In February, about 75,000 people packed the aisles at the International Builders’ Show (IBS) and the Kitchen & Bath Industry Show in Las Vegas. The consensus seems to be that 2014 will be the year recovery truly takes hold in the American housing landscape.
Global jitters over a Chinese economic retrenchment, domestic angst in the face of the Federal Reserve’s plan to pare back its blitz of monetary accommodation each successive month, and a wearisome, unrelenting cold grip of unkind winter weather have riled investors for more than a month during the first part of 2014.
Weighed down by those fears, the NAHB/ Wells Fargo Housing Market Index of home builder confidence fell by 10 points in January, from 56 to 46. Still, real-time builder sentiment at IBS was positive, if not fearless.
For perspective, we visited a couple of communities in the Las Vegas Valley before the start of the trade shows. We toured Toll Brothers’ Santaluz and Harmony Homes’ family-oriented Silhouette neighborhood to get a sense of the “barbell” of demand at the higher and lower price spectrum in the market.
The contrast, on the eve of selling season, was palpable in the respective sales centers. From Toll Brothers Las Vegas division president David Straub we got a strong sense that, having sold 39 of the community’s 53 properties from the mid-$500s to mid-$600s, demand at this higher end has held up through 2013 and into the start of 2014. What’s not so clear, as we ascertained from Harmony Homes general sales manager Geoff Gorman, is what the optics are on demand at the lower end of Las Vegas’ price continuum.
Here, we use the perspective we got from outside the convention center to ask 10 burning questions of the moment:
1. Will the entry-level, first-time buyer participate this year, and stabilize demand for new homes at the low-end of the spectrum?
2. Will the economy create enough well-paying jobs to lead to household formations and new-home demand at a normalized level versus a level suppressed by economic anemia?
3. What will new-home builders’ active role be in stimulating those entry-level buyers to move off the sideline with disruptively low-priced opportunities at homeownership as an escape-route from spiraling rents?
4. Will less uncertainty vis-à-vis bank regulation in the wake of clear-if-tough guidelines on ability-to-repay criteria eventually cause national banks and regional banks to move assertively back into mortgage finance?
5. Will vacant developed lot supply constraints in the markets that have thriving jobs, household formations, and income continue to bubble, while other markets and submarkets operate on a slowly improving trajectory?
6. Will Asian and other non-U.S.-based reside ntial property buyers play as big a role in housing markets this year as in 2012 and 2013?
7. Will builders and their materials, labor, and manufacturer vendors work toward greater SKU visibility and transparency as a means of slicing time and other cost run-ups out of the construction cycle, or as a cash-preservation and margin improvement strategy?
8. Will the opening of new master planned communities in the Southern and Northern California regions, Texas, and Colorado give home builders more visibility into the pace and price of the demand?
9. Having booked profitability for eight or more quarters on the back of land-asset write-downs and other massive overhead cost-cuts, will builders be able to scale their expansion of community counts and add 2015 and 2016 lots in a way that continues to show profits?
10. Who is out there to hire? What is their job description? And how does one retain, motivate, and inspire the current talent base to excel at every operational level?