In a recent report from the John Burns Real Estate Consulting (Two hundred and sixty-two home building industry executives from public and private companies responding) on new home purchases from January through mid-October 2009 showed:
A. 59% of sales have been dependent upon government financing programs such as FHA & VA. These government programs allow home purchases to be financed at 96.5%-100% loan to value.
B. The highest use of FHA financing was in Northern California (68%).
C. Southern Florida builders reported the highest percentage of cash purchases(22%).
D. Average net sales per community dropped from 17% nationally, returning to levels last seen this past June and July.
E. Homebuilders reported declines in traffic and sales rates in September and early October, seasonally adjusted.
F. Major banks reinforced by pronouncements from the US Treasury are reporting that foreclosures are expected to bounce upwards again in 2010. As some markets are already 2/3 dominated by foreclosures and short sales.
The low housing sales seen in the real estate market are the bottom. Expect a return to more robust new home sales as evidenced by increased construction.
Three factors will drive that:
1. The larger U.S. population will push new home sales closer to historical averages.
2. Congress has just extended and expanded home tax credits.
3. Low interest rates will entice buyers.
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New home sales are depressed far below anything that has been seen in most of our lifetimes.
If you go back through new home sales records that have been kept (about 46 years), it is hard to find anything similar. If you take into account the growth of the U.S. population, the numbers are even more startling.
Were new home sales to rise to levels seen at any time in the 1960s or 70s, the builders’ revenues would be tremendous. Whether a return to more normal sales will occur because of tax credit extensions, low rates, or simply population pressures, who cares? Quite simply, they will.
Short term influences may do the job quickly; if not, certainly longer term pressures will move these sales back at least to those which held firmly for the last 45 years. Currently the eleven largest publicly traded builders account for about 17% of residential building. Their share prices have been smashed. I don’t think that will continue.
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In all likelihood what you will see is seniors needing to live smaller lives. That will mean selling their homes and moving to apartments or condos which are more managable. The youth are not forming households nearly as fast today because they are emerging from college with debt. So even if the population grows, you are going to see demand for housing remain stable at best.
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