I originally wrote about “truth” in January of last year but the events of the ensuing twelve months have convinced me that the subject is worth revisiting. My missive today is not about religion, the well know source of the title, nor about politics, where this quote is often applied and, in my opinion, applied incorrectly. Rather, I would hope to share with my readers some basic truth about housing and the homebuilding industry.
The national media continues to harp on the negatives that continue to plague housing including foreclosures, shadow inventory and one of their favorites, minor monthly fluctuations in the S&P Case-Shiller Index. If one looks hard enough, there is always some statistic that can be found that, with a little creativity, can be used as the basis for a prognostication for doom and gloom.
And although all of these reports and the data on which they are based may contain some elements of truth, none of them contain the whole truth nor are they sufficient on their own to base a realistic forecast for housing in general nor for the homebuilding industry. Certainly there continue to be a significant amount of foreclosures on the horizon and an equally troubling high number of underwater mortgages that likely will become foreclosures or, at least, short sales at discounted values. It is also reasonable to assume that the Case-Shiller Index will continue to show monthly fluctuations and in some local markets, even ongoing declines in value. But there is no doubt in my mind that for the vast majority of housing markets around the country, 2011 will prove to be the start of a long lasting recovery for housing and for the homebuilding industry.
The basis for my belief is very simple and arises from four simple facts (truths):
First, Americans have embraced the belief in home ownership and it is now a fundamental part of our national psyche. According to a consumer survey last month by Fannie Mae, the housing crisis hasn’t quenched the homeownership thirst. More than 51% of people said the recent troubles did not change their willingness to buy a home and an additional 27% said it actually made them more likely to do so. The report, the first detailed analysis Fannie has taken of consumer attitudes about the rent-or-own decision, found that qualitative reasons — like having the ability to remodel (or for new homes customize to their tastes) or to send the kids to a better school — have overtaken financial considerations as the primary motivators for homeownership.
Second, according to a story from Forbes last month titled “Home Prices Exit 2000s Way Up, Despite Crash”, the article explains that despite “all the teeth-gnashing over the real estate bubble, the bust and the mortgage mess, you can be forgiven for failing to notice this little tidbit: Housinghad a superb decade. In fact, the value of a square foot of housing in the U.S. is up 58% from its January 2000 level for the 25 largest U.S. metropolitan areas. That represents an average annual gain of 4.3% in the value of one square foot of housing” and are impressive considering that the S&P 500 is lower now than it was in January 2000 as is the Nasdaq. Even factoring in inflation, which ran between 2.5% and 3.5% for most of the decade, a home purchase really did produce wealth for anyone who opted to sell stocks and invest in housing at the time of the dot-com crash.
Third, population growth continues strong in the US. and, when employment increases and consumer confidence returns (and they are both already on their way back up nationally and in several local markets), will fuel increased household formations that equal housing demand. In fact, we as homebuilders have been under-producing new housing for the past several years based on population growth so that a return to 1,500,000+ new housing starts annually must occur well before the end of this decade to satisfy demand.
And fourth and most important in my opinion, residential developments that were properly conceived and executed have continued to sell and make a profit even during the downturn of the past several years. Last Thursday at the International Builders Show in Orlando, one of the new communities with which I have had the pleasure of working as a strategic consultant since its conceptualization received the BALA (Best in American Living) Platinum award for best community in the country. While awards are nice, even better is the fact that this development has seen its market share of area homebuilding increase and its sales meet or exceed projections every year since opening even though the overall new home market in that area has declined by well over 60% from average and 85% from peak.
As long as I started this blog with a religious title, let me share the following: “Pray like it all depends on God, work like it all depends on you” (Augustine of Hippo later known as St. Augustine). Prayer may be good for the soul but it will not produce the sales, success and profits that we need. Intelligent strategy crafted on the basis of analysis of diligent research and facts (the truth) creates the opportunity for success. Professional implementation of tactics based on that strategy makes that success a reality and generates profits. “And you shall know the truth, and the truth shall make you free.” (John 8:32). We are providing a product that the market needs and wants – new homes. If we all make 2011 the year of truth for the homebuilding industry and use that truth to work toward optimization of our communities, it will free us from our current struggles and lead us straight to success and profitability. But that’s just my opinion.
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