There seem to be two voices leading the debate on the state of the housing industry.
While one camp of observers is raising the alarm that the industry’s numbers are the lowest they’ve ever been and warning that a double-dip has hit the industry, the second argues that nothing is as bad as it seems. Between the bad weather and the now-gone home buying stimulus, the argument goes, numbers look worse than they are.
Pending home sales numbers, released today by the National Association of Realtors, are the latest example. Nationally, contracts signed in February rose 2.1% compared to January’s numbers, landing at a reading of 90.8. On an annual basis, the index fell 8.2%.
When broken down by region, the data do seem to have something to do with the weather. The Northeast, which had some of the worst snowfall on record in many places, was the only region to drop for the month, falling 10.9% from the previous month. Meanwhile, the South, Midwest, and West all saw gains from January, improving 2.7%, 4.0%, and 7.0%, respectively.
And while weather patterns can’t explain the year-over-year declines in contract signings that hit three of the four regions—the Northeast was down 18.4% from February 2010, the Midwest was down 15.9%, and the South was down 5.3%; the West gained 0.6%—the home buyer tax credit was still in place this time last year.
But even if these numbers aren’t as bad as they look, they still aren’t good. The fact that contracts for homes are inching up from some of the lowest levels on record still leaves pending sales rates in the dumps.
And, unfortunately, that’s where many economists expect them to stay for a while.
“I was expecting a bounce-back in February,” Patrick Newport, U.S. economist at IHS Global Insight, told Builder. “The numbers in February were just awful. … My reading is that the housing market for builders is about as bad as it’s been since 1946, because the data says that. They’re not selling homes.”
Newport attributes the continually dismal figures to the fact that home prices are still declining and the lack of available credit to builders. As to when pricing might pick up again, “no one can predict housing prices very well,” he says. “What we were anticipating was that demand for homes would pick up as the job market picked up. But so far, that hasn’t happened.”
While Wayne Yamano, vice president at John Burns Real Estate Consulting, agrees that an accurate prediction of the bottom has become elusive, he takes issue with some of the numbers that have given the industry’s status a bad name recently.
“The Census showed that February’s numbers were dramatically lower. We don’t think that’s the case,” he told Builder. While the Census bases its numbers on data from a survey of 900 of the 19,000 permit issuing places in the U.S., John Burns collected its own data for February’s sales based on 225 ratings by 197 builders—and found an uptick.
Yamano reports that many builders had a good month in February, mainly fueled by price discounts. “A lot of builders seem to be trading their margins for volume,” he said.
So with conflicting reports about the state of the industry and no consensus of when the downturn will be, what’s a builder to do?
According to Bob Schultz, president and CEO of Bob Schultz & The New Home Sales Specialists, take stock. “The market conditions are what they are, whatever they are,” Schultz told Builder in a phone interview. “If a builder is stuck with a bad product or bad locations, they’re not going to do well ever.”
Emphasizing that national numbers are far less relevant to local builders than what’s going on in their local market, Schultz encourages his clients to look at what they would do if they could start over fresh. He tells builders to inventory where their company stands relative to their local market, taking into consideration supply and demand, where pricing stands, and especially what the resale market is doing. Those numbers, he contends, will allow companies to make an honest assessment of how well their product fits into what the market is calling for, and if it's not fitting in well, builders should rework their plans and pricing.
He also recommends taking stock of the company’s salesforce to make sure salespeople are trainable and motivated. And to make sure salespeople are available to prospects, he tells builders to focus on what’s convenient for the customer, rather than for the builder, such as opening models during hours when people are out shopping.
“I suggest that it’s not about the market or the market conditions in the final analysis that really matters,” he said. “It’s what you as a builder and what your sales organization does that matters.”
Claire Easley is senior editor, online, at Builder.
Learn more about markets featured in this article: Greenville, SC.