The Housing Chronicles Blog: 3/1/10 - 4/1/10

Tuesday, March 30, 2010

Sponsorships still available for Beacon Economics Forecast Conferences

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Contact MetroIntelligence at 818-584-1848 for more information!

Why sponsor a conference? Beacon Economics' conferences draw top private and public sector leaders and decision-makers from across the regions in which they host events. These movers and shakers are principal players in the worlds of financial services, banking, real estate, professional services, economic development, local government, trade and interest groups, academia, and many others.

What do you get for sponsoring a conference?

  • Widely publicized visibility and exposure to your region's leading business executives, public officials, and other decision-makers.
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  • Prominent placement in conference handouts and marketing materials.
  • Recognition with one-quarter to full-page ads in the event's valuable Economic Forecast Book valued at $75 each.
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    ...and more!

Contact MetroIntelligence at 818-584-1848 for more information!

Monday, March 22, 2010

New Home Quality and Customer Service Improving in Recession

If there is one silver lining to be found from The Great Recession, it’s been the significant increase in both product quality and customer service from the nation’s largest home builders, which should position builders to grab market share from the existing home market in the years ahead. In fact, according to the 2009 New-Home Builder Customer Satisfaction Study by J.D. Power & Associates, overall customer satisfaction among 26,231 buyers of newly built homes averaged 811 on a 1,000-point scale, up by 32 points in 2008 (the survey can be found online at

Now in its 13th year, the study surveys buyers in 24 different markets and analyzes nine factors including workmanship & materials, warranty and customer service staff, price & value, sales staff, construction manager, home readiness, the builder’s design center, location and any recreational facilities provided by the builder.

Paula Sonkin, vice president of the real estate and construction industries practice for J.D. Powers, argues that it’s actually been the building bust itself that has forced homebuilding companies to bolster their operations throughout the entire process. In the end, that’s been a great boon to buyers, as Sonkin says that builders are offering “unprecedented high levels of quality, value and service at relatively low prices.”

Leading the pack nationally for 2009 was Michigan-based Pulte Homes (which at the time also included the Del Webb and DiVosta brands), which ranked highest among builders in 12 different markets, but builders such as Brookfield, Pardee, Lennar and K.Hovnanian were also leaders in specific markets.

But what I found most interesting about the survey is how different the same company ranked in different markets (in some cases scoring a 5 in one market and a 2 in another), which points directly to the importance of division presidents’ leadership in a largely decentralized industry. Yet in view of the growing importance of a builders’ brand name in a cluttered home buying universe, allowing one division to remain the weakest link in a multi-city chain could arguably be costing its reputation – and therefore potential sales -- for the entire organization.

The study also found that as the importance of workmanship and materials have increased, factors such as the sales staff, construction manager and home readiness are less important than in the past. Still, in 2009 the proportion of homes that were delivered finished and on time increased to 76%, or up from 70% the previous year, which is definitely more good news for an industry still under great duress.

J.D. Powers also survey buyers for its New-Home Quality Survey, which is in its third year for the same 24 markets nationally, and in this case build quality has improved from an average of 11.51 problems per home in 2009 to 9.55 problems per home in 2009. Again, Pulte Homes led the pack nationally, with other builders such as KBHome, Ryland, Standard Pacific and Taylor Morrison leading in individual markets.

What was also interesting from the survey was that while 31% of new-home owners consider their homes to be environmentally friendly, nearly two-thirds reported that their builders did not identify ‘green’ features in these same homes. Adds J.D. Powers’ Sonkin, “Builders that neglect to point out environmentally friendly home features to buyers are missing out a very important opportunity.” And the top three reasons owners gave for choosing a green home? Saving on energy costs, reducing water usage, and minimizing their impact on the environment.

The 2010 survey is now underway, and if recent history is any indication, the nation’s best-known builders will continue to improve their product quality as well as their customer service rankings. The industry may be down – at least temporarily – but I think the survey proves that it is far, far from being out.

Friday, March 12, 2010

New column for March 2010 issue of Builder & Developer magazine now online

My column for the March 2010 issue of Builder & Developer magazine is now online. For this issue, I focused on how builders are downsizing square footage but keeping high-quality materials and focusing on compelling designs demanded by today's buyers. You can read the entire article by clicking here.

An excerpt:

For years we’ve been hearing about gradual changes in the interior preferences of homebuyers, but during the boom years many builders stuck with the tried and true rather than risk their production schedules – and profit margins – on risky changes. Of course with discounted short sales and foreclosures continuing to dominate most local housing markets, new homes not only have to be competitively priced, but offer updated design cues and interior amenities...

Wednesday, March 3, 2010

Some builders staying alive by working for banks

As I had written about in January of 2009, in which I suggested that some builders could keep their operations alive by taking on remodeling work and also working for banks to finish up half-finished project, it appears that's just what has happened. From a story in the Wall Street Journal:

Home builders in some of the nation's hardest-hit housing markets are going to work directly for banks, in a little-used arrangement that is helping to ameliorate conditions in some battered local economies.

The builders traditionally got loans from banks to build homes, but that credit has largely dried up. The contract work builders are getting is welcome as many of them struggle to stay afloat... from California to Florida are starting to contract their services to lenders, many of whom have been left holding unfinished homes after the original builder went belly up. While there are no data on the trend, many builders are taking this work for the first time, particularly in markets like Nevada, Arizona and California, says Stephen Melman, director of economic services for the National Association of Home Builders.

The trend helps preserve relationships between builders and lenders in a strained time for the two. In some of these situations, home builders are working for the same institutions that won't lend money to them. While banks have hired builders before for fees, the trend is more prevalent now as more financial institutions own foreclosed properties, experts said...

The shift also helps the banks. In Atlanta, Beazer Homes USA Inc. in November was selected by Hearthstone Inc., an institutional investor in Los Angeles, to build and market homes on 462 lots over the next two to three years after another builder on the job went out of business. Hearthstone President Mark Porath said the company initially faced selling the lots for a loss after the first builder went bust. Now with Beazer on board, Hearthstone stands to eke out a small profit, he said.

Beazer officials said the deal—its biggest ever with a bank—allows it to expand in a market they feel has growth potential without facing much downside risk. Beazer is being paid "more a fixed than variable" payment for its work, with some "upside" compensation if certain goals are met, said Beazer Chief Financial Officer Allan Merrill...

Current tax credit program hits the skids

It looks like the $6,500 tax credit for existing homeowners looking to buy another home has been pretty much DOA for a variety of reasons. From an AP story via

It sounded like a great idea three months ago: Hand homeowners a $6,500 tax credit to find a new place to live, giving a thrust of energy to the housing market's recovery.

So far, people are staying put.

In November, the federal government extended a tax credit of up to $8,000 for people who hadn't owned a home for three years. This credit had helped boost home sales last summer and fall. Seeking to build on that momentum, the government added a new credit of up to $6,500 for current homeowners, hoping it would transform them into house-hunters this winter and spring...

But real estate agents around the country say the credit is doing little to elevate sales. Reasons vary.

The unemployment rate is still near 10 percent and consumer confidence is falling. Home prices have stabilized in some markets, but are still a third below their 2006 peak. Droves of people who want to sell are stuck because their home is worth less than they paid for it. Harsh winter weather has Americans shoveling driveways instead of preparing their home for buyer visits...

Agents believe the credit's true test will come in the spring, the busiest home-buying season. Concerns about high unemployment could keep buyers on the fence...

Another problem is that homeowners, in many cases, will need to sell their current home to afford a new one and claim the credit on tax returns. That's a major issue for borrowers who owe more than their home is worth. Nearly one-in-three homeowners with a mortgage is currently in that situation, according to Moody's

Also, $6,500 may not mean much to a buyer with enough equity to sell a property and afford another home. The savings will hardly dent down payments or moving costs. Most sellers employ real estate agents who typically receive 6 percent of the sales price...

Economists argue that a tax credit is rarely the sole motivation for a home purchase. Many believe tax credits just accelerate sales that would have happened anyway, leading to a drop off once that demand is exhausted...

To qualify for the $6,500 credit, buyers must have owned and lived in the same home for five consecutive years out of the past eight. They must sign a contract by April 30 and close before June 30. Lawmakers can extend both tax credits, but it's not clear if they will.

The home's purchase price can't exceed $800,000, and it must be used as a main residence. The income limit for single taxpayers is $125,000; for a married couple, it's $225,000.

A rebound for apartment builders?

After a couple of years in the doldrums, it looks like apartment builders are finally gearing up again for an anticipated leap in demand to occur once the economy rebounds and potential renters now doubling up with roommates (or living with their parents after boomeranging home after college) strike out on their own. From a Wall Street Journal story:

This year, real-estate investment trusts, or REITs, are expected to start close to $1 billion in new multifamily projects, according to real-estate research firm Green Street Advisors. While that still is less than average, it is a significant increase over the $100 million of development starts in 2009.

Analysts caution that the increase in construction doesn't mean there has been an improvement in the business. Apartment vacancy is at a record and unemployment, essential to the sector's health, remains elevated.

But operators are betting that limited new supply, combined with an improving economy, will lead to ideal market conditions nationwide starting in 2011 or 2012...

To be sure, there are risks. Given the multiyear construction window, companies have to start now to be ready in time. If the economy weakens further and recovery is delayed, landlords may be forced to keep rents low or offer free rent to get leases signed...

Landlords also are excited about demand. The 20-to-34 age group, prime renting age, is expected to increase by five million in the next decade, according to Hessam Nadji, managing director of Marcus & Millichap, a real-state-investment brokerage firm. People who moved home or who bunked with roommates during the downturn also might ink leases as the economy improves.

Moreover, construction costs "have fallen rapidly in the last two years," said Tom Toomey, chief executive of apartment owner UDR Inc. A unit that would have cost $300,000 to build two years ago could now be built for as little as $220,000, Mr. Toomey said...