The Inventory of Affordable Homes is Declining
CNNMoney.com, a service of CNN, Fortune & Money, just reported today (5/11/2010), that the inventory of affordable homes has fallen substantially from just several months ago, along with another more expensive range of housing.
What Does This Mean for America’s Housing Economy?
It appears that soon, the housing construction market should be improving. Why? Because in our free market society, we operate by the laws of Demand and Supply (not the other way around, which got us into our current housing slump). Affordable homes are a substantial portion of America’s housing needs. Some people call these Starter Houses, because young couples with modest income want the American Dream: their own home, but they cannot afford to buy larger, more luxurious residences. So, they shop for smaller houses that give them what they can pay for now.
(C)Copyright 2010 Merry Soellner, All Rights Reserved Worldwide. Please include a link to this press release from your website with the anchor text: affordable homes .
CNN Reports Decreasing Supply of Affordable Homes.
According CNN staff writer, Les Christie, amidst America’s turmoil in the housing market, something new is emerging: a lack of supply of starter housing. Before we continue with this, let’s examine some of the background and reports from some other credible powerhouse sources to understand what is happening and why and what is the likely forecast.
Warren Buffett Indicated that a Housing Recovery was Beginning, Several Months Ago.
Back in late February, 2010, Warren Buffett indicated that within a year, America’s housing problems “should largely be behind us.” Mr. Buffett’s companies involved with housing construction earned a reported $187 million in 2009, so we believe it is safe to assume that Mr. Buffett knows something about the residential construction market. Reports from his major shareholder indicate that Buffett is investing millions of dollars during 2010 back into his housing construction business, to be ready for his predicted Housing Recovery, which should presently be in progress, in order for Buffett’s year-long recovery forecast to occur in his suggested time frame.
Recent Harvard University Study Indicates Increase in Home Improvement Spending.
Just in the last month, Harvard University’s Joint Center on Housing posted a report that indicated, for the first time since late 2006, America’s home improvement spending will be increasing. This is significant in that residential improvement spending is a key indicator of the health of the housing market. Harvard indicates that the increase is in the process of happening right now. Their graph of residential spending is a vertical bar chart. From it, you can readily observe that the height of this graph was declining every quarter since early 2007, but now, in the 3rd quarter of 2010, it is forecasted to rise. Also, Harvard indicates a projected 4th quarter of a an higher rise for residential improvement spending by Americans. This is a bold trend that indicates that Warren Buffett was correct: there appears to be a trend of housing spending improvement happening now, increasing and by the end of this year, 2010, we should be well on the way to a healed housing economy.
America’s Current Housing Market Situation.
Okay, back to now. Many Americans have lost their homes due to the inability to make the mortgage payments because they have lost their jobs or have sharply curtailed income levels. This is tragic and everyone to whom this has happened deserves all Americans’ sympathy and support in their time of need. Families, friends, and frugality will help us all through this period. We wish that the American Government had a more efficient and immediate means of assisting people during this downturn, to allow them to hunker down, keep their homes, and resume life as usual when we come out on the other side. Like a one-page form that allowed you to explain your circumstances and qualify for some sort of Government-backed partial guarantee on your mortgage. That would allow banks to have a reason to lower your payments for several months while you found new employment, rather than foreclosing and feeding a vicious cycle of under-priced housing on the market, further depressing the economy. Surely there is someone in the government who can talk to people in the banking sector to develop this sort of temporary assistance. Well, this is a hope and wish on our part. We hope that happens.
Whether or not the above happens will be very important to the people involved with trying to avoid foreclosure. Even so, America’s economy has been resilient through its nearly 2-1/2 centuries of expansion. We have always recovered. We always will. Why? We don’t quit. We persevere. We do what we need to do to survive, take care of our families, and continue improving our lives and our country.
Affordable Homes, The Housing Market, and Steak on Grocer’s Shelves.
Alright, back to reality. As Buffett pointed out, America’s Demand for new homes has been about 1.2 million per year. As he pointed out, unfortunately Americans were building a Supply of around 2 million new homes over a two to three year period 2006-2009+/-, trying to cash in on the rising pricing bubble for the sales of new houses. Obviously, as Buffett commented, you cannot have a 66% over-supply of something so expensive in our economy as housing and have such a mis-alignment of Demand. For instance, if your local grocer felt that one of his most profitable items happened to be filet mignon, and he then over-stocked his meat department shelves with thousands of pounds of this expensive item, without paying heed to what his local Demand for finer cuts of beef happened to be, what would happen? Of course, that grocer would end up having thousands of pounds of meat laying there, going bad, because local people simply did not have the Demand for that much expensive meat. Same thing for our housing market.
How Did America Get Into This Mess?
How did this irrational exuberance occur? A desire for financial improvement certainly motivated part of it. People thought that because the housing market was rising nearly daily, that they could build a new house or two or more, using those houses as strictly an investment vehicle, rather than as shelter for their family.
Suggestion of a HousEconWarnSys.
There should have been some sort of Federal, State and Local Housing Economy Warning System. Let’s call this proposed warning signal the HousEconWarnSys. Rand Soellner has proposed that there should be warning lights down at your local building department office and on your local, state and national news programs, similar to the defense warning system of Homeland Security, with a traffic light indicator.
Green could mean: sure go ahead and build those new houses as an investment, you should be able to sell them in a few weeks or a few months, because the Demand is more than or at least equal to supply.
Yellow could stand for: Warning! Demand is slightly less than Supply, so you are taking a financial risk if that home or homes you are planning on building needs to sell soon. It may end up sitting on the market, possibly for longer than you would like and may sell for slightly less than normal going prices, because there are more than enough houses on the market right now.
Red could mean: Don’t Do It! If you do, you will probably NOT sell what you are building for up to a year or more, and at depressed prices. Your doing so will contribute to a declining housing market throughout the Country. For heaven’s sake, wait to build, if what you are planning on doing is strictly an investment: you will hurt yourself and your bank and your Country’s economy! To paraphrase Smokey the Bear: “Only You can Prevent a Housing Economy Meltdown.”
Free-Market Economy Underscores Our Personal Responsibility to the Overall Housing Market.
That is part of the price we pay for a free-market financial system. No one can stop you from spending your money on what you want to spend it on. Probably many of us never imagined that what we do as individuals, when taken collectively, can help or hurt our entire nation’s economy.
Alright, so we now see just some of the factors influencing America’s current situation, a small window that we can peer through, behind us and ahead of us, to help us understand how we got into this mess. So how we are presently working our way out of it? How is that happening?
Recovery in Progress: Absorption of the Current Housing Oversupply
Actually, once again, Americans are spending in our free-market system. Only right now, they are buying the millions of homes sitting on our nation’s streets just like that meat on the grocer’s shelves. Construction of new houses in America has all but stopped. During the first quarter of 2010 in Macon County, NC, for instance, we heard it reported by a local real estate broker that there were only 2 new building permits for houses. This had to happen, according to Mr. Buffett. The present over-supply has to be bought, even at the disastrously low fire-sale pricing of today.
Once the over-supply has been absorbed, THEN America can begin building housing again. Hopefully, this next time, the new construction will occur with a more responsible eye from ALL OF US to the overall economy; actively searching out information about whether the housing Demand is LESS than the Supply. Assuming that our proposed HousEconWarnSys is not implemented. We actually have forwarded this idea to the White House, but have not heard back yet if they thought this was a reasonable idea or not. We really would harbor the present administration no ill will if they do not respond, as they receive millions of communications daily and weekly. How can they possibly respond to all of us?
This has been quite a side-track, to help us understand part of the Whys that put us where we are, and certainly not everything that was a contributing factor can be included. These are merely the observations of http://www.HomeArchitects.com .
It is a logical consequence that as Demand catches up to the current Supply level and overtakes it during the coming months (according to Warren Buffett, Harvard University and now, CNNMoney.com), the housing economy will equalize and hopefully resume business as usual. But hopefully with a watchful eye on the actual Demand for new housing versus the current Supply, We will be careful never to over-build again! That doesn’t help anyone!
Current Home Supply Inventories Dropping.
Meanwhile, back at CNN:
CNNMoney.com’s information sources indicate that there is currently about 8 months worth of residential supply available (sitting on the grocer’s shelves, waiting to be bought). According to CNN, a normal real estate market has about a 6-month supply of homes waiting to be bought. CNN reports that things are much improved from where they were a year ago. For instance, in March 2010 there were about 2% less existing houses waiting to be bought than in the prior year, and 21.7% less houses waiting to be bought than in July, 2008.
Implications of Dropping Residential Inventories.
What does this mean? Well, it means at least 3 things:
1. The oversupply of homes IS being bought and absorbed by the ever-present Demand.
2. New home construction is just about at a standstill for now.
3. At some point in the coming 6 to 8 months there will likely be a graph cross-over point of the steady Demand exceeding the Supply.
What will happen when that 3rd point happens? Housing construction will resume. For pity’s sake, we hope at a reasonable pace, carefully tuned to the American Demand for housing, and not like a dam breaking, which would only fuel another cycle of misaligned Demand and Supply for new residences.
Back to the affordable homes inventory situation:
CNN reports that in Denver, housing supply has decreased to 5.7 months worth of Demand, down from 6.2 months previously. San Francisco reports only having 3.2 months of housing inventory, down from 6.5 months in March 2009. Phoenix has a housing Supply of about 4.5 months, down from 5.2 months. And these statistics are for housing in general, of all types, not just one particular category or price bracket.
What does this mean? It means that the steady 1.2 million annual new homes needed Demand in America is gradually consuming the existing Supply. Warren Buffett is right. It is happening. Now. In every town in America. We are resilient. We are healing. The housing recovery is happening.
The California Association of Realtors reports that their housing inventory of affordable homes (below $300,000) is at only 3.2 months worth of inventory, far below the “normal housing market” 6 months. And this is down from a 3.3 month supply from a year ago. It appears that Demand will soon be overtaking the lack of Supply, caused by a beleaguered housing economy slashing prices to levels that result in loss of profit rather than increase. Who wants to build houses for a market that takes any hopes of profit? In this same state, the Supply of million $+ houses has decreased from a 21.6 month supply to only 10.9 months, a decrease of more than half.
The Current Inventory is Being Bought.
So, houses are being bought right now. The healing is underway. Along with the healing is a lot of pain for those having to sell at sub-market prices. This should soon start to correct itself as the continuing steady Demand for new housing catches up to and absorbs the current Supply.
The upper-end new housing is also having a fairly stiff requirement from lenders right now, up to 30% to 35% down payment to obtain financing. Surely this will ease as the housing market corrects. When it does, sales of more expensive homes are likely to accelerate and the present supply should reduce dramatically. In turn, this will create a new increase in pricing and increase the higher-priced housing. As the laws of Demand and Supply indicate that when something is in Demand and there is little Supply, the price rises.
Rand Soellner HOME ARCHITECTS TM New Affordable Homes Design Being Developed.
Ultimately, there appears to be a soon-to-be realized need for affordable homes during the coming months. Rand Soellner, AIA/NCARB, indicated that he is developing a new series of compact affordable homes that have luxurious features within them. Soellner said this allows people with less money to have a more comfortable lifestyle in his firm’s designs. His Cardinal Camp Cottages have borrowed luxury features from his larger estate house designs. This gives affordable homes more enjoyable arrangements and items for substantially less money required to build his designs.
Affordable Homes contact:
Links and resources:
CNNMoney.com artcle: Real estate’s new problem: Not enough homes