Hanley Wood Acquires MetroStudy

Some big news for the housing market research industry today:  after what I imagine were years of wrangling and offers, Hanley Wood, LLC has finally bought Houston-based MetroStudy.  This deal certainly makes sense to me:  if the goal of Hanley Wood's investors is to be the 800-pound gorilla in the housing data space, then it can't get there if another 800-pound gorilla (MetroStudy) is in the way.

It also seems likely that the merger will continue to use MetroStudy's unique data collection methodology, which has some significant differences with Hanley Wood's Market Intelligence division.  In addition, Hanley Wood will also pick up a national consulting business, something they disbanded in late 2007 and thus won't have to jump-start from scratch.  Nonetheless, with this acquisition completed, Hanley Wood can now own the national new home data collection space by itself -- until, of course, another well-capitalized competitor (hello, Jeff Meyers) comes along to upset the apple cart.

From the press release:

Hanley Wood LLC ("Hanley Wood"), the premier media, information and marketing services company serving the residential, commercial design and construction industries, announced today that it has acquired Metrostudy, a leading provider of primary and secondary market information to the housing and related industries nationwide.

(click here to read more)

The Challenges of Tracking Shadow Inventory

If there is one mysterious unknown hiding in the corner of the building industry, it would definitely be shadow inventory, or that glut of distressed homes held back by banks which could be dumped onto the market at any time. Nationally, these unsold units total as many as 1.8 million homes, which at current sales rates could add another 9.0 months to unsold supply.

Add to that total known REO listings as well as homes bought by investors to either flip or rent out, and you have a fairly significant portion of competition to both homes for sale or rent that often remains hidden from traditional metrics.

For a home builder, this kind of inventory is usually impossible to compete with on price alone, as it typically sells for less than replacement cost, which is why builders are now competing based on better locations, greener construction methods and improving technology.

For an apartment builder or investor, deciding where to build or buy takes on even greater risk if a renter for a typical apartment can find a condominium, townhome or even a single-family home at a competitive price.

Fortunately, there are tools available today to track different markets and submarkets in order to decide where to allocate capital and other resources. Recently, we were asked by an apartment investor to track various regions of Southern California to not only review the health of the multi-family rental market, but to also track potential competition in the form of rental shadow supply. The results were quite interesting.

For example, in just Los Angeles County alone, over one-quarter of all home sales during the first quarter of 2011 were REO units previously owned by banks, which sold at discounts of 24% (single-family homes) to 27% (condominiums) versus the entire existing home market. For new home sales, however, although the difference in pricing according to Hanley Wood Market Intelligence was about the same for single-family homes, for attached homes it was over 52%!

Even for the one-fifth of non-owner-occupied homes bought by investors that weren’t necessarily foreclosures, the units they bought were a bit smaller than those purchased by owner-occupants, and thus could be flipped or rented out for a lower – and more competitive – price. Compared to owner-occupied homes, these potential rental units sold for a discount ranging from 20% (condominiums) to 25% (single-family homes).

So just what does this mean for builders of new homes or apartments? In the case of home builders, it means continued competition for buyers shopping on price alone, so demonstrating the value proposition of a new home is more important than ever.

For apartment builders and owners, today’s low interest rates means that potential tenants can often find a nicer and larger home for close to what they would otherwise be paying to live in a typical apartment. In some cases -- such as when putting 20% down and borrowing the rest at 4.5% or so for 30 years -- the monthly payment for both attached and detached homes plus taxes and HOA fees could still be up to 25% less than what a tenant would pay for that traditional apartment.

Fortunately for builders of both homes for sale or for rent, this current environment will not last forever. As prices eventually stabilize and rebound, buyers will likely tire of buying fixer-uppers with higher power bills in challenging locations. And, as mortgage interest rates rise and the better deals disappear, investors in individual homes will have a tougher time competing against the rental rates charged by owners of larger apartment projects.

For now, however, it remains a game of patience.

San Diego Market Monitor for 1Q 2010 now online

Each quarter, I update the Market Monitors for San Diego County and the combined Los Angeles/Ventura County region for Hanley Wood Market Intelligence. Last week, I finished up the San Diego version, which you can purchase online here. I just finished up the LA/Ventura version today, which should be online later this week.

I also thought it'd be helpful to offer an excerpt from the Executive Summary for the San Diego report that's included at the beginning of the report:

Following last quarter’s 38% rebound as buyers began to take advantage of special tax credits, new home sales rose again by 21% during the first quarter of 2010 to 673 units versus the same quarter of 2009. And, even as prices began to slowly rebound, the combination of low interest rates and tax credits helped to boost average absorption rates by 69% to 1.7 sales per month per project. Looking ahead to the rest of 2010, however, the new home market is expected to soften slightly as the tax credits expire, discounted foreclosures remain as formidable competition and Option ARM mortgages continue to re-set.

In the existing home market, the rate of annualized sales rose by 9.4% during the first quarter of 2010 to 35,628 units. At this level, existing home sales are now just 1.5% less than the long-term average noted since the beginning of 1988, due in large part to a median price of $315,000 that is now 39% below the peak of $520,000.

At the same time, after last quarter’s 12% decline, median new home prices rose by 5.9% over the last year to $549,465. Although prices rose by 18% to $466,990 in the attached sector, they fell by just over 5% for detached homes to $597,900, with each submarket in both sectors performing much differently from each other during the quarter.

Somewhat surprisingly, in terms of relative strength, per-project absorption levels during the first quarter were actually highest in the East submarket (2.3 sales per month) and the Inland North (2.0), whereas the lowest rates were noted in the South Bay (1.0) and the Coastal North (1.7)...

Although higher affordability levels compared to new homes should continue to disproportionately assist the market for existing homes, given the weak economic outlook for 2010 and the expiring tax credits, the recovery for the new home sector will likely be slow and very gradual. In the short term, jobs in the existing and emerging technology sectors and hospitality industries are expected to rebound the fastest due to existing infrastructure and prior investments...

Looking to the end of 2010, the median detached new home price is still expected to reach $618,000 – or down by about 5% over the preceding year -- owing to a mix of smaller and more affordable homes, with the value ratio falling slightly to $206 per square foot. Sales are also still projected to fall by about 4% to 2,100 homes, or about 25% less than 2008 levels and 86% less than the peak in 2004...

Orange County Update & Forecast

According to the latest data from Hanley Wood (and included in my presentation at the BIS '09 "Town Square", which you can find here), new home sales in Orange County in Sep. 2009 were the same as in 2008, which could mean that we've hit bottom in new home sales for this area. Still, YTD sales are down by 23% to 1,242 units.

Absorption, although averaging a still-anemic 1.42 sales per month, are up by 37% over Sep. of 2008, and YTD they're running at 1.63 per project. Can rates remain in the low double digits, and median prices are starting to rebound, hitting $584,000 for September and $521,000 for 2009 YTD. Value ratios, however, continue to fall, declining by 6.5% to $276 per square foot.

At current sales rates, the total number of units in current and future phases would take nearly 3 years to sell, although this total is down by 20% from the same time of 2008. The bigger story, however, is for standing inventory, which although rising by 9% to 156 units, would take just 1.44 months to sell. See below for a summary table of stats for Orange County:

Category	9/09	% YOY	2009 YTD	% YOY
Net Sales	108	0%	1,242	-23.4%
Absorption	1.42	36.8%	1.63	1.2%
Can. Rate	11.5%	D-18.2%	12.5%	D-13.7%
Median Price	$584k	23.5%	$521k	4.2%
SFD Price	$783k	-10.7%	$808k	-9.1%
Median $/SF	$276	-6.5%	$285	-4.7%
SFD $/SF	$267	-10.7%	$280	-7.8%
Inventory	3,563	-20.5%	-	-
Months Inv.	32.99	D-41.5	-	-
Standing Inv.	156	9.1%	-	-
Months SI	1.44	U-1.32	-	-

Looking ahead to 2010, population growth should come in at 0.9%, with the unemployment rate continued to rise to nearly 10% as employers continue to shed jobs. Still, the decline in non-farm employment of 2% will be less than half of what it's expected to total in 2009, or -4.8%.

Housing permits countywide should come in at just under 1,300 units in 2009, rising to 1,375 in 2010. New home sales are estimate to total 1,543 for 2009, with a median single-family home price of $715,000. These forecasts are summarized in the table below:

Category	2009	2010
Population	1.0%	0.9%
Non-Farm Employment	1,413m	1,384m
Annual Change NFE	-4.8%	-2.0%
Unemployment Rate	8.8%	9.7%
Personal Income	-3.5%	-0.1%
Housing Permits	1,295	1,375
Non-Res. Permits	$867m	$830m
Ann. New Home Sales	1,543	-
New SF Home Price	$715k	-

L.A./Ventura Update & Forecast

According to the latest data from Hanley Wood (and included in my presentation at the BIS '09 "Town Square", which you can find here), new home sales in the L.A/Ventura region are definitely seeming to stabilize, rising by 1.3% between Jan-Sep 2008 and the same period of 2009. For September alone, net sales rose by nearly 19% over the same time of 2008, although that bump could also be due to buyers trying to nab tax credits they thought were expiring at the end of November.

Buyers today are also more serious, as evidenced by the sharp drop in cancellation rates to the low double digits versus 26% in Sep. of 2008 and just 9% for the first 9 months of 2009.

Overall new home prices continue to drop, with a median of $421,000 in Sep. 2009, or $332 per square foot. For single-family homes alone, however, prices actually rose by 15% to $614,000 during Sept. 2009, although YTD they're still down by nearly 11% to the low $400,000s.

Although total new home inventory -- those units currently available for sale as well as those planned in future phases -- would still take 3 years to absorb at current sales rates, completed inventory, although rising by 18% over the past year, stands at just 6.51 months, which is very close to market equilibrium.

For more information on current conditions for other counties of Southern California, click here for the entire presentation. A summary table is included below:

Category	9/09	% YOY	2009 YTD	% YOY
Net Sales	282	18.5%	3,362	1.3%
Absorption	1.44	46.3%	1.77	22.4%
Can. Rate	11.3%	D-26.1%	9.0%	D-20.9%
Median Price	$421k	-6.8%	$420k	-10.7%
SFD Price	$614k	14.9%	$423k	-10.7%
Median $/SF	$332	22.8%	$320	11.9%
SFD $/SF	$234	12.2%	$178	-12.4%
Inventory	10,212	-20%	-	-
Months Inv.	36.21	D-53.60	-	-
Standing Inv.	1,836	17.8%	-	-
Months SI	6.51	D-6.55	-	-

Looking ahead to 2010 and according to the LAEDC, although population in L.A. County will continue to increase given its enormous base, the employment picture is a bit different. During 2009 the county will lose 4.1% of its non-farm jobs base, and although the pain will continue in 2010, it will be half as bad, or 2.0%. This, of course, will continue to be a drag on housing demand until at least 2012 as the unemployment rate rises to approach 13% in 2010.

Inflation, which is now under control due to temporary deflationary influences in the marketplace, will re-emerge to 1.6% in 2010 but certainly be kept under control by stagnant demand for all but the necessities of life.

Housing permits are estimated to total 6,465 units in 2009 and rise slightly to 6,855 in 2010, but the commercial sector will be under great pressure, with non-residential permits falling below $2.4 billion.

According to projections I just completed for Hanley Wood's latest LA/Ventura Market Monitor, annual new home sales will total 4,000 units in 2009 and rise by about 15% in 2010 to 4,500 homes. Prices, which seem to have bottomed out this year, will end at $420,000 and rise by 5% next year to $440,000. See table below for summaries on these forecasts, and for the complete presentation, click here.

Category	2009	2010
Population	0.8%	0.7%
Non-Farm Employment	3,902m	3,823m
Annual Change NFE	-4.1%	-2.0%
Unemployment Rate	11.7%	12.8%
Personal Income	-1.6%	1.0%
CPI Change	-0.7%	1.6%
Housing Permits	6,465	6,855
Non-Res. Permits	$2,470m	$2,370m
Ann. New Home Sales	4,000	4,600
New SF Home Price	$420k	$440k

Southern California housing update & economic forecast

If you missed my presentation for the Town Square at the 2009 Building Industry Show in Long Beach, you can find it here.

Inland Empire Executive Housing Seminar materials now online

This morning, I gave a presentation on the Inland Empire housing market as part of Hanley Wood Market Intelligence's Executive Housing Seminar series.

Speaking on the national housing market was Boyce Thompson, Editorial Director for magazine titles Builder, Big Builder and Multi-Family Executive.

If you want a .pdf of my presentation, click here. Soon I'll publish a post highlighting the findings from the speech.

If you want a .pdf of Boyce's presentation, click here.

Inland Empire Executive Housing Seminar - October 6, 2009

Looking for an update on national housing markets with a focus on California's Inland Empire?

On the morning of Tuesday, October 6, 2009 at the Mission Inn in Riverside, I'll be speaking along with Boyce Thompson, Editorial Director for Builder, Big Builder and Multi-Family Executive magazines for the next HWMI Executive Housing Seminar.

Boyce will discuss national trends, whereas I'll focus on what to expect in terms of new home supply, foreclosures, absorption trends, land acquisition and an overview of which projects are actually selling (and why).

7:30am Registration & Networking Breakfast

8:00am Opening Remarks (Mike Ellison, Regional Director)

8:15am National Market Overview (Boyce Thompson)

8:45am Local Housing Market Overview (Patrick Duffy)

9:30am Q&A

To register for this event, click here.

To invite a colleague, click here.

Hope to see you on October 6th in Riverside!

Save the Date! Inland Empire Housing Seminar - October 6, 2009

Looking for an update on national housing markets with a focus on California's Inland Empire?

On the morning of October 6, 2009 at the Mission Inn in Riverside, I'll be speaking along with Boyce Thompson, Editorial Director for Builder, Big Builder and Multi-Family Executive magazines. Boyce will discuss national trends, whereas I'll focus on what to expect in terms of new home supply, foreclosures, absorption trends, land acquisition and an overview of which projects are actually selling (and why).

7:30am Registration & Networking Breakfast

8:00am Opening Remarks (Mike Ellison, Regional Director)

8:15am National Market Overview (Boyce Thompson)

8:45am Local Housing Market Overview (Patrick Duffy)

9:30am Q&A

To register for this event, click here.

To invite a colleague, click here.

Hope to see you on October 6th in Riverside!

How tight is new home inventory really?

G.U. Krueger, Principal Economist of HousingEcon.com and an alliance partner to MetroIntelligence Real Estate Advisors, has also contributed an article to the July issue of Builder & Developer magazine on the question of new home inventory.

Whereas many pundits continue to focus on remaining lots in current phases, G.U. argues that the supply in the future phases of active developments will still eventually be released to the marketplace, and thus should not be ignored.

An excerpt:

...there is “inventory is tight” chatter again pointing to declining new home inventory in various markets throughout the U.S. For example, in Southern California’s Riverside County, according to Hanley Wood Market Intelligence there were just 800 units of new home inventory -- or barely eight weeks of supply at the end of April 2009.

Thus, the implication is that in eight weeks or so we are going to be whole again.

However, new home inventory is only a small part of the story. By April 2009, there were an additional 1,159 homes under construction in Riverside County, and lots earmarked for future construction numbered another 21,000 units -- a number which has been dropping but is still large. This future supply is significant because it is a type of pent-up supply which can be easily activated. Consequently, total buildable lot supply reached 25,000 units in April 2000, a 60-month supply at current sales rates -- not quite as tight as local pundits are proclaiming...

Click here to read the entire article.