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News for Product Manufacturers from Hanley Wood CEO Frank Anton
Sick? Take Your Medicine!
Economists have reached a consensus. The cure for what ails the housing industry is lower housing prices.
At first blush that called-for cure might seem as if it would make a very bad situation even worse. For example, the almost 35-percent overall
decline in housing prices over the last five years has:
- contributed to the 7 million or so foreclosures since 2006;
- destroyed trillions of dollars of home equity;
- and kept millions of gun-shy home buyers on the sideline.
All the economists would acknowledge that lower housing prices are pretty harsh medicine, but they'd argue that no other treatment would work as well. To prove that point they'd take you back to sometime in 2005 or 2006 (it depends on the housing market), when everybody was ignoring some pretty scary symptoms affecting the housing market. Two symptoms in particular stood out:
One, the unsold inventory of new homes hit 600,000, the highest level ever (that was easy enough to ignore when new homes were selling like beer at an afternoon baseball game in July).
Two, housing affordability, as measured by the home price-to-income ratio, stood at 4.8, the highest level ever (again an easy-to-ignore symptom when new homes were selling like the newest video game at Christmas).
Then things went wrong — very wrong. Housing prices alone don't explain what happened next — rising unemployment and the near collapse of the financial system were factors as well — but in short order the laws of supply and demand took hold. Priced out of the housing market, buyers stopped buying. Quickly, the unsold inventory of new homes soared to 12 months, a danger zone. Predictably, builders stopped building. Starts dropped 75 percent from the peak. Prices tumbled.
In short, the housing bubble burst, spraying contaminant everywhere. The patient (the housing industry) went directly to the ICU.
Now, the home price-to-income ratio is back to normal. Factor in still-low mortgage interest rates, and housing affordability is at or near the highest level ever. Home sales are picking up; so are housing starts. And home buyers are actually bullish about housing prices. For example, 80 percent of potential home buyers in Orange County, Calif., agreed with the statement, "It's a good time to buy because prices are likely to increase."
Apparently, the patient, while still weak, will recover.
Send e-mail to Frank Anton |
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News and Trends from Hanley Wood Magazines
Special Report: Cost vs. Value 2009-2010
REMODELING magazine presents the 22nd edition of its definitive annual report on the relationship between remodeling costs and resale value. (REMODELING, November 2009)
Ten Best-Selling Communities
Here is a collection of successful projects that speak to a wide range of housing solutions that builders can undertake. (BUILDER, November 2009)
Opportunity Knocks
A new generation of home builders is rising out of the housing bubble burst. They have passion for what they do, excitement about the future, and faith in their abilities to succeed. (BIG BUILDER, October 2009)
hanleywoodCONNECT Unveils Online Message Center
Your Message Center is an all-new inbox available for all exhibitors and attendees participating in any Hanley Wood Exhibitions event. Located in the ConnectionPoint portal, Your Message Center is a central location for sending and receiving messages via the hanleywoodCONNECT networking and marketing tool. Modeled after message centers such as Linkedin, it makes communication easy before, during, and after an event. Send an e-mail request for information about this lead-generating tool.
2009 ProSales Excellence Awards
Our annual competition to find America's best dealer facilities, marketing, and LBM technology turned up sterling examples of showrooms, inventory tracking systems, advertising campaigns, and Web sites. (ProSales, November-December 2009)
The 2009 MFE Awards
In a battered economy and a shell-shocked development climate, the winners of the 2009 MFE Awards take advantage of challenging opportunities with hard work and creative ideas that prove multifamily housing cannot only succeed on its own merits, but can be instrumental in breathing new life, vitality, and investment into communities across the country. (MULTIFAMILY EXECUTIVE, November 2009)
Edward Mazria Wins The Hanley Award for Vision and Leadership in Sustainable Housing
A pioneering passive-solar researcher, architect, author, and professor, Edward Mazria's impact can be felt in the design of our homes and in the steps we take to combat climate change. (EcoHome, Fall 2009)
2009 Builder's Choice Awards
Small, green, efficient, and inventive, this year’s projects reflect an industry poised for recovery. (BUILDER, October 2009) |
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Top Developments Affecting the Nation's Biggest Public Builders
Chinese Drywall Caused Homes' Woes, CPSC Finds
With "strong association" made, government now will try to figure out extent of problem, possible remedies
Existing-Home Sales Jump 10.1 Percent
The soon-to-expire $8,000 federal tax credit for first-time home buyers sent sales of existing homes soaring in October to a seasonally adjusted annual rate of 6.10 million units.
Champion Enterprises Files Chapter 11 for U.S. Operations
Factory-built housing giant, which also operates in Canada and the United Kingdom, plans to sell its U.S. operations.
Toll: Housing Depression is Over
Robert Toll says the downturn ended last March, but don't expect the recovery to be smooth.
Measured Before New Tax Credit, Builder Confidence Unchanged
The NAHB/Wells Fargo Housing Market Index, based on a survey in which most builders responded before Congress enacted the expanded home buyer tax credit, remained at 17 for the month, unchanged from a downwardly revised reading of 17 for October.
Green Building to Support Nearly 8 Million U.S. Jobs Through 2013
Green construction to contribute $554 billion to U.S. economy, new report says.
Signs of Life: Multifamily Developers Resume Construction
Village Green, RMK Management, Western National break ground on new projects, as REITS prepare to begin digging by mid-2010.
Building Material Reuse Can Pay Off
The win-win-win of building material reuse has stimulated growing interest in recent years. But, as demand has risen, many reuse organizations report that donations have fallen because there's less building going on.
China to be World's Largest Construction Market by 2018
China will overtake the U.S. as the world's largest construction market by 2018, and would be about four times larger than India's at the end of the next decade.
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Housing Statistics and Analysis from Hanley Wood Market Intelligence
- A sharp drop in housing starts and building permits raised further concerns about a recovery in the housing market, spurring a three-day selloff in equity markets. The plunge in building activity, however, was likely partially attributable to the anticipated expiration of the original federal home buyer tax credit at the end of November. The tax credit has since been extended and expanded to include existing primary homeowners as well. Though financial markets viewed the figures with pessimism, starts and permits are a measure of supply only. While it may not be encouraging to see supply so low, it's not an entirely bad thing to have these levels remain subdued until sales activity improves more substantially. Adding additional units to the market not supported by demand would only result in further price declines.
- Data released from the Mortgage Bankers Association also raised further doubt over the housing recovery. The trade group announced that its seasonally adjusted purchase index fell to its lowest levels since November 1997, which suggests that home sales activity may have dropped off in recent weeks. In a separate report, they also said that more than 14 percent of homeowners with a mortgage could be in danger of foreclosure at the end of September. Rising foreclosures will continue to be an impediment for a housing recovery while putting downward pressure on home prices.
- Major stock indices have now declined after reaching their highest levels in over a year. The S&P 500 index closed above the 1,100 level for the first time since Oct. 2, 2008. Since then, weaker housing data and earnings disappointments have weighed on stocks. Enthusiasm over an early recovery may have gotten ahead of itself and any news that suggests the pace of recovery is lagging gives investors a reason to get out of a stock market that has seen a huge rally this year.
For more from Hanley Wood Market Intelligence, vist our Web site. |
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