Spring 2011 issue of Horizons

Observations From 2003

Predictions For 2011

LENDING

Construction lending is generally plentiful around the country – lenders and others have a strong appetite for the home building market.

Construction lending is scarce and capital for land acquisition and development is nearly nonexistent. This should improve slowly, but likely will never return to the lending excesses of the mid-2000s. Home ownership rates have fallen to 62 percent. It is clear the 6 to 8 percent increase that occurred in the 2000s was one of the factors leading to the meltdown of the housing and financial markets. Inventories of new and existing homes in some parts of the country remain at all time highs. This is particularly evident in states with high foreclosures that still need to be absorbed. Gross profit margin has declined to all-time lows and builders have been forced to accept sales at prices that may just cover debt. Gross profit should begin to improve as the market becomes more dependent on pre-sales.

HOME OWNERSHIP

Home ownership is at an all-time high rate of 68 percent.

INVENTORY

Inventories of new and existing homes are very lean, at or near 25-year lows.

PRICING

The NAHB Business Management Committee found that in pricing new homes, 69 percent reported that their most frequent method was to calculate costs of construction and add a mark-up to the costs. The remainder priced their homes most often according to what the market would bear. Seventeen percent reported that they never used mark-ups to their costs in order to price their homes. For those companies that reported regular use of cost-breakdowns to determine the price of their product, the average mark-up to costs was 21 percent. New home sales were generated from model homes 18 percent, job-site signage 7 percent, and in-house sales persons 24 percent. Outside brokers accounted for 29 percent of the revenues, while past customers and sales attributed to word- of-mouth represented only 15 percent of total revenues. Other sources included home shows 3 percent and company websites 3 percent.

SALES

Sales today are increasingly driven by website presence and advances in social media. The number of model homes a builder has been able to carry has been greatly reduced. Builders will likely not maintain the fixed costs of multiple model homes by project in the future.

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