The Latest and Confusing Housing Reports

Trying to track the ups and downs of the housing market is like handicapping the various races for president. Whose up, whose down, and why—place your bets, chumps. It’s all a jumble of meddling politicians, social correctiveness (the new politically correct), flat interest rates, job migration, oil prices, NIMBYism, millennials, boomers, college debt, and Fannie-Mae and Freddie-Mac (who do control the loan market – look HERE).

The following articles are some of the more interesting articles of the last few weeks that deal with this whole “roof over my head” issue. Remember that the days of “market rate” housing are gone; in some areas more than a third of a home’s cost (and more) can be attributed directly and indirectly to local entitlement and underlying land costs. To believe that the housing market responds to the supply and  demand theories of the last century are well, so last century.

Apartments:

Who’s really renting? Good discussion HERE on the renters that are populating the new apartment complexes.

Labor:

The Wall Street Journal noted that one of the biggest problems in the housing construction is labor – seems that when those Mexicans went home they took their abilities with them – they have not come back (HERE for a different look). 

Also HERE,  for a take on the impact of this shortage of construction workers.

Housing Starts UP and DOWN – Whatever

It seems that every week we get hit with the latest in housing stats from somewhere – and even during the same week they have different conclusions. Take your pick:

Here’s the New York Times’ take: U.S. Housing Starts Increasein September:  

And the Wall Street Journal: Home Construction Rebounds AmidSurge in Multifamily Units:

Next month they will both print some form of a retraction.

And HERE'S what the impact is on housing stocks.

And Home Prices Keep Rising – One Reason:

If you have to provide one subsidized unit (affordable) for every ten approved units, isn’t it fair to believe that every one of those free-market units is now more expensive? I assure you the builder is not going to eat the difference no matter how big his heart. Affordable housing hurts everyone, but it wrong to believe that – GO HERE on Portland, Maine’s latest move (Portland, Oregon did something like this years ago). 

And in San Francisco they are still leading from the rear, HERE:

And it’s not YOUR fault:

When it comes to buying the consumer has no clue, they can’t make correct and appropriate decisions, obviously we need the government to step in, or so says Noble Prize winning economist, Robert Shiller HERE . 

But then again there are few other economists that would argue his point – i.e. Ludwig von Mises for one.

And it’s not your fault either – Part 2, 

Apartment builders should have thought about the THIS change:

And now we have to think about the new paradigm: On-Line Shopping. Where do apartments store and then deliver packages to their tenants? Should new homes have more secure exterior package drop-offs - HERE?

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 . . . .

Imagine a Pyramid

Imagine a pyramid. Imagine it upside down. Imagine that the point of that pyramid is one job, one new employee at a loan company whose job is to help fill out a loan application for a new house for a family. Imagine then the successive jobs that grow from that one application.

• The broker who sold the lot to the new owners.
• The architect who designed the house for the owner.
• The contractor’s team who bid the house plans.
• The city staff paid to review and approve the architect’s plans.
• The sub-contractor paid to grade, level, and prepare the site.
• The civil engineer and surveyors hired to layout the foundation.
• The city inspector.
• The plumber that won the contract to install the water and sewer hookups.
• The sub-contractor hired to set the forms and pour the foundation.
• The lumber company that wins the contract to supply the building materials.
• The framing sub-contractor that put up the walls and roof.
• The door and window contractor who won the contract.
• The sub-contractor who hung the doors and set the windows.
• The electrical contractor hired to pull the wire through the rough framing.
• The plumber who returns to install the water and sewer lines in the house.
• The interior designer working with the new owners on colors and finishes.
• The orders sent to small and large firms that hire new people to make the wallpaper, the carpets, the appliances, the light fixtures.
• The sub-contractor that wins the bid to hang the drywall.
• The roofer contracted to put on the new roof.
• The new jobs required at the manufacturing plant that makes roofing felt.
• The supplier that made the new tiles for the roof.
• The solar company that won the bid to put solar panels on the roof of the new house.
• The flooring company that laid the new oak flooring throughout the house.
• The small company in Michigan that cut the red oak and created the boards for the oak flooring.
• The painters needed to paint the house interior.
• The painters needed to paint the exterior.
• The tile contractor that finished out the kitchen and bathrooms.
• The companies that made all the plumbing fixtures, the sinks, the shower doors, the bathroom sinks.
• The appliance companies that manufactured the stove, refrigerator, garbage disposal, dish washer, vacuum system, and air conditioning/heating systems.
• The granite company that won the bid to provide the counter tops throughout the house.
• The plumbing fixture company that provided all the faucets and toilets.
• The electrician that hung all the lights, sconces, and chandeliers.
• The small business owner that hung the wallpaper in the hallway and bathrooms.
• The furniture companies that made the new couch, chairs, dining room table, and bedroom set.
• The electronics companies that made the security system, the entertainment system, and the sound system.
• The landscape architect employed to design the pool and garden for the new owners.
• The landscaping company that installed the garden and pool.
• The moving company hired to move the family from their older home into their dream home.

Now imagine the people needed to supply the food for their first dinner in their new home.

Imagine a pyramid, imagine its point. Imagine the jobs balanced on that one point, Mr. President.

Imagine the 750,000 homes not built last year.

Stay tuned . . .