Year in Review
2013 was a very interesting year for housing and can be characterized by three periods:
|January through May boom. Sales were so strong that flippers returned to the market. Home builders pushed prices high enough to intentionally slow sales because their construction crews couldn’t keep up with the pace of sales and were worried about running out of lots.|
|June through August pause. The Fed’s hint that it would start tapering gave rise to a spike in mortgage rates that put an end to the flippers and euphoria. This was a real positive for housing’s long-term prospects but a real negative for builder stock prices, which made the builders more cautious. The builders who pushed prices heaviest in May had to give some of the price increases back later in the year.|
|September through December slowdown. The fiscal cliff debate scared everyone and exacerbated the normal seasonal slowdown.|
Our Business as a Leading Indicator
Our business had a great year in 2013 and should give you some insight as to what to look forward to in 2014 and beyond.
- Look east for volume. Feasibility studies in our offices in Georgia, Virginia, Illinois, Florida, Chicago, and Texas flourished as
construction ramped in the East much faster than it ramped in the West.
- More IPOs and M&A. We were involved in 24 deals that involved companies eventually going public or buying other companies. Some of those deals did not make it to the finish line, but many are likely to reemerge if the market picks back up as expected. Most of the action was near the coasts, which kept our California and New England offices extremely busy. We updated our Best Practices Compliance Certification to give our clients utmost confidence of confidentiality heading into 2014.
- New master-planned communities. Money is finally flowing to future supply, based on the huge number of future MPCs we consulted on in 2013. This “surge” in supply will barely replace the existing MPCs that will sell out, so we expect housing demand to exceed supply for the foreseeable future. Expect the first wave of MPCs to maximize the odds of success by doing a lot of consumer research up front, choosing the right amenity package, and dictating builder architecture.
- Expensive land means detailed product and premium analysis. Land prices rose substantially (our finished lot index showed a 26% increase through Q3 2013), which is causing the new land owners to plan carefully to make sure they minimize mistakes. We partnered with 26 builder/developers and Zillow to survey 27,000 recent home shoppers on what they are looking for in their next home, and we are working with our partners and others to pick everything from exteriors to standard plumbing fixtures.
- Smarter building products and service companies. Materials and service providers are back and raising prices with a vengeance. Many of the building products companies have vowed never to get so removed from the consumer and builder again and are spending a lot of money to stay on top of changing market conditions. Since the building products companies will do well even if rates rise (presumably giving rise to more remodeling), they have a very confident outlook on the future.
2014 Executive Outlook
2014 is off to a strong start, but executives are still cautious because of:
- The debt ceiling debate. Rather than solve the problem, elected officials kicked the can down the road until February. The last thing the industry needs is another fiscal cliff scare at the beginning of the spring selling season.
- FHA changes. FHA’s significant loan limit reductions will eliminate FHA financing in a number of new home projects in 18 of the top MSAs, leaving builders to wonder just how many sales will be lost.
- Government policies. Janet Yellen as the new Fed Chair and Mel Watt as the new FHFA Director are viewed positively, but the impact of the QM implementation on January 10 brought another market uncertainty. The Fed’s unwinding of their huge securities-buying strategy also makes everyone nervous.
All in all, 2013 was a much better year than most people planned, with more price appreciation than expected and lower sales volumes. Our February 2013 forecast was for:
- 9.3% resale price appreciation, and it looks like the actual will come in around 10.4%.
- 472K new home sales (a growth of 29%), and the first 11 months of this year have averaged 434K (18% growth).
In 2014, we expect less price appreciation and similar volume growth. Stay tuned!
If you have any questions, please contact John Burns at (949) 870-1200 or by email.