Longer Term Concern That Gas Prices Could Hurt
Sales in Exurbs
By Gary Rosenberger
NEW YORK (EconoPlay) – Demand slowed remained buoyant in September but
slipped somewhat from the scorching rate seen during the summer, not bad in
the face of two hurricanes, a run-up in fuel prices and higher mortgage
rates, homebuilders report.
New home orders remained well above year ago
levels among the large and small builders contacted, noting September slowed
less than usual even with the focus on back to school and back to work.
Builders are heartened by a better than expected
employment growth and see that as an offset to any rise in mortgage rates.
Average fixed-rate, 30-year mortgages remained below 6.0% all month despite
a 25 basis point rise.
A longer-term concern is how fuel prices might
impact sales far a-field from central business districts now that the cost
of a commute has risen – but there is no early evidence yet of a move
downtown.
Another potential cloud is what might happen to
the cost of building materials once the rebuilding of New Orleans begins –
already there are reports of stockpiling at lumberyards in anticipation of
future shortages and, with that, prices are already moving higher.
“Things are going very well. We continue to see
strong traffic coming to our new communities,” said Rich Morin, president of
Kara Elizabeth Homes in North Kingstown, Rhode Island, who builds in the
North East. “Our company is continuing to reach new sales records.”
A Rhode Island development of some 32 homes valued
at around $750,000 was sold out in a week and in Vermont “we’re maxed out,”
Morin said “We’re taking orders for homes we can’t build until next year.”
Morin, who also serves as the NAHB’s national vice
president for New England, sees signs of spottiness in the existing home
sector but blame that on sellers who overreach on asking price.
“They get a little greedy and overzealous, so it’s
slipped back a bit – maybe it fell back 50 grand on a million dollar home,”
he said.
The only Katrina impact Morin expects on new home
orders in the Northeast is on materials costs, particularly once the
reconstruction begins in earnest. While lumber prices are higher on
stockpiling, he thinks prices are slated to retrace once it becomes clear
how much lumber was released into the market from hurricane damage.
However, he believes that based on previous
disasters it would be another six to eight months before the recovery
process would begin to impact construction costs – and Morin has one Florida
customer who only now is buying a new home after having lost his last year
with hurricane Charley.
Hans Hagen of Hans Hagen Homes in Minneapolis saw
a good uptick in September but against a soft year-ago comparison, with
dollar sales outpacing volume sales.
“We’ve seen a general slowdown in the Twin Cities.
Building permits are down 15 percent but dollar volumes are down only five
percent,” he said, adding that the main driver of pricing is the rise in
land prices.
Having said that, “there is no bubble in the Twin
Cities,” Hagen said. “It is a very stable pricing environment. We have not
had significant price increases – maybe just eight or nine percent in the
last four to five years.” He also notes that a low unemployment rate
continues to support the local market.
Hagen blames rising lumber prices on Katrina.
“They’re not rebuilding yet, but lumber dealers are already buying up
available supply and there’s an imbalance. They’re loading up in
anticipation of price increases later on.”
He does worry about a potential slowdown in
existing home sales on his business. “The bulk of my sales are move up.
They’re second-time buyers and if existing home sales slow there’s some
reaction on new home sales.” He has seen a lengthening in the time homes
stay listed and that might have delayed some sales – “but so far no major
cancellations.”
“Sales in September continue to be good – not
quite as strong as July and August, but pretty close,” said Dave Servoss,
president of Anderson Homes, serving North Carolina’s Research Triangle.
“It’s better than last year.”
His pace of sales continues to run about 30% above
last year – “and you have to be pleased about that.” Servoss saw foot
traffic slowing over the Labor Day weekend with no way to know how much was
a CNN-effect over Katrina, fuel prices or just the typical seasonal slowdown
that accompanies back to school.
But business did rush back in the second half of
the month. “It picked up in 50 percent of our communities. We figure that
means things are generally picking up.” Indeed, he had 38 net contracts in
September, compared against 41 to 42 in the prior three months.
Servoss said he is concerned about the impact of
fuel prices on outlying communities, where commuting costs are a potential
issue. “I’m worried about that but have not seen evidence of that yet,” he
said. “I think it takes a little longer for people to change their habits
when it comes to buying homes than it does for buying cars.”
“We felt no direct impact from Katrina in any of
the major housing markets,” said Kelly Masuda, vice president of capital
markets and treasurer at KB Home, based in Los Angeles. Rita, however, was a
different matter as the evacuation of Houston, which is a major market,
halted housing construction for about a week. “That is a good-sized housing
market. Houston last year had 39,000 permits.”
It’s too early to tell what the ultimate impact
would be of gas prices on communities with long commutes, “but we haven’t
seen any major impact on business yet,” he added
“Our bigger concern is the impact of the
reconstruction on building materials costs and the availability of labor. We
haven’t seen any effects yet because they haven’t started to rebuild,” he
said.
So far, the impact on lumber costs has been
modest. “Pre-Katrina lumber prices were down 20 percent year over year,
Katrina gave some of that back and it’s down just 10 percent – although
there’s no shortages,” Masuda said.
Another issue, the housing bubble, “has been
overblown by the media,” he said. Year over year housing prices have
moderated. The rise this year isn’t as much as it was last year. But I think
pricing is still healthy, even robust. But it’s better that prices haven’t
gone out of control.”
Masuda argues that interest rates and job growth
continue to support home building. Yet, he would trade away low interest
rates for more employment growth. “I look at the last 14 years and we sold
six to seven homes per community per month whether interest rates were low
or high.”
He asserts that large, well-capitalized builders
that command 25% market share would do well no matter how the housing market
gyrates, as they benefit from competitive advantages over smaller
competitors that comprise the remaining 75% of the market.
“We’ve averaged 20% growth in each of the last
seven quarters and I can tell you the housing market hasn’t been growing 20
percent in that time,” he said.
He noted that the KB Home community count is
higher in the second half than it was in the first half, testifying to the
company’s optimism about the direction of the market.
Hovnanian Enterprises, the national residential
builder based in Red Bank, New Jersey, also back ended its construction
schedule into the second half.
It saw the dollar value of its homes skyrocket by
68% with volume growth up 62%, compared against September 2004 on back of a
huge upswing in its community count, which increased to 352 from 277 a year
ago and new acquisitions.
It saw its greatest increase, a whopping 190%, in
its Southeast market, which includes Florida, Maryland, the Carolinas,
Virginia and West Virginia.
The National Association
of Home Builders releases its housing market index for October on Tuesday,
Oct. 16 at 1 p.m. Eastern time. The U.S. Commerce Dept. is scheduled to
release September housing starts and building permits data on Wednesday,
Oct. 21 at 8:30 a.m. ET.
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