Spring 2011 issue of Horizons

Home Builders

2003 is the “NewNormal” By Steve Hays, CPA

The National Association of Home Builders (NAHD) now refers to 2003--the year before the housing bubble escalated--as the “new normal” of what the home building industry should expect for production starts. As we emerge from the worst financial time in this industry’s history, it is interesting to reflect on the new normal so we can envision the journey that 2011 will take.

Information excerpted from our Home Builders Services Group archives provides a glimpse of what the industry can expect as it recovers in the new decade.

• 2003 National Housing Starts = 1,847,700   

• 2010 National Housing Starts = 587,600   

• 2011 Estimated Projected National Housing Starts   

= 710,000

Observations From 2003

Predictions For 2011

BACKLOGS

Backlogs going into 2003 were up between 15 percent - 25 percent.

Builders have learned for the last few years to operate with virtually little backlog. As some pent-up demand begins to be realized, builders will hopefully begin to accumulate sales that are driven by to-be-builts and not just specs. A whole generation of buyers has not seen rates above 5 percent. Some increase in rates likely would create some sense of urgency to get potential buyers off the fence. With huge declines in real estate value, the idea of home ownership as an investment has been damaged. Congress will consider, as a means to address the growing deficit, major tax reform which may include elimination of the home mortgage and real estate tax deductions, and the gain on sale exemption.

INTEREST RATES

Rates continue to be at all-time lows. Even as rates are expected to climb during the year – no one is predicting a rapid climb, if one at all. It now seems the interest rate “wall” might be as low as the 7.5 percent to 8 percent range.

INVESTMENT VALUE

With all the woes of the stock market, the “perceived” value of real estate as an investment continues to grow.

ECONOMY

A strong housing market is leading a very weak economy in 2003.

A slowly recovering economy has not received any boost from a still depressed housing market.

Raise Your Expectations

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