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News for Product Manufacturers from Hanley Wood CEO Frank Anton
Think Small
At one time or another we've all been taught, or told, to "think big." It's almost been an article of faith in American business. And boy, were all of us in the housing industry among the most faithful. We helped push housing starts to more than 2 million. We flocked to NAHB's Builders' Show, and it grew to almost 1 million square feet (roughly the size of 20 football fields). We watched McMansions going up all over the country, until the median size of a new home hit 2,250 square feet — or 50 percent bigger than 30 years ago. And the big builders got really big: 22 of the BUILDER 100 companies had revenue in excess of $1 billion, an unimaginable number just 10 years ago.
And, yes, it was fun while it lasted. As the industry grew, so did our businesses. Revenues and earnings hit records. Thinking big seemed like the ticket.
But that party is over.
Now it is time to think small. To some extent we have no choice. Housing starts have shrunk by 75 percent. The Builders' Show was noticeably smaller this January. The big builders are less brawny. And in 2007 and 2008 the median size of new homes decreased in total by close to 10 percent. But in this economic environment, most of the homes being built are still too big and therefore too expensive. With consumer confidence down and unemployment up; with existing housing prices down and long-term energy prices almost certain to go up; with downpayment requirements up and the availability of consumer mortgage credit down, how many buyers are really looking to trade up? Not many, I'd guess.
On the other hand, waiting in the wings are the late bloomers in generations X and Y, and the early bloomers of the echo baby boom, that bigger-than-the-baby-boom generation that started in 1980. They're mostly first-time buyers. They don't have a home to sell (maybe at a loss). But they probably do have a desire, or could be motivated, to buy a house now if more builders were building much smaller, much less expensive houses. Interest rates are very low. Prices are depressed. What better time to jump into the housing market?
Market forces make doing what I've just described make business sense. In most markets land values have dropped 50 percent from peak levels. That means it is possible for builders to build smaller, less expensive houses and still walk away with a profit. That's what builders did after the housing recession in 1974. They did it again after the housing collapse of 1981. It's time to do it again, because if we don't think small now, we won't be thinking big again for a very long time.
Send e-mail to Frank Anton |
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News and Trends from Hanley Wood Magazines
Financially Troubled Builders Weigh Their Options
Distressed companies are trying to figure out the pros and cons of declaring bankruptcy. (BUILDER, February 2009)
word on the street
The lowdown on the downturn from residential architects across the country — and verities from veterans of similar slowdowns. (residential architect, January-February 2009)
National and Regional Green Certification Programs
As consumer interest in sustainable building grows, so does the number
of national and local green certification, training, and accreditation
programs. Here's a guide to what's on offer. (REMODELING, February 2009)
Stranded at Low Tide
South Florida's independent suppliers are relearning how to succeed in one of America's hardest-hit housing regions. (ProSales, February 2009)
Waiting On Washington
Housing policy watchers task the Obama Administration with rebuilding HUD, managing Fannie Mae and Freddie Mac, beefing up the low-income housing tax credit market, and addressing green building — and that's just their short list. (MULTIFAMILY EXECUTIVE, February 2009)
Extreme Caution
Where the markets for roofing, windows, siding and decks are at, and how contractors are responding. (REPLACEMENT CONTRACTOR, Winter 2009)
The Really Green BYRD House
A home builder to the stars is on the hunt for a partner to develop LEED Platinum homes. (BIG BUILDER, January 2009) |
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Housing Statistics and Analysis from Hanley Wood Market Intelligence
- No Quick Fix: If it wasn't already apparent that the road to economic recovery was going to be bumpy, the events in the past week and month have provided some additional evidence. In February the embattled Dow Jones Industrial Index of "blue chip" stocks fell to its lowest level since October 2002, due to the continued strain from the financial sector. The broader S&P 500 index is creeping closer to test its multiyear low set on Nov. 20, 2008, when it closed at 752. If the broader market index falls below those support levels, it could ignite further downward pressure in the weeks ahead.
- While the passage of President Obama's stimulus bill, dubbed the American Recovery and Reinvestment Act, should have been a positive sign for the economy, the equity markets have greeted it with a bearish response since it was signed. And even after another $75 billion from TARP funds was proposed to aid foreclosures, the markets did not rebound at all. So as battered and bruised as the economy is today, the confidence of investors and consumers will likely remain weak in the short term. There is only so much that monetary policy can do, and it is obvious that the public is not assured that the worst has passed.
- The newly signed American Recovery and Reinvestment Act did include enhancements to previous $7,500 home buyer tax credit. While efforts were made to increase the credit to $15,000, the final bill included a negotiated figure of $8,000, which does not need to be paid back like the previously enacted home buyer tax credit. With affordability at its highest level in years, a buyer's market, and now an enhanced home buyer tax credit, potential first-time home buyers have a portfolio of encouragements when it comes to purchase decisions. Unfortunately, tax credits and high affordability are somewhat irrelevant for those who are unemployed, or for current homeowners with negative equity.
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