The Rise of the New Single-Family Rental Home: A Hedge Against Real Estate Cycles

My column for the July edition of Builder & Developer magazine is now posted online.

An excerpt:

In September of 2015, I wrote a column about the introduction of a new product type to the home building marketplace: the single-family home for rent, otherwise known as build-to-rent (B2R). At that time, just a few builders, including Lennar and Toll Brothers, had dipped their toes into these waters, but today it’s being seen as a clever hedge against the boom-and-bust real estate cycles which can test even the best-run companies.

To be sure, it’s not just homebuilders getting into this game. Wall Street-backed companies like Invitation Homes and AmericanHomes4Rent started the trend by buying up cheap, existing single-family homes in foreclosure back in 2012 when home prices were near their lowest, eventually assembling a portfolio of 200,000 units across the country. Even with that rapid growth, their holdings still represent just 1.4 percent of the estimated 14 million single-family rental homes, with most owned by small “mom and pop” operators.

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January column for Builder & Developer now posted online

My column for the January 2017 issue of Builder and Developer magazine is now posted online.

For this issue, entitled "A Look Ahead to 2017:  Higher Interest Rates and Tight Inventory," I discussed what we might expect for the housing market with a new Presidential administration.

An excerpt:

For 2017, the International Monetary Fund (IMF) is projecting global growth of 3.4 percent (2.2 percent for the U.S.) versus 3.1 percent in 2016 (1.6 percent for the U.S.), with this higher growth rate attributed mostly due to greater stabilization for energy and commodity prices as well as continued low interest rates.

However, the same forecast is also mindful of the potential economic fallout from political instability not just here at home, but also across Western and Eastern Europe, the Middle East as well as parts of Asia and South America. So what does that mean for a Trump Administration? It depends a lot on whether or not the new President takes his own campaign promises seriously or literally...

To read the entire column, click here.

To read the entire January 2017 issue in digital format, click here.

2016 in Review: Continued Recovery from The Great Recession

At this same time a year ago, I wrote about a housing rebound that had continued its slow yet gradual climb back to normal.  The good news has continued in 2016, so much so that it’s widely expected for the Federal Reserve to hike its benchmark interest rate by the end of the year.

U.S. GDP -- which had hovered closer to 1.0 percent during the previous three quarters ---- surged to 2.9 percent in the third quarter, due mostly to rising inventory of goods, higher exports, and more federal government spending.

Job growth, which rose by 161,000 in October, has averaged 181,000 per month throughout 2016. Although this is down 21 percent from 2015’s average level, it is still more than enough to keep up with population growth and continue putting downward pressure on the official unemployment rate.

Nonetheless, there is an important caveat here to consider: Although a 4.9 percent unemployment rate implies that the economy is more or less at full employment, by also including discouraged workers, the under-employed and those persons marginally attached to the workforce, the unofficial unemployment rate rises to 9.5 percent – or exactly matching what it was in October 2015.

This higher unemployment rate is also why wages had been stubbornly flat during this long economic recovery, although over the last 12 months they did rise by 2.8 percent, thus giving workers a slight edge over inflation.

Speaking of inflation, after years of it remaining flat or even dipping into deflationary territory, it’s now returning, which is why higher interest rates are on the short-term horizon.  For the 12-month period ending in October, the Consumer Price Index rose 1.6 percent, and by 2.1 percent when subtracting out more volatile indices for energy and food.  Even the supply-side Producer Price Index rose by 1.6 percent during the same time period, which is a big jump from a year ago, when it was less than 0.5 percent per year.

Confidence is trending higher, with the University of Michigan’s Consumer Sentiment Survey edging up to 91.6 in its preliminary November reading – up 5.0 percent from October and 0.3 percent from a year ago. At the same time, builder confidence has remained at well over 60 for three consecutive months (anything over 50 is positive), and is approaching 70 for single-family home sales now as well as over the next six months.

Supporting this confidence was a surge in housing starts in October to a nine-year high, up by over 25 percent from the previous month and over 23 percent year-over-year to an annual rate of 1.3 million. Although October building permits rose by much smaller amounts, the annual rate of 1.2 million demonstrates that the strength in starts is likely to continue.

Still, given tight levels of supply in most markets, affordability remains a concern, with 61.4 percent of families earning the median income able to afford the median-priced home at prevailing interest rates in the third quarter of 2016. While this rating from the Wells Fargo Housing Opportunity Index is down sharply from the last high of 77.5 noted in the first quarter of 2012, it remains far above the previous trough of 40.4 set in the third quarter of 2006.

Single-family new home sales, which dipped in August, rebounded by over three percent in September to 593,000 per year, and were up by nearly 30 percent year-over-year. So far in 2016, new home sales have averaged 564,000 per month. At current sales rates, existing inventory would take 4.8 months to sell, down a full month from a year ago.

For existing homes, sales also rebounded 3.2 percent in September to 5.47 million per year, but are up just 0.6 percent year-over-year. Much of this increase was due to the share of first-time buyers reaching 34 percent, for the highest rate seen in over four years. Although September inventory rose slightly to just over two million homes – or a timeline of 4.5 months -- it has fallen year-over-year for 16 consecutive months.

Looking ahead to 2017, pre-election forecasts had suggested a GDP growth rate of two percent. Meanwhile, the NAHB is calling for single-family starts to rise by 12 percent, multi-family starts to decline by two percent after a strong showing in recent years, and remodeling activity to surge by 23 percent. For all non-residential projects, Associated Builders and Contractors (ABC) is forecasting growth of three percent, with commercial projects rising by over eight percent and industrial projects shrinking four percent.

March column for Builder & Developer magazine now online

My column for the March 2016 issue of Builder and Developer magazine is now posted online.

For this issue, entitled ""The Challenges of Creating Authentic Communities," I wanted to discuss how builders, developers, architects and land planners create something from nothing yet still strive to make it seem like an authentic part of the community.  Fortunately, I got to interview Randal Jackson from PlaceWorks on this issue:

An excerpt:

According to industry veteran Randal Jackson, president of PlaceWorks (a leading planning, design and environmental firm based in California), and Chair of the Orange County/Inland Empire chapter of ULI, potential problems often start with a market study which calls for great specificity in product design, yet fails to consider neighborhood character and fit...

Explains Jackson, “When we work on a project, we take a lot of time upfront to understand the surroundings, and instead of separating them out, we inventory those things which create a great community.” This inventory usually includes looking out three to four miles from the subject site to identify the parks, schools and shopping centers serving the area. Jackson calls this “being a partner to the community,” and within a mile radius, the inventory gets even more detailed, focusing more on the primary gathering areas, whether it’s a church, a pub a restaurant or even a museum...

To read the entire column, click here.

To read the entire March 2016 issue in digital format, click here.

October column for Builder & Developer magazine now online

My column for the October 2015 issue of Builder and Developer magazine is now posted online.  This marks the 25th year anniversary of the magazine!

For this issue, entitled "A Look Back Over 25 Years of Market Strategy," I and other columnists were asked to provide an overview of the changes we've seen in the building industry over the last 25 years.

An excerpt:

Another big change has been the shift from large builders focusing on specific niches -- such as entry-level, move-up or luxury homes -- to broadening their scope depending on local conditions. As a result, the importance of valid, verifiable quantitative market research -- coupled with qualitative local expertise -- has never been more crucial to avoid product, pricing and marketing blunders. 

Having once worked for a builder which went bankrupt trying to grow too fast in new, unfamiliar markets while failing to appropriately address higher marketing and merchandising costs, I can attest that following gut instinct simply doesn’t work as well in a much more complicated world.

To read the entire column, click here.

To read the entire October 2015 issue in digital format, click here.

September column for Builder & Developer magazine now online

My column for the September 2015 issue of Builder and Developer magazine is now posted online.

For this issue, entitled "More Builders are Becoming Landlords" I wanted to review and discuss the nascent trend of builders such as Lennar and Toll Brothers building rental housing (including single-family homes) in order to broaden their business scope and provide steadier cash flow.

An excerpt:

According to recent U.S. Census data, in 2014 just under 65 percent of new home starts were for the traditional single-family home, with the balance mostly comprised of multi-family projects with five or more units.   And yet as recently as 2009, single-family starts stood at 80 percent versus just under 18 percent for larger multi-family developments, which means that the share of multi-family housing starts nearly doubled in just five years.

So if the share of new, single-family home starts is not returning to normal as originally planned, how are builders coping in this strange, new world?  For some, such as Lennar and Toll Brothers, by joining it.

To read the entire column, click here.

To read the entire September 2015 issue in digital format, click here.

August column for Builder & Developer magazine now online

My column for the August 2015 issue of Builder and Developer magazine is now posted online.

For this issue, entitled "Capturing the Elusive First-Time Home Buyer," I wanted to follow up on the recent PCBC panel I hosted which discussed the same subject.

An excerpt:

Importantly, although the percentage of first-time home buyers has recently risen by a few percentage points from where it was a year ago, for most builders of new homes it’s a different story.

Whereas the share of new home sales versus the overall market has traditionally ranged from 15 to 20 percent, today it’s about half that, and unless that capture rate rebounds closer to historical norms, new home starts will remain subdued. Moreover, given that 2.5 to 3 times today’s national median household income would allow a sale price of about $140,000 to $160,000, it’s easy to see why building that starter home has become so problematic.

 To read the entire column, click here.

To read the entire August 2015 issue in digital format, click here.

July column for Builder & Developer magazine now online

My column for the July 2015 issue of Builder and Developer magazine is now posted online.

For this issue, entitled "The Housing Market Continues to Gain Strength," I covered recent updates for both the overall U.S. economy as well as the housing market.

An excerpt:

Although the disappointing first quarter of 2015 initially showed U.S. GDP contracting by 0.7 percent, in the third and final estimate—which includes more accurate information from various reporting agencies—the contraction was closer to 0.2 percent... 

Even better, it’s not like U.S. consumers are showing concern over this temporary swoon, and during the first half of this year have actually shown the largest and most sustained increase in economic optimism in over a decade. Even more encouraging to note is that this optimism is shared by the top, middle and bottom third of all incomes. Consequently, look for consumer spending—which powers about 70 percent of the U.S. economy—to grow about three percent this year...

To read the entire column, click here.

To read the entire July 2015 issue in digital format, click here.

May column for Builder & Developer magazine now online

My column for the May 2015 issue of Builder and Developer magazine is now posted online.

For this issue, entitled "The Connected Home Evolution," I covered the evolution of the connected/smart home over the last 15 years and the state of the market today.  An excerpt:

About 15 years ago, when I formed the Technology Task Force with the BIA of Southern California, at the time our builder members told us that the adoption of technology in their homes would be postponed for two reasons: (a) Most consumers weren’t yet asking for it; and (b) It would risk upsetting production schedules that were already tight due to meeting unmet supply after the California real estate recession of the 1990s.

Fast-forward to 2015, however, and it’s a completely different world for the connected home. Most importantly, consumers are now asking for it: according to a consumer survey by smart-home vendor Savant, about half of the respondents believe home automation will become a common feature in their home in less than a decade, with a quarter thinking it will take just five years for widespread adoption...

To read the entire column, click here.

To read the entire May 2015 issue in digital format, click here.

February column for Builder & Developer magazine now online

My column for the February 2015 issue of Builder and Developer magazine is now posted online.

For this issue, entitled "The Nationals at the 2015 International Builders Show" I chose to profile three different local projects here in Los Angeles Count which have won the Gold Award for various categories.  An excerpt:

...As a usual part of the show, the 35th annual National Sales and Marketing Awards – known as The Nationals – paid tribute to notable achievements by homebuilders, architects, designers and other associates as well as sales and marketing councils.

Since the winners of The Nationals tend to point towards the latest trends in new home architecture and design, I wanted to focus on a few of these local stand-out projects as well as to offer my congratulations to the very talented folks who made it all possible...

To read the entire column, click here.

To read the entire February 2015 issue in digital format, click here.

December column for Builder & Developer magazine now online

My column for the December 2014 issue of Builder and Developer magazine is now posted online.

For this issue, entitled "Homebuilding Year in Review," I provided my annual review of the past year and what we can expect in 2015. An excerpt:

Last year, I wrote about a housing rebound that seemed to finally have solid legs after a few false starts since the Great Recession. The good news for 2014 is that both the economy and the housing market have continued their slow yet gradual climb back to normal.

Indeed, the NAHB's Leading Markets Index, which measures how well metropolitan areas are performing relative to their last ‘normal’ market, rose to .90 in the third quarter of 2014. This means that the combination of permits, prices and employment levels are back to 90 percent of where they should be at a national level, although most of this rebound has been due to new permits and rising prices more than robust, uniform employment gains...

To read the entire column, click here.

To read the entire December 2014 issue in digital format, click here.

November column for Builder & Developer magazine now online

My column for the November 2014 issue of Builder and Developer magazine is now posted online.

For this issue, entitled "Where are the First-Tme Homebuyers?" I was struck by the decline in first-time homebuyers in recent months and wanted to investigate further.  An excerpt:

During the month of September, while both new and existing home sales rose slightly, there was one group which continues to remain somewhat on the sidelines: the first-time buyer. According to the National Association of Realtors®, in September the share of first-time buyers was 29 percent for the third straight month.

Since historically the share of first-time buyers has been closer to 40 percent, given that these buyers have represented less than 30 percent of the market in 17 of the last 18 months, it’s almost certain that this change will have an impact on the housing market in the future. So just where have these buyers gone, and what are their plans for their housing needs?

For now, most are choosing to rent: according to the Census Bureau, the share of households age 25 to 29 who owned their own homes fell from nearly 41 percent in 2007 to 34 percent by 2013, which is great for landlords but not for the neighborhood stability which accompanies higher percentages of homeownership...

To read the entire column, click here.

To read the entire November 2014 issue in digital format, click here.

October column for Green Home Builder magazine now online

My column for the October 2014 issue of Green Home Builder magazine is now posted online.

For this issue, entitled "The Driverless Car's Impact on Land Use," I did some (quite fascinating) research on just what kind of changes in land use patterns we can expect in the future from the driverless (or self-driving) car. An excerpt:

So just what does this mean for land use and real estate development?  Firstly, the very act of decoupling parking requirements from obtaining project approvals will have an enormous impact on how we design office buildings, retail centers, high-density multi-family projects and even the traditional single-family home...

Secondly, driverless cars could make long commutes more bearable due to both the improved efficiencies of an interactive fleet which constantly coordinate with real-time traffic information, as well as the ability to free up riders to be more productive during hours which are otherwise wasted...

Thirdly, the mixed-use, pre-WWII walkable community that is returning to favor nationally could become even more prevalent if cities are willing to relax their parking requirements -- if and when the driverless car gains critical mass...

To read the entire column, click here.

To read the entire October 2014 issue in digital format, click here.

September column for Builder & Developer magazine now online

My column for the September 2014 issue of Builder and Developer magazine is now posted online.

For this issue, entitled "The Politics of Drought," I wanted to review the current state of the extreme drought impacting the western U.S. and how the building industry is adapting to it. An excerpt:

"...there are some important differences between this event and the last major drought to hit California in 1976-77, in which the state’s reservoirs plummeted to 41 percent of average. On the demand side, although the state’s population has doubled since the last drought, per-capita water use has also dropped with the use of new water management technologies. It was actually the drought of 1987-92 which marked the beginning of modern water-use practices, including more efficient use of water for agricultural which made more growth in the cities possible...

On the supply side, new homes are actually exponentially more efficient than older ones, especially those with water-hogging plumbing fixtures. According to a report commissioned by the CBIA, an average three-bedroom home with four occupants built today uses 29,000 fewer gallons of water than smaller homes built in 2005..."

To read the entire column, click here.

To read the entire September 2014 issue in digital format, click here.

August column for Builder & Developer magazine now online

My column for the August 2014 issue of Builder and Developer magazine is now posted online.

For this issue, entitled "Second Quarter 2014 Economic Update," I wanted to focus on just how the new Fed Chair Janet Yellen is addressing the U.S. economy as well as how the economy performed in the second quarter of 2014.  An excerpt:

From Yellen’s financial perch, this collection of indices means that the U.S. economy, although slowly improving, is still too fragile to thrive without the Fed’s near-zero-rate training wheels. Consequently, it could be well into 2015 before we start to see interest rate hikes from the Federal Reserve.

Despite the perceived fragility of the recovery, the recent robust level of hiring has been more sustainable than it has in years. By including June’s 288,000 increase and factoring in upward revisions for estimated hiring in April and May, employers added an average of 231,000 workers a month in the first half of 2014 -- the best six-month run since the spring of 2006... 

To read the entire column, click here.

To read the entire August 2014 issue in digital format, click here.

June column for Builder & Developer magazine now online

My column for the June 2014 issue of Builder and Developer magazine is now posted online.

For this issue, entitled "The Changing Face of Retail Forces Developers to Adapt," I wanted to revisit mixed-use communities (especially residential/retail) and how developers are having to adapt to the changes in the way that retailers serve their customers. An excerpt:

Today, many retailers are reducing their footprints, boosting their online presence and merchandising fewer products in their stores to avoid “showrooming,” in which customers compare products in person but buy them online. As a result, the future of the mixed-use project is also in flux, with the winners and losers likely to be determined based mostly on how well developers match retail stores with local and visitor demographics...

In the short run, businesses which can’t be replaced by online shopping – such as health clubs, yoga studios, doctor’s offices and restaurants – can take up some the slack, but in the long run the very idea of the traditional retail store is being challenged.

Not surprisingly, these changes are also impacting the types of smaller, mixed-use projects encouraged by cities, but often leave absorption of the retail space to the whims of the market as well as the marketing expertise of the local broker. So far, there seem to be two ways to goose retail demand: appeal to specific demographics or create an in-person experience unavailable online...

To read the entire column, click here.

To read the entire June 2014 issue in digital format, click here.

May column for Builder & Developer magazine now online

My column for the May 2014 issue of Builder and Developer magazine is now posted online.

For this issue, entitled "First Quarter 2014 Economic Update," I reviewed how the housing market and the overall U.S. economy performed during the first quarter of this year.  An excerpt:

After a weather-related pause due to a particularly harsh winter in much of the country, economic growth is again gaining traction. Still, the economy has yet to function on all cylinders, with both the labor market and consumer confidence improving while building permits dipped by 2.4 percent in March and have bounced mostly between 900,000 and one million units per month over the last year. Meanwhile, housing starts rose by nearly three percent in March and averaged 923,000 units during the first quarter of 2014, but are still down by about six percent from March 2013. 

Builders are still managing to sell close to 450,000 annualized single-family units per year while inventory has been slowly creeping up to 189,000 homes by February 2014, or about 5.2 months of supply. The median sales price for new homes hit $261,800 in February versus $267,700 for all of 2013.

After being in a holding pattern for several months, builder confidence ended the quarter at 46 before rising by one point to 47 in April. According to NAHB Economist David Crowe, “Headwinds that are holding up a more robust recovery include ongoing tight credit conditions for home buyers and fact that builders in many markets are facing a limited availability of lots and labor.”

To read the entire column, click here.

To read the entire May 2014 issue in digital format, click here.

March column for Builder & Developer magazine now online

My column for the March 2014 issue of Builder and Developer magazine is now posted online.

For this issue, entitled "A Bigger, Better Show Filled with Optimism," I covered my week at the 2014 International Builders Show in Las Vegas.  An excerpt:

Back in 2008 when I attended the International Builders' Show in Las Vegas, the mood was somber, the exhibit floor was depressing and education sessions were focusing just as much on avoiding bankruptcy and working with lenders as they were about new products, services and trends. 

Fast-forward to 2014, however, and this year’s show in early February was entirely different. Firstly, it was huge: more than 75,000 attendees filled the convention center for Design & Construction Week, which paired together IBS, the Kitchen and Bath Industry Show and International Window Coverings Expo in more than 650,000 square feet of exhibit space.

For IBS alone, exhibit space grew by 24 percent over last year’s totals, which certainly points to the growing confidence for our industry. Secondly, there was a level of optimism that I’d not seen since the mid-2000s. And thirdly, the decision to shrink education sessions to 60 minutes meant more time to wander the exhibit floors as well as to squeeze in more sessions...

To read the entire column, click here.

To read the entire March 2014 issue in digital format, click here.

February column for Builder & Developer magazine now online

Greetings from the 2014 IBS!  Last night I got to tour The New American Home for this year in Henderson, Nevada.  More on this home and my visit in a separate blog post.

For now, my column for the February 2014 issue of Builder and Developer magazine is now posted online.

For this issue, entitled "The Road to Housing Recovery," I wanted to review why this housing recovery has seemed so anemic in comparison to previous ones.  An excerpt:

Although the housing rebound is definitely here to stay, a major source of frustration for many in our industry is the pace of sales compared with previous economic recoveries. Both housing starts and permits, which grew steadily throughout most of 2013, dipped in December versus November even as prices continued to rise, and there remains plenty of pent-up demand in the marketplace.

Meanwhile, builder confidence is taking a brief rest due to a combination of rising construction costs, a shortage of skilled homebuilding labor, too-low appraisals and a lending environment which continues to be skewed towards only the best candidates with near-perfect credit scores and reliable W-2 income. ..

To read the entire column, click here.

To read the entire February 2014 issue in digital format, click here.

January column for Builder & Developer magazine now online

My column for the January 2014 issue of Builder & Developer magazine is now posted online.
For this issue, entitled "2014 Forecast:  Positive signs in the economy indicate strong economic growth," I discussed the robust GDP growth of 4.1 percent during the third quarter of 2013 and what that might mean for the general economy and the housing market in 2014.  An excerpt:

Looking forward to 2014, the U.S. economy seems poised to grow at the fastest rate since the dawn of “The Great Recession,” with GDP growth averaging 3.0 percent versus the plodding 2.0 percent rate with which we’ve been saddled over the past 4.5 years. In turn, this projected rate of growth could push up monthly job growth to 250,000 versus 190,000 over the past years. 

Should that occur, then the country would actually regain all of the jobs lost by the end of 2014, thereby pushing the unemployment rate closer to 6.0 percent or even 5.5 percent...

To read the entire column, click here.

To read the entire January 2014 issue in digital format, click here.