Woodborne Design - Residential Design

19 articles in All

My Home Can Help Reduce My Carbon Footprint?

Ten Green Building Predictions for 2010

Trend Report: Growing Demand for Smaller, More Efficient Homes

Woodborne Design, Inc. is proud to announce its partnership with the U.S. Environmental Protection Agency’s ENERGY STAR program.


Timber Frames are Green

WNC Green Building Council to offer LEED certification

The Green Puzzle: Putting It All Together

Green Building Trends to Watch in 2009

Eco-Logic - H.R. 1424: Sustainable systems provide highest return

Case study: Zero-energy home, ASU and Habitat for Humanity combine efficiency and affordability

Growing green: WNC Green Building Council supports sustainable design

Green building certification programs demystified: Energy Star, N.C. HealthyBuilt Homes and LEED for Homes

Learn the lingo: Frequently asked questions to help you find the real (green) deal

A Disservice to the House: The Housing Boom Made Us Forget What Our Homes Are Really Worth

Understanding Passive Solar Heating and Cooling: Learn what it takes to create a comfortable building environment with less reliance on fossil fuels

Timber Framing 101

The Lure of a Log Home

Housing: Where Does It Go from Here?

Greg Gregory is president of Builders Supply Company in Lancaster, SC, located near Charlotte, NC. Greg is also a South Carolina State Senator.

Greg offers his fellow owners and managers his unique insights into the housing crises and where housing is likely to go from where it is today. Note: Greg's commentary focuses on his geographical region.

Looking back on previous recessions and depressions it is somewhat comforting because we know that they all ended. Today, however, one feels like a diver trying to reach the bottom of murky water. The question we all ponder is how deep this thing will get before we touch bottom and spring back.

We can take comfort in knowing that the US economy has faced dire circumstances before and always come back stronger. In addition, most previous downturns happened before there was a central banking system and other tools now in place.

Our primary concern is when the housing industry will be resurrected. Unlike autos, housing markets vary according to geography. Some felt the decline two years ago and others only recently. Today, however, most every market is feeling considerable pain. With starts dropping from over 2,000,000 to a projected 560,000 there is no immunity to hardship.

Just as this downturn has been uneven among markets, so too will be the recovery. Regions with the most diversified economies will come back first, while others dependent on declining industries and unfavorable demographics will take longer. A snapshot of the industry reveals some benevolent forces already at work for a recovery and others pushing strongly against it.

Forces at work for a recovery are:

1) Declining land and material prices – Escalating land costs were the primary catalyst in the unsustainable run-up in housing prices. This run-up led to housing costs far outstripping income growth which led to creative financing which led to … well, you know. Anyway, merchant builders are unloading lots for 20 cents on the dollar in some markets, so the prices are down.
The commodities boom drove up material prices, but all products that are not petroleum related are now flat to drastically down. Lumber, OSB and sheetrock currently sell at 20 year lows.

2) Lower interest rates - Mortgage rates are at multi-year lows. These rates have to be a strong enticement to buy. Falling prices and rates would be a 2X force in a normal market.

3) Demographics – People still want to live in the southeast and continue to migrate here. Those already here will grow their families, as the US has the highest birthrate in the industrialized world. While new home starts exceeded true demand for 2004 to 2006, they have lagged the long term demand trend in recent years. Eventually this must even out or we will face a housing shortage.

4) No new "spec" homes – Builders have drastically curtailed building specs, so the existing inventory will have to sell off sooner or later.

5) Federal stimulus and tax cuts – The much talked about stimulus plan will have some effect, but how much is unknown. President-elect Obama's proposed $300 billion tax cut should be bullish for housing.

Working against a recovery are:

1) Creative to Constricted Credit Markets – The origin of the housing debacle was easy credit. Now lenders have overcorrected and exacerbated the problem. Trust has been lost and it will take time for it to be regained. Banks make money, though, on interest and fees. Without new loans their fee income will disappear. Eventually banks will begin to lend again. However, for now, this has led to ….

2) Record Foreclosures – The push by Congress, Wall Street, Freddie Mac and Fannie Mae to make every American a homeowner has been an unmitigated disaster. Foreclosures now dot the landscape everywhere and are the greatest competition for the sale of new homes. 765,000 homes were foreclosed on in the third quarter with the 4th quarter almost guaranteed to be higher. Until excess foreclosures are mopped up we will continue to have …

3) Falling Home Prices – Some economists say we are 60% there on falling prices with another 40% to go. No buyer wants to catch a falling knife, so most are content to wait. Year over year comparisons of home sales and prices continue to be negative. This further depresses incentive to buy. Economist Ed Seifried predicts that prices will bottom out at a level equal to 2003 levels plus CPI inflation. From there the market could come back quickly. That won't happen soon, though, because we're now faced with ….

4) Rising Unemployment – Construction and finance created many of the new jobs since 2001. Of course, both industries are now leading us into the abyss. Tax cuts and stimulus spending will create some new jobs, but most will have to come from the American economy reinventing itself as it has done dozens of times before. Sometimes this happens quickly as with the downturns of 1987, 1991 and 2001. Other times it can stretch out longer: see the Great Depression, 1929-39.

In conclusion, it's known that Americans in general and homebuilders in particular are optimistic, risk taking people. Our forefathers carved an empire of wealth out of a raging wilderness. They faced times tougher than these with far fewer resources. Our economy will come back and housing along with it. The long history of business cycles guarantees this. However, this down cycle will be prolonged if it is mishandled by the federal government.

The Obama administration and Congress must shore up the economy through incentives, but not strangle it with a heavy hand. For example, the interference by the government in staving off inevitable foreclosures will create artificial bottoms that give way later rather than sooner.
Better to let the business cycle run its course so the real bottom can be found quickly, if painfully.

In other words, have the courage to rip off the band aid rather than starting and stopping. When we feel the worst is behind us, then confidence can be restored and building begin anew.

by Greg Gregory
Source: Bill Lee's Management Tips Newsletter

Publication date: January, 2009