The Housing Chronicles Blog: Reassessing the fundamentals of the building industry

Thursday, January 15, 2009

Reassessing the fundamentals of the building industry

Although I had touched on this same subject in a much briefer format for my most recent column for Builder & Developer magazine (including the mistaken belief that mathematical models alone can forecast future demand), Builder magazine writer John Caulfield has written a very detailed article on how the future building industry may look and what home builders, lenders and investors need to do to adjust to the new reality:

From the 1940s until very recently, U.S. housing policy consisted of two words: more homeowners. Everything from highway construction to taxation revolved around that goal. And the results were spectacular, as ownership rates went from 62.1 percent in 1960 to a peak of 69 percent in 2004. Equally spectacular—but with dire consequences—was how the “American Dream” mutated into “America’s Piggybank” and then “America’s Nightmare” within the last decade.

During this period of excess, buyers agreed to—or were duped into—home purchases their incomes couldn’t afford, and owners used those homes like ATMs to perpetuate more lavish lifestyles. Builders and developers interpreted demographic data—particularly about Hispanic buyers—in ludicrously optimistic ways to justify their expansion ambitions. Mortgage companies sank their underwriting standards to new depths. And, inevitably, investors pounced on opportunities to exploit a thriving market, even as they ignored the quicksand upon which that market had been constructed...

Click here for full story.

No comments: