Wednesday, April 6, 2011

4 ELEMENTS NEEDED FOR HOUSING RECOVERY

After hearing the good news about housing the first two months of this year, the new home market is starting to get hit again with slower sales.  The big guns in the new home market are really taking it on chin. 

KB Home reported horrible first-quarter results: a net loss of $114.5 million, or $1.49 a share, compared with a loss of $54.7 million, or 71 cents a share, in the year-earlier quarter. The company delivered just 949 homes in the quarter and its backlog of orders shrunk to 1,689 from 2,713 in the year-ago quarter. The year-ago quarter was boosted, such as it was, by a tax credit that expired last year.  Let's hope their Martha Stewart works!

What is needed to turn the new housing business around?  It could be as simple as 1,2,3 &4!

More Jobs.  In February and March, 270,000 private sector jobs were added, the best two consecutive months in 5 years.  Jobs are key to a housing recovery.  People with jobs will start to buy used homes and homeowners that sold their homes will begin to look at new homes again.  We need job creation and rehiring to get to 300-400,000 before it really has an impact though.  Might happen.

Mortgage Rates must remain low.  Mortgages have remained around 5% and as long as it stays in that range, we have a fighting chance.  One of the big unknowns is the future of Freddie Mac and Fannie Mae.  If they tumble and banks are forced to hold their own paper, it could seriously hurt the new home market.  Bankers are a conservative bunch.  Duh! 
  
Oil prices must fall.  Unless you won a major oil company, rising prices can't be something you need right now.  And neither can the consumer who is losing confidence in the economy which translates to slower spending on big ticket items like housing!  Economists are predicting a sharp drop in gas prices by the end of the year but we all know how accurate they have been lately.

Home prices must stabilize.  With all the foreclosed properties hitting the market this year and the looming "shadow market" of houses waiting to come onto the scene, used house prices must bottom out soon.  If they do, new home builders will have a benchmark that sets the prices they can get for a new home.  If prices continue to drop, new home builders will have to try to live with lesser and lesser profits to keep the doors open.

If these four elements come into play this year, it could mean the bottom has been reached and a slow but steady climb back is in our future.

3 comments:

Anonymous said...

When you say jobs, I would say "good paying, middle class" jobs. Not part time at Walmart jobs.
America prospered when the middle class prospered.
without the middle class to buy our homes, we are doomed! There are only so many CEOs we can sell to!

modular building guy said...

"Unless you won a major oil company"... I think you meant ..own a major oil company; How much fun would it be to really win one though! :)

Anonymous said...

I just heard that McDonald's is going to hire 50,000 new workers in one day. Most of them will be part time summer help and the rest will be replacing other employees that quit to take better jobs. This really isn't going to help one bit but it's a great public relations stunt.