Spring 2007 issue of Horizons

INDUSTRy u

HOME BUILDERS

Based on observations at the National Association of Home Builders’ Spring Board meeting in early June, the mood around the country is one of concern. Housing starts are down nationally 23 percent through May from a previous time period last year. Although not a huge factor locally, the collapse of the subprime market will further delay housing’s recovery. There appear to be several markets, especially on the coasts, that will face high foreclosures as a result of these previously accepted lending practices. While our local market may be down by double digit amounts, this is nothing compared to what is being experienced in Ohio, Michigan, Las Vegas and other big areas. However, some markets, including Texas and the Pacific Northwest, remain healthy. NAHB is now predicting a recovery of some sort starting in 2008. This prediction seems to be consistent with the forecasts of other leading economists. Other notes from around the country: • Litigation from home buyers appears to be a growing issue throughout the industry. In a recent study in Phoenix, nearly 24 percent of customers have or intend to sue builders, many over frivolous items. The trend appears to be significantly higher among those 35 and under. Builders in some markets are being trained to avoid these types of customers. • The costs of raw materials have stabilized . . . for now. • The shortage of skilled labor is becoming a growing concern in several markets. News from Washington, D.C.

Market Update As we enter the second half of 2007, the local home building industry continues to be very challenging. While traffic counts have been maintained nicely throughout the year, sales have remained consistently inconsistent. Two bad months are often followed by a few good weeks and vice versa. Creative marketing and blitzes seem to attract market share for a short period of time. Spec inventories seem to have dwindled to manageable levels, although the amount of lot inventory continues to be a key management issue. It is becoming more clear to me that gas prices have had a huge psychological effect on the home buying market. Beginning in July 2005, as gas prices reached or exceeded $3 a gallon, the psyche of the home buying consumer was and continues to be negatively impacted. Without any sense of urgency, the customer is not comfortable making a major lifestyle decision. What to expect for the remainder of 2007? It appears we are in for more of the same. Despite a recent pickup in what has been a woeful resale market and also the continuing historically low long-term mortgage rates, our market will continue its inconsistent performance. However, it is important to keep our situation in context. The markets in the early 1980s and 1991 were BAD – this market simply requires a lot of hard work. Considering the incredible run the industry experienced for the better part of 15 years, this downturn ultimately was to be expected.

Stay tuned!

19 u summer 2007 issue