Boyce Thompson: Boyce on Building

Good Time to Buy?

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A speaker at the conference Builder magazine is putting on this week had the audacity to say that he didn't think now was a good time to buy. He said that prices for new and existing homes are likely to continue falling this year, given that foreclosures are on the rise and the number of homes for sale is going to continue climbing.


The statement was greeted with a spontaneous outbreak of boos and hisses from the builders in the audience. "All the reasons you outlined for it not being a good time to buy also indicate that it's a good time to buy," said one builder, who believes that pricing is beginning to firm up. Recent price declines mean that some buyers have the opportunity of a lifetime to buy the home of their dreams, said another.

It's a good thing tomatoes weren't served for breakfast, because the contrarian speaker would have been littered with them. Builders, it's abundantly clear, are sick and tired of hearing any negative takes on current market conditions. After all, they are fighting a life-and-death battle to keep their companies afloat. And one of their major leadership objectives is to prop up morale within their companies, especially among salespeople.

Later in the program the usual shots were taken at newspaper articles that contribute to negative consumer psychology. Private builders got their digs in about public builders that ruined the market by pursuing 20 percent annual growth at the behest of the public capital markets. Some speakers criticized cash-strapped builders desperate to sell homes by offering six-figure discounts that condition every buyer in the market to ask for concessions.

All these comments argue for further price declines, of course. Bad news on foreclosures stemming from the subprime fallout is likely to continue as the number of ARMs resetting increases this year. Public builders may have stopped building homes on spec, for the most part, but they still have tons of land to work through. Check out the announcement that Centex made yesterday that might set a new floor for land values. And now we have the added negative influence of a pullback in consumer spending due to a potential economic recession.

It's important that builders not "smoke their own," so to speak, that they not confuse what they are telling potential buyers and their employees with what they really believe. Most housing organizations, including the NAHB, are calling for a decline in housing sales and starts this year. Mortgage rates may be historically low, and recent moves to liberalize FHA credit and allow Fannie Mae and Freddie Mac to buy more high-priced mortgages may help. But probably not until later in the year.

As our conference speakers have made clear, builders need to look within their operations to improve productivity. They need to be reworking home plans to take out unnecessary costs. They need to be carefully monitoring purchasing expenses, and make suppliers know they are doing this by sending things back occasionally. They need to be routinely meeting with subcontractors to find process improvements. There is still a ton of money to be saved in this business. A penny saved is still a penny earned.

At the same time, builders need to reach out to more potential new home buyers, even people who may have cancelled a previous new home contract. A far more sophisticated approach to demographics is required; we need to reach submarkets that aren't served by the existing home market. Rest assured, there are buyers out there who still need to move, who still need to buy a new home. We need to find them and convince them that our communities are ideal places to live.

It's important for builders as business managers to separate what they want customers to believe from what they know to be true. Everyone today needs to be planning for the worst and hoping for the best.

Oh, and the contrarian speaker happened to be me. Go ahead, throw tomatoes.

 
 

Comments (10 Total)

  • Posted by: Alicia | Time: 9:22 PM Sunday, October 26, 2008

    I do think now is a great time to buy, considering the low rates offered by lenders and the amount of homes being sold for much less than worth, however, rates are going to keep sliding. There is no exact "right" time to buy, and if there is, it is difficult to know. If you were to buy a home now, you would have to hold it for some time in order to make profit, and even then you don't know when. I would only buy now if I were going to keep the house for 5 to 10 years or so.

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  • Posted by: Norm Barnes | Time: 4:09 PM Tuesday, April 29, 2008

    Please no more about buying now. I am working with dozens who I have instructed to wait until Summer when everyone is on vacation. The big inventory and the sustained rates should place them at the top of their Real Estate Seeking Game. Wait a minute maybe everyone is on vacation now -- so then maybe now is a good time to buy. Never mind your right -- Now is the time to buy. PS: Does anyone really listen???

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  • Posted by: homegrrl | Time: 1:45 PM Thursday, April 17, 2008

    Contrary to what most people believe, this is one of the most ideal situations in a market like this, from a buyers perspective...especially when purchasing a new home. Many builders are offering great rates, lenders are offering low interest rates and it's a win-win for us. I came across this Jacksonville home builder the other day and they are offering great deals in ideal communities. www.collinsbuilders.net

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  • Posted by: breadbox | Time: 4:15 PM Tuesday, April 08, 2008

    This is a good time to buy, some markets and segments of markets are very region specific. Prices may be still sliding in coastal Texas, but in entry level markets in parts of Sacramento we're actually seeing prices looking for stabilization points with first time buyers and investors throwing multiple offers at 100's of properties under $200K. If you can afford to wait, why not, if you see it and like it now, grab it if you can.

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  • Posted by: MKB | Time: 9:50 AM Tuesday, April 08, 2008

    today is a good time to buy if you plan on holding on to the house for at least ten years or more. Then, after the house value drops beyond what you paid, you might be able to recoup and rebuild the equity. However, on the other hand, buying a foreclosure might be a good deal. New homes may not be such a good deal because since most of them were built during the housing 'boom', the quality control suffered leaving houses that were not built well and/or defectively. These issues are just coming to the surface and those that are now fighting their defective new home are just the tip of the iceberg. Builders did this to themselves, being greedy.

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  • Posted by: t18skyguy | Time: 11:12 PM Monday, April 07, 2008

    I would like to hear from some of the posters here what is "significant, fact based and true". I guess it's the same mantra that the NAR spouts. Goes like this: Inhale-lie, inhale-lie. You builders are lucky to have an editor that doesn't act like stupidity is a virtue.

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  • Posted by: homewatcher | Time: 3:44 PM Monday, April 07, 2008

    I applaud the author of this piece. Economic forecasts from industry pundits have become something of a joke for lay people like myself. For example, I no longer listen to the NAR with a grain of salt...it's easier and more accurate to just assume they're wrong and/or misguiding people. I, and many like me, won't buy a home until prices make sense. The sidelines are a comfortable place to watch, but it's silly to listen to industry veterans talk more about how they can drive perception that the time is right to buy rather than pursuing a state of equilibrium that makes it so the environment really is a good time to buy. Most rational people can look at this market and understand, without any doubt, that nobody is going to miss any opportunities by waiting on the sidelines. People can only hear "we've turned the corner" so many times before it becomes shorthand for "who's going to be a sucker this month?"

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  • Posted by: neal | Time: 1:28 PM Monday, April 07, 2008

    You've lost your edge as an editor (you refuse to pander to the community of con men builders who need lying writers/editors on the front lines to push their agenda), your perspective as a businessman (if you don't write what we tell you to write, wave bye-bye to our ad dollars), and your readers as a publisher of what's significant, fact-based and true in today's market (okay so none of that part is actually true, but darn it, I'm feeling self-righteous and indignant right now and after all, I DESERVE to make a ton of money overcharging people for the worthless crap boxes I build). What's next for you (after you're fired for refusing to churn out pro-builder propaganda)?

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  • Posted by: jmartino | Time: 1:25 PM Monday, April 07, 2008

    Mr Tomato Thrower: I disagree with you that John has lost readers as a publisher of what is significant. And how can it be a good time to buy when prices keep sliding, a recession is on the onset and unemployment keeps rising? I am not listenning to you retoric based on greed. I am keeping my cash to buy when it is cheaper :)

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  • Posted by: richo | Time: 11:29 AM Thursday, April 03, 2008

    John, You can't accuse me of throwing tomatoes at you because of your recent position. I've been throwing them at you for the past year or so. You have lost your edge as an editor, your perspective as a business man and your readers as a publisher of what's significant, fact based and true in today's market. What's next for you?

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About the Blogger

Boyce Thompson

thumbnail image Boyce Thompson is editorial director of the BUILDER group of magazines published by Hanley Wood, LLC. He also directs the company’s editorial council. In addition to BUILDER, Thompson serves as editorial director of Big Builder, Multifamily Executive, Digital Home, Developer, Affordable Housing Finance, and Apartment Finance Today magazines. Thompson has 26 years of experience writing and editing articles about home building, architecture, and retailing. He earned a M.A. in Journalism from the University of Missouri and holds a B.S. degree in English Literature from Northwestern University.