It has come down to a classic case of "Catch 22". According to the latest figures just released by the U.S. Commerce Department, the sales of newly built, single-family homes fell by more than 3 1/2% in September, to a seasonally adjusted annual rate of barely more than 400,000 units. If you are in the business of building and selling homes, this is not welcome news. In fact, if your professional livelihood depends in any way on this sector of the economy, to say that it appears you have serious cause for concern is a considerable understatement.
According to industry economists, September also marked the 29th consecutive month that the inventory of new homes has continued to decline, to approximately a quarter-million units, or a number roughly equivalent to a 7.5-month supply, based on the current rate of sales. In a more robust market with higher levels of demand that number of units could be absorbed fairly rapidly, but obviously, such is not the case at present.
As bleak as these numbers are, they don't begin to constitute all the bad news for the building industry. Numbers from a Census Bureau's recent Quarterly Vacancy Survey (in this case, the second quarter of '09) reported over 14 million vacant homes in the country, including rentals, second homes, homes for sale and those held off the market for whatever reason. The number of these units for sale, including single family and condos, was estimated at slightly under two million and, according to the real estate industry, there are roughly another two million occupied homes on the market as well.
In addition, there is the lurking specter of millions of homes that are classified as "under water." Some estimates of these units range into the tens of millions, but the numbers are difficult to verify. Most everyone agrees, however, that those units are not going away, and that they not only affect sales demand for existing new and used inventory, but that they have a significant negative impact on the already dismal appraisal situation as well.
The big picture was examined by a group of expert panelists who spoke to the NAHB board of directors at the recent fall meetings in Chicago. The situation was summed up quite succinctly during the session, a discussion of "Outlook and Opportunities and Climate Change," when one of the panelists stated simply: "We don't need additional shelter at this time."
And therein, as they say, lies the rub. There is little justification for taking out permits and starting new projects, assuming the financial resources are in place (an increasingly doubtful scenario in and of itself), when the demand for those housing units is just not there.
I can't help thinking about the corn farmer. The more he produces the more he drives down the demand, and ultimately, the price of his product. So he has to produce more just to stay even since he is getting fewer dollars per bushel for his efforts. He is on a treadmill that he can't seem to escape. The only way out is for him and/or other corn farmers to go out of business, or … maybe he could try growing something else? Corn may have the highest yield per acre but what does that matter if you and your competitors produce more than you can profitably sell?
All indications are that the "recovery" of the housing market is going to be painful and protracted. Maybe a more sustainable business strategy involves the existing housing stock with an emphasis on the sub par performance of more than 100 million housing units already constituting communities in all parts of this country. Most of the programs and incentives coming out of the federal government seem to be focused on exactly this sector of the housing industry and its occupants.
The immense need to upgrade, update and improve the performance of our existing residential building stock represents a great reservoir of opportunity for the shelter industry, and it comes at a time when there is tremendous upside on the environmental, social and political fronts as well. It will also provide the means to sustain members of the industry through a period of transition and into a more robust market at some point in the future. Just as important, it may force us to take advantage of a much needed opportunity to refine our products and retool our processes.
For as long as I have been in the housing industry, I have heard it said that "builders don't create demand, they respond to it." It appears that we may have finally reached a point where we can say that with a straight face, as bitter as that mouthful is for some.
Posted: 10/30/2009 12:00:00 AM by
| with 0 comments