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IT MAY BE TIME FOR HOME BUILDERS TO GET BACK IN THE GAME
Online Newsletter July 2009
National Building News - June 22, 2009
Housing markets in California that have been among the worst hit by
the current downturn appear poised for recovery, according to
speakers at PCBC in California on June 17-19, but the marketplace
that emerges there and in other parts of the country in the coming
months and years will be far different than what preceded it, they
Builders were advised to prepare themselves to do business with
prospective home buyers who are looking for a place to live rather
than a quick financial investment, and they were told they will have
to balance consumers' diminished, more realistic expectations with
their ongoing desire to find a new home that is nevertheless
innovative and exciting.
The period of transition to a healthier climate for home building
won't necessarily be easy, analysts cautioned, with major
uncertainties over mortgage interest rates, unemployment levels and
the success of the Obama Administration's economic stimulus efforts
still clouding the horizon as the nation struggles to wrest itself
from the most damaging recession in decades.
"Every builder I know has laid off most of their staff, and
contractors and suppliers we've done business with for years have
folded up shop," said Horace Hogan II, chairman of the California
Building Industry Association, in a June 17 news conference. "I can
assure you this is the worst housing recession we've ever
Based on the number of housing permits pulled during the first four
months of this year, he said, the Construction Industry Research
Board is projecting that the state will start construction on only
about 40,000 homes this year, down from 65,000 permits in 2008,
which was a record low.
By comparison, four years ago 212,000 permits were pulled in
California, where an estimated 240,000 new units are needed each
year to keep pace with population growth.
"But we're not giving up hope," said Hogan, who cited indications of
a recent turnaround in single-family starts. "And Mark Zandi, chief
economist for Moody's economy.com, told us yesterday that he thought
we were hitting bottom and that it's time for builders and
developers to get back in the game."
An increase in consumer confidence and signs that the national
economy is beginning to stabilize provide a basis for optimism among
home builders, he said. "But there's no doubt in my mind that the
biggest reason we're seeing improvements in California is the
combination of state and federal tax credits. As predicted, these
incentives are getting people off the fence and back into the
In addition to the $8,000 tax credit available from Uncle Sam to
first-time home buyers who close before Dec. 1, California has
benefitted from a state credit available for new-home purchases.
Hogan said the state stimulus had an immediate impact on traffic and
sales when it took effect in March and he credited it with helping
many builders quickly sell off their standing inventories.
With virtually all of the $100 million allocated for the tax credits
likely to be claimed by the end of this month, Hogan said that
builders are pressing state lawmakers to allocate another $200
million in funding for the program to keep it up and running through
Continuing the credit, he said, would add to the state and local
taxes generated by new construction and help create more badly
Looking on the Bright Side
Pollster J. Walker Smith, president of Yankelovich Partners, Inc.,
told PCBC attendees that they are going to have to learn how to make
the most of the current economy by responding to the "liquidity
trap" that has been a shock to demand and has gotten consumers
"rethinking value in a fundamental way."
"There is a lot of change in the marketplace," Yankelovich said,
"but opportunities haven't disappeared." He pointed to such
companies as Hyundai, Jet Blue, Jos. A. Banks and Bigelow Homes, all
of which have offered their buyers financial incentives to help
mitigate the risks resulting from losing a job.
"Consumers now have a different framework within which they will
make decisions, driven by responsibility," he said. "Your approach
to the marketplace has to reflect this."
However, even in a smaller economy providing smaller growth,
builders' prospective customers are not going to be driven by
frugality and they are not heading back to the basics, he said.
"They will be just as aspirational as ever, with a different
budget," and they will be more averse to risk and have a smaller
appetite for debt.
"You have to innovate, or you will die," he said. "Consumers want
Yankelovich cited recent polling showing that 61% of Americans
believe they are headed for a brighter future, about 15 percentage
points higher than in 1979. "Optimism is something that sells
nowadays," he said, and builders should be offering their customers
something that looks on the bright side and allows them to reinvent
Eighty-seven percent of the public believes that it's too easy today
to avoid taking responsibility for personal decisions, he said, and
41% say that not buying a home that is larger than what you need is
being a good citizen.
Builders should also focus on relating to the local community,
according to Yankelovich, a trend that is very much on the rise.
"We're settling in and don't want to move anymore," he said, noting
that less than 12% of U.S. households changed residences in
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