Home Building: The Case for Cautious Optimism
Ben Bernanke's speech at the 2012 International Builders Show: Gray clouds and silver lining
My name is Bud Dietrich and I am an architect located in the Tampa Bay area of Florida. I am licensed to practice architecture in Illinois, Florida, New Jersey & Wisconsin and I am a certificate holder from the National Council of Architectural Registration Boards (NCARB). Since 1996 I have worked from my home office and provide full architectural services exclusively to the single family residential market. My passion is to transform my clients' houses into their homes. I strive to have the "new" home accommodate my clients' lives without fighting them at every junction. I look to add curb appeal to encourage a beautiful streetscape. And I design any addition to look and feel like it has always been there.
Our projects have won numerous design awards as well as having been featured on television...
My name is Bud Dietrich and I am an architect located in the Tampa Bay... More »
Question: What do you get when you put the chairman of the Federal Reserve and a few thousand home builders in the same room?
Answer: A strong sense that there still are a whole lot of gray clouds, but some silver linings beginning to peek through.
After walking around the International Builders Show and meeting with and talking to builders from across the country last week, I got a sense that there's some optimism out there. There's a feeling that the recovery is taking hold and that their construction businesses have weathered the worst of the Great Recession. Clearly, these folks are starting to see some silver linings in all those gray clouds.
Then we all piled into a huge meeting room to listen to the Federal Reserve Chairman, Ben Bernanke.
Bernanke pointed out all he reasons why the house building industry has been in the doldrums these last few years. Rather than being the engine that would pull the country out of recession, the housing industry is an "impediment to a faster recovery." Bernanke also offered some ideas for how the housing industry can recover: loosening of credit, lenders instituting real-estate-owned-to-rental programs or local governments starting land banks among them.
I left the conference having learned much and feeling optimistic, if only cautiously so. So let's look at Bernanke's description of those gray clouds that have been around for a few years, and the silver linings that may be beginning to show themselves.
More from IBS: Tour the 2012 "New American Home"
Answer: A strong sense that there still are a whole lot of gray clouds, but some silver linings beginning to peek through.
After walking around the International Builders Show and meeting with and talking to builders from across the country last week, I got a sense that there's some optimism out there. There's a feeling that the recovery is taking hold and that their construction businesses have weathered the worst of the Great Recession. Clearly, these folks are starting to see some silver linings in all those gray clouds.
Then we all piled into a huge meeting room to listen to the Federal Reserve Chairman, Ben Bernanke.
Bernanke pointed out all he reasons why the house building industry has been in the doldrums these last few years. Rather than being the engine that would pull the country out of recession, the housing industry is an "impediment to a faster recovery." Bernanke also offered some ideas for how the housing industry can recover: loosening of credit, lenders instituting real-estate-owned-to-rental programs or local governments starting land banks among them.
I left the conference having learned much and feeling optimistic, if only cautiously so. So let's look at Bernanke's description of those gray clouds that have been around for a few years, and the silver linings that may be beginning to show themselves.
More from IBS: Tour the 2012 "New American Home"
| Lower Values Private Comment
Due to lower home values, the recession wiped out $7 trillion in household wealth, according to Bernanke. That's a staggering amount of money equal to half the national debt. It's no wonder Americans feel poor. Bernanke also pointed out that the typical household spends $3 to $5 less for every $100 in lost home value. If so, the depressed home values is reducing consumer spending $200 billion to $375 billion annually — money not generating jobs and increasing living standards. Oversupply There's a glut of unoccupied houses for sale, and more than 1 million foreclosed units will enter the market each year for the next few years. The saturation of existing houses on the market is keeping new home construction starts to historically low levels. Rather than seeing at least 1 million starts per year, the industry is achieving about 500,000 starts. Tight Credit Credit is still tight as lenders are reluctant to make loans even to qualifying borrowers. Home mortgage credit has contracted by approximately 13 percent since 2007. It appears that the loose credit practices of a few years ago have given way to restrictive practices as lenders are wary of any borrower. Lack of Demand Young adults — those in the 29 to 34 age group — are less likely to take out mortgages. These first-time buyers have an incremental effect on the housing market, so their absence is felt down the line. |
| Unemployment and Job Creation Private Comment
The economy has been recovering, as evidenced by an unemployment rate that inches lower and a private sector that continues to create jobs. Though everyone will acknowledge that the economic recovery hasn't been robust, there is a sense that we are on a slow but sustainable path to recovery. Market Growth The consensus is that we should expect some modest growth in the housing market this year and stronger growth in 2013. Though the amount of growth seen over the last year and forecast for next year varies by region, there is a consensus that growth of between 1 and 2 percent will occur. Price Stability Home prices in much of the country hit their troughs in the first quarter of 2011. Current pricing levels are at the historical median of 3.2 times income. Compare this to the peak of the bubble when home prices hit 4.7 times median income. Affordability The confluence of low interest rates, lower prices and growing incomes has reduced the cost of buying a home. Prices should remain low due to the large number of distressed properties on or entering the market, and the current Federal Reserve policy is to maintain low interest rates. |
| Rental Market Private Comment
There is an increasing strength in the rental market as the economy strengthens, but potential buyers aren't ready to purchase. Programs such as REO (real-estate owned) to rental should absorb some of the excess inventory given the strength of the rental market. This will help home values from falling further and perhaps encourage new construction starts. More building trends: Remodeling heats up in 2012 |
Comments
cappy1114 says:
Instead of building new homes in a market that isn't supporting new home sales. Why not go into cities with run down neighborhoods and renovate those homes. Create efficient well designed homes for middle income families, young professionals, and empty nester baby boomers. Sure. I guess its easier to get new land and throw a house up but I think that is irresponsible. Let's improve what is already there trust me there is plenty.
3 months ago ·
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sadietalich says:
Bravo Cappy.
Totally true.
Why not re-use, re-purpose, re-novate, gentrify, re-build, re-store?
instead of increasing waste and sprawl.
Totally true.
Why not re-use, re-purpose, re-novate, gentrify, re-build, re-store?
instead of increasing waste and sprawl.
3 months ago ·
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Andy Rabus says:
Cappy - you've got it right! However, try getting that plan through state legislatures or Congress and we end up with something completely unworkable. LOL! It will have to be grass-roots and maybe some government partnerships. All in all, it will depend on demand and what people are willing to put their money into. A lot of buyers seems to want square footage, a little land, and a quiet neighborhood where they do not have to talk to much less know their neighbors. I hope for better.
3 months ago ·
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Casart Coverings says:
Renovating homes in run-down city neighborhoods sounds like a good idea on the surface, but there are other factors to consider. Trust me, I've seen that attempt first hand. I live in New Orleans and we had a "clean slate" to work with after Katrina. Unless you can overcome the other problems inherent to inner-city areas such as poor educational system, unemployment, high crime and poverty stats, etc., it will not work. Multi-income level, subsidized rental properties were built and sit mostly un-rented in the fashion envisioned. Be honest. Would you want to live in that type of housing?
3 months ago ·
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wadsworth corporation says:
Building new homes today just makes things worse (leaving Vacant homes, Declining Values, Run-down Neighborhoods). Get busy fixing up existing homes util the Glutt is absorbed.
3 months ago ·
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Becky Harris says:
Really interesting Bud. As new construction is down, renovation is up - if you're stuck in your house and it's too small or outdated, you may as well expand it or remodel. I know of a few people who have scooped up some older homes plus a HUD loan to fix them up (all in one mortgage deal, as I understand it), which saves older homes, keeps neighborhoods from becoming derelict, and creates construction jobs.
If the inventory of abandoned homes gets too big, the city may just tear them down, like in Cleveland. One construction biz that is thriving there is the demo business. Looking to areas where manufacturing jobs fleeing the country left things in a bad state before this was a nationwide problem is a good prediction of the future in other places (like Youngstown Ohio's big shrink idea), and a way to look at which ideas have worked and what has not (see: "Roger and Me"). I think this crisis is going to have one of the biggest effects on changing our approach to urban planning all over the country since the car was invented.
Semi-related to some of the other comments posted, I really got a kick out of this article about NY artists buying houses in Detroit awhile back:
http://www.nytimes.com/2010/08/04/arts/design/04maker.html
Next thing you know - yuppies and a Whole Foods?
If the inventory of abandoned homes gets too big, the city may just tear them down, like in Cleveland. One construction biz that is thriving there is the demo business. Looking to areas where manufacturing jobs fleeing the country left things in a bad state before this was a nationwide problem is a good prediction of the future in other places (like Youngstown Ohio's big shrink idea), and a way to look at which ideas have worked and what has not (see: "Roger and Me"). I think this crisis is going to have one of the biggest effects on changing our approach to urban planning all over the country since the car was invented.
Semi-related to some of the other comments posted, I really got a kick out of this article about NY artists buying houses in Detroit awhile back:
http://www.nytimes.com/2010/08/04/arts/design/04maker.html
Next thing you know - yuppies and a Whole Foods?
3 months ago ·
Like
Bud Dietrich, AIA says:
Unfortunately, our cultural bias has always been for building the new rather than fixing the old. Maybe what we could use is a new set of metrics to measure something in addition to "new housing starts."
Another thing I learned at IBS is that many developers are choosing to undertake projects in places with existing infrastructure and proximity to decent public transportation. Seems that the young among us don't care to have two cars and a big yard. Should bode well for all those cities gutted by the green field developments that have been so much the norm for the last 50 years.
Another thing I learned at IBS is that many developers are choosing to undertake projects in places with existing infrastructure and proximity to decent public transportation. Seems that the young among us don't care to have two cars and a big yard. Should bode well for all those cities gutted by the green field developments that have been so much the norm for the last 50 years.
3 months ago ·
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bijouxjujubee says:
How about renovating older condominiums with solar shingles and/or wind energy production as warranted by the site to reduce or eliminate condominium fees.
A video production crew should be included to produce a TV show/video so other condo owners could see how it's done and generate further income to reduce condo fees.
Many baby boomers would enjoy living in a condo for their later years but don't want the fees associated with them. Las Vegas would be the perfect place to do this!
A video production crew should be included to produce a TV show/video so other condo owners could see how it's done and generate further income to reduce condo fees.
Many baby boomers would enjoy living in a condo for their later years but don't want the fees associated with them. Las Vegas would be the perfect place to do this!
3 months ago ·
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Traci Rolz says:
I really hate it when developers do projects in urban areas and using catch phases like "urban revitalization", but their units are so over-priced that nobody working a regular job could afford them.
3 months ago ·
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haled says:
This country was built on capitalism and a free market system people seem to have forgotten that. If you owned a business would you want the govt to tell you what you can and cannot do?
3 months ago ·
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Jeff Smith says:
I completely agree with Cappy. This needs to be happening all through the bay area right now!
3 months ago ·
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kgschifino says:
While I agree with cappy1114 that reuse of existing older housing stock in the inner cities and inner ring older suburbs is a good thing, often times gentrification fails because urban professionals move in and renovate these homes to a highend quality and the moderate income and low income people are priced out of these communities. Mixed income neighborhoods never really quite work out, either. They almost always become upper income or lower income communities. That's a real challenge to solve for urban planners, architects, designers, etc.
5 weeks ago ·
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