Swimming naked…Housing markets and rising tides…
Metrostudy’s Consulting Group is just finishing an incredibly busy year. We completed more than 200 site-specific market studies this year, and we plan to increase that number to 250 studies next year. We are hiring the very best housing analysts and consultants around the country right now, staffing up to be ready to study more new subdivision sites in 2014.
The activity was spread out across the country, but there was an absolute explosion of market study work in Nashville. D.R. Horton, Lennar, and Meritage are entering that market, and many smaller builders are looking for deals there as well. Housing starts in Nashville rose an eye popping 33% in the latest quarter. Our market study volume is a good leading indicator for increased production in a market.
Central Florida, San Francisco, Washington DC and the Texas markets were other areas of significant market study activity this year.
Metrostudy’s latest nationwide study reveals that housing starts rose in most markets in the third quarter, but the trends were mixed among markets. A late-summer/early fall drop in sales (referred to on the public builders’ quarterly earnings calls as “The Pause”) was evident in Metrostudy’s local market research. The slowdown in sales was accompanied by a rise in home purchase cancellations, although traffic (the flow of people through builder showrooms) has risen compared comparable periods last year. From the extreme corners of the country, from Naples to Sacramento, there were signs of deteriorating volume in the face of huge price increases. The price escalations in new home communities have already moderated from the 20% rates of increase we saw in the first half of 2013, and will likely remain at these more sustainable levels through 2014.
Builders are going into the winter with a sense of cautious optimism, that the “pause” will be over soon, and sales will rebound strongly. We will be watching what happens in Florida as the winter selling season begins, and that may be a good leading indicator for the rest of the country’s *spring* selling season.
Demand is still rising, and it is still a good time to open new residential developments, but our consulting clients realize that it is now time to base land decisions on solid market research, on both demand and supply.
To paraphrase Warren Buffet, a rising tide lifts all boats, but.. when the tide goes out, you find out who’s been swimming naked. “Caught Swimming Naked” is a good analogy, as builders who pay too much in 2014 for land might be caught with their BOTTOM LINE exposed.