05 Nov 08 Things Home Builders are doing to Stay Afloat and Sell More Homes

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Amid a market plagued by declining real estate prices, strict lending practices, low consumer confidence, foreclosures, short sales, and high inventories, selling new homes seems next to impossible. However, many home builders are hoping to increase sales by changing sales and production strategies. In markets across the nation, home builders are altering nearly every aspect of their businesses to increase sales and remain afloat during a U.S. recession and one of the worst real estate markets our nation has ever experienced. Below are a few things both large-scale and small-scale home builders are doing to sell homes.

Going Green - Increasingly, new home builders are going green by implementing green building strategies and using energy efficient products to build homes. Building a green home saves the homeowner money on their electric bill and reduces the carbon footprint that a home leaves. Products like solar-panel roofing may reduce a homes carbon footprint by as much as 48%, but combine that with energy efficient appliances, recycled insulation, water management faucets and toilets, dual pane low-e windows, CFL or LED light bulbs and any other energy saving product; and any homes carbon footprint and monthly electric cost  is drastically reduced. Green homes cost more to build but many consumers are willing to pay more for an energy efficient home and home builders are discovering that the “green” label pays off in more sales.

Asking Uncle Sam for a Little Help - In 2007, the construction industry as a whole employed 11% of America’s workforce and helped create income and jobs for professionals in several industries supported by construction. New homes are a crucial component of our nation’s economy; homebuilders’ stability is vital for our recovery. Recently, national home builders and the National Association asked the government for more tax incentives for home buyers stating that the $7,500 tax incentive passed earlier this year did little to stimulate new home sales.

Auctions/Short Sales - Many widely recognized national home builders have resorted to auctioning off their inventories. D.R. Horton and Lennar are two of the largest builders who have listed properties at auction. If auctioning a home, the builder must consider the cost of construction. The National Association of Home Builders in Washington has stated that the average 3,340 square-foot home costs $403,925 to build. That is $219,015 for construction, $45,507 for undeveloped land, $65,969 to prepare the land, $11,258 for marketing expenses, and $19,499 in sales commission. As you can see, much of the expense is in the purchase and development of the land. For those builders who have purchased land prior to the 2005 peak of the housing boom, auctioning a single-family home at 30 - 40 percent lower than the asking price may not result in a loss for the builder. However, John Burns, of John Burns Real Estate Consulting in Irvine, California, warns that price declines of as little as 10 percent might wipe out any profits.

Offering Smaller Homes - California-based KB Home is one of the first large-scale home builders to launch new developments mainly comprised of smaller less expensive homes. The move is designed to compete with foreclosed home pricing. Jeffrey Mezger, KB’s Chief Executive Officer, stated that the company had to shift to smaller, cheaper houses in order to compete with foreclosed houses flooding markets such as the Inland Empire region of California. A year ago, KB’s main focus was on building 3,400 square-foot homes with a price tag of $450,000, to building 2,400 square-foot homes selling for $300,000. And while Mezger has said this worked for a time, the company has now shifted again towards even smaller, less expensive housing - 1,230 square-foot homes for $200,000.

Tags: $7500 tax credit, cost of construction, dr horton, green home building, green homes, home auctions, Home Builders, house short sales, info: home builders, jeffrey mezger, kb home, lennar, new home sales, news: home builders

28 Oct 08 New Home Sales Q4 Economic Outlook

With consumer spending steadily decreasing from mid-2007, sparked from the housing meltdown, experts have estimated that consumption will likely fall more than 4 percent annualized this quarter. To add fuel to the fire, the deteriorating credit market has negatively influenced all three major determinants of consumption.

New homes sales will likely remain suppressed well into 2009. Not good news considering the housing sector is already suffering from the rising unemployment, tightened credit conditions, declining household wealth, and in some markets, the affects of recent severe weather.

What does this mean for you?

This will directly affect your access to credit, not to mention your credit rates; and will indirectly affect both real disposable personal income and household wealth. In regards to the economy as a whole, this means that for the remainder of the year, and leading into 2009, we can anticipate diminishing consumer confidence and business confidence, which will cause further payroll cutbacks and additional suppression of real disposable personal income.

So here we are. We’ve witnessed declines in consumer spending, beginning in 2007, employment gains gradually diminish, soaring energy costs, oh… and let’s not forget the significant declines in household wealth and the continued declines in real estate values.

The experts have stated that even with the recent decline in energy prices, it’s not nearly enough to overcome our waning consumption concerns; mainly caused by the large decline in personal wealth.

There is some good news in all of this if you are a homebuyer, or at least a buyer who can meet the criteria to qualify for a loan, and that is new home costs have declined significantly. The fact is that many home builders are reducing pricing, increasing incentives, adding better upgrades, all in an attempt to attract buyers and shrink their inventories. I know what you’re thinking… and yes, there is a good chance that if you buy now your new home may decline in value while the market works its way towards recovery. But if you’re thinking long-term, the declines will be insignificant compared to your gain over the next five to six-plus years.

Tags: 2009 economic outlook, consumer confidence, home builder news, Home Builders, housing meltdown, housing sector, housing sector news, new home incentives, new home sales, real disposable personal income

14 Jul 08 Location Still Matters the Most

“Price conditions vary tremendously, even within a locality, depending upon a neighborhood’s exposure to subprime loans,” said Lawrence Yun, National Association of Realtors chief economist. Yun also noted that while most markets are experiencing a significant reduction in contract signing from the previous year, others have seen a doubling in home sales.

The NAR is predicting a recovery in sales in the second half of the year based on the Pending Home Sales Index (PHSI). The forward-looking indicator is derived from contracts signed in May, which decreased 4.7 percent to 84.7 from a revised reading of 88.9 in April. In May of 2007, the index stood 14 points higher at 98.5 percent, than in May 2008.

Yun warns that a sharp increase in pending home sales will likely have some pullback in the following month. Yun also stated, “The overall decline in contract signings suggests that we are not out of the woods by any means.”

Existing home sales are expected to grow from the second quarter figures annual pace of 5.01 million, to 5.75 million in the fourth quarter of the year, according to the NAR. The expected total existing home sales for all of 2008 is 5.31 million, and an increase of 5 percent, to 5.58 million, is expected for 2009.

New home sales nationwide are likely going to fall to 525,000 in 2008, a decrease of 32.3 percent from 2007, and decline to 507,000 in 2009, dropping another 3.4 percent. Housing starts are also expected to decrease 28.7 percent to 966,000 throughout 2008, and another 9 percent to 879,000 in 2009.

Tags: existing home sales, home sales, housing starts, lawrence yun, locality, NAR, national association of realtors, new home sales, pending home sales index, phsi, price conditions, subprime loans, yun