almost 10%. Foreclosures and short sales are down 10% in the same period. An interesting figure is that 34% of homes were on the market for less than a month, this does show some velocity to the market. (Article )

Average new home median price is $261,800, down a tic over the last month. The current running annual new home sales estimate is 455,000, half what experts believe is the real demand in a healthier economy. What 500,000 additional new homes would do to average pricing, economic activity, and growth is something serious to ponder. In the years before the Great Recession we were building 1.2 million homes annually, but then again that did contribute to the problem.

Debt: Student debt for those under 33 is a serious drag on sales of first homes. Paying for college education loans severely limits the ability to accumulate down payments and afford monthly mortgages. This is a worsening problem and will continue to affect the first home, under 30, market for years.

My history teacher in high school told me that there are liars, damn liars, and government statisticians. Most of the housing numbers are generated through the Census Bureau and then churned through the media, so my readers consider the source then consider the reality. SOURCE  

Stay Tuned . . . . . .

The Next Five Years in Housing

.....so bright I have to wear shades!

There are over 70 million Baby Boomers and according to my fuzzy math, over 25 million Baby Boomers own homes. And during the next twenty years there will be a strong shift by these Boomers toward the retirement phase of their lives. Their homes will add to the inventory and their retirement will demand more but different types of new housing. This existing Boomer inventory normally has a higher and better quality than many of the recently foreclosed homes and is often in older second and third ring neighborhoods that surround American cities. While these units will help some of the housing need they cannot meet all the demand. We are a suburban nation; each successive ring of suburban growth supports the core. And like a tree, these rings of annual growth support the expanding tangle of roads and neighborhoods. Each part of this urban tree supports the others, and on much of the outlying branches and leaves is where new housing will flourish.

The government and the newest QE3 may help. The continuation of low interest rates at this critical time will support the housing industry. But it must stop sooner than later or it will fuel another round of housing inflation and “bubble time.” The rules of supply and demand cannot be overturned and the market is a cruel mistress. Waiting for the feds to make timely adjustments is like the referees this year in the NFL, they will make the call but it will take three long commercial breaks to resolve. Markets will drive the recovery in housing, but interest rates will have to rise at some point to dampen the exuberance. If not, we will ride that same horse again.

It is in the government’s interest to support housing. But when they begin to offer deals that even a wise thinking investor falls for than they have overstepped their role. Free money and low interest rates led us to much of the pain of the past five years. And none of us were immune to its call.

The government needs housing, especially new housing. It is the catalyst for the economy and like the auto industry is vital to the future of jobs and finance. The American economy is built upon the complex action of buying open land and converting it to a community of homes. Hundreds of thousands of jobs result. Social stability is created. Culture is nurtured. Dreams are fulfilled.

During the next five years there will be a gradual but very real upswing in new home construction. Every region will be different. I have always been a firm believer in demographics and it will be demographics that will drive this growth. Here is the Census Report from 2010, it will give you an overall snapshot.

What is shown in this report is the regional areas of the south and west grew substantially over the census period and, it can be assumed, continues today (though in California there may be some drop off). The key number is the 27 million new folks across the country. Back to my fuzzy math, this translates into the need for maybe 12-15 million more homes for families and singles. We have built since 2000 only 9.6 million new homes according to the Census (GO HERE). Obviously the ground is well prepared for growth, there is a market standing on the sidelines.

Another area of real growth: There are 1,750,000 college graduates per year. There are also over one million college dropouts per year. That translates into an impressive number of young adults looking for housing. How is this market being served? For many it has been their old bedroom at home. This will change. (GO HERE)

Housing is critical to the future of America. Like the auto industry (with its seven to ten year car life) there is a built-in obsolescence to housing. Currently somewhere around fifty years is the replacement cycle. But the technologies and the square footages of older homes, say pre-1970, are out of date. Electrical systems, wi-fi, heating and cooling, and most especially kitchens and bathrooms, all drive buyers into new homes. This is especially true for those in their thirties and forties. In fact I heard that the age when the consumer is at their prime is 46. That is the exact market for many builders such as Toll Brothers.

The next five years may be as exciting as any I’ve seen in my forty plus years in the housing industry. I am optimistic (one has to be in this profession); so the future’s so bright I have to wear shades!

Stay tuned . . . .

We Ain’t Moving Much and We're Worse For It

In an article posted earlier this week CLICK HERE, the Census Bureau reported that only 11.6% of Americans moved between March 2010 and March 2011. This is down almost one percentage point from previous year. In 1984-85 46 million people moved residences. Last year’s figure was 35 million people. People and their families move for hundreds of reasons: new jobs, divorce, marriage, transfers, moving from college, moving into your old bedroom at home. Each and every one is personal. That’s still a lot of rental trailers and moving vans, yet not nearly at the level of mid-eighties.

What was also noted in the report was that there has been a serious declined in the mobility of homeowners. Well that’s a huge surprise! It seems since no one will buy our current home, we just sit tight (until the market turns) and put off buying that dream house we have always wanted. You know the one: it doesn’t have a leaky roof that needs repair, it has an extra bedroom for the kids, and it can hold both cars in its garage. Yes, the collapse of the housing market has forced many of us to stay put.

We have been a mobile nation since the Pilgrims washed up on the proverbial rock in Massachusetts. Since that day we have packed up and moved every seven years according to some demographers. William H. Whyte in his 1956 book, the Organization Man set the basis for the modern family and its never ending pursuit of the American Dream. We Americans had to move to move up.

This amalgamation of Americans, this stirring of the pot, if you will, created both a nation of strong individuals but also a nation that grew more tolerant. If you and your neighbors just arrived in a brand new community, you had to get along and become more understanding to succeed. You joined arm and arm with your neighbors. This new trend of staying put and not moving seems like a form of agoraphobia. Much of this has been forced by the collapse of the banking industry (or most certainly the lending portion). This does not bode well for our future. We can easily become Balkanized, intolerant, and forgetful. The worse part of this may result in regionalizing this country into inflexible economic groups distrustful of other regions, jealous of their success, fearful of their demands (their debt among other things), and intolerant of their leaders.

The sooner we get out of this mess, burn through the foreclosed and empty homes, and push our kids out of the back bedroom, the better we will be. American’s must “Man UP” and take control. Not like the lackies camping out for free in every large city, but more like the partners down the street who are gambling everything they have on a new restaurant or the techies who wake up in the middle of the night with brilliant ideas and are going to find a way to make them work, and the young couple who won the immigrant lottery and are opening a new dry cleaners – these are the people I’d bet on.

Stay tuned . . . .

High Speed Rail – Should It Be Profitable?

An all-out press has been made in Florida to rationalize the costs for the high-speed link between Tampa and Orlando. The cost of the study was $1.3 million in federal rail dollars (Is this a new form of American currency – federal rail dollars?). This is now the new version of state and federal investment (state’s plan-fed’s pay) and like most private development it’s always good to use OPM (Other People’s Money). But it’s someone’s and you only have to look out the window to see whose OPM it is.

Can high-speed rail be profitable? The greater question is should it be profitable? The interstate highway system, started in the mid to late 1950s and dramatically changed America. Without a doubt it’s the greatest transformer of economies and cities since the late 1800s and the growth of railroads throughout the country. Fortunes were made from both enterprises, one fundamentally private (with lots of federal bonds), the other almost exclusively public through the use of huge federal bonds paid for (70% +/-) by user fees that are primarily gasoline taxes.

The rational, and I do accept it, is that the highway system provided the base infrastructure that permitted the most significant growth and change to America, the suburbs. The cities could not accommodate or even contain the growth of the last fifty years. The interstate highway system facilitated and supported this expansion. We again became a country of small towns and villages. That growth is no longer a trend, it is woven into the fabric of America, as evidenced in the current census numbers being released. The cities are not growing; it’s in their surrounding communities and towns where land, homes, and business opportunities abound.

The ongoing justification for the high-speed rail system is to facilitate the growth of America into this next century. Jobs, as transitory as they are, seem to be the base rational to spend hundreds of billions of dollars to make it quicker to go from inner-city to inner-city. The other arguments are questionable: they will be profitable, they are an alternative to the car, they will spur growth in the cities, and they are “sustainable.”

We have a very good rail system throughout the United States; Warren Buffet thought so, and bought a railroad. I don’t hear the rail companies clamoring for a faster system of moving shipping containers filled with Chinese goods across the country (my guess is that they secretly hope for a separate rail system so the damn passenger trains will get off their rails). As an old Illinois Central executive said a half a century ago, “Freight makes money, people make trouble.”

High speed rail, a point-to-point system, will do little to serve the small towns and villages of America. The best they will do is annoy the residents as they whistle through at one hundred and fifty miles an hour. The interstate highway created jobs by being the great enabler in community planning. Every off-ramp became the local “train station” of the 19th century. Communities evolved and grew; the interstate system became the twentieth century’s version of civilization’s river landings and ocean ports.

If more jobs need to be created, build on and support the existing passenger rail system, freight not-withstanding. Push for electrification, revive the intercity trolleys of eighty years ago, expand and aid BART, MARTA, and other regional Metro systems, focus on regions not continental pipe-dreams.

And remember that there is not one high-speed rail car and train builder in the United States; they will come from France, Germany, South Korea, Japan and China. We have forgotten how to build bridges (the new SF Bay Bridge is from China), railroads, and even toys. And just because Europe and the world have high speed systems doesn’t mean we have to; they still have a few kings and political systems that are a lot different than ours, change anyone?

Stay tuned . . .