The Sullivan Group Market Observer
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Pain and uncertainty are still in full bloom in the residential marketplace. But while inventory is still an issue and the media continues to harp on the fact that we are so far from the peak of mid- to late-2005 that the industry is a step from death, I have said many times that we shouldn't exaggerate. In fact, there is even a little good news amidst the correction.
First, to address the concept that we have fallen from the peak of 18 months ago: it was time.
We are a cyclical economy and industry, and with a nearly 10-year bull run in the residential market that brought out the worst in investors and speculators, the cyclical nature of the housing market had to rear its head. And last time I checked, housing was not a liquid asset. So for anyone who expected a 20% return from "flipping" a house over a 90-day period, it shouldn't be a surprise that this concept did not last.
And second, while inventory is still our biggest market concern, it is slowly reducing in many markets.
The supply of unsold resale homes in the U.S. flattened during the last three months of 2006. Of course, this can be partly attributed to the seasonal slowdown that we often experience around the holidays, when people pulled their homes off the market to wait it out. Yet as we glide through the early part of 2007, we are not seeing a major spike in unsold inventory – at least not yet.
But the real rays of light in the economy and housing market include:
· Consumer confidence hit a 5 ½ year high in February, reaching 112.5. Because the 100 mark is considered a relatively calm position for the marketplace, 112.5 signifies an upswing in confidence. (As some perspective, that number was into the 140s during the times of "irrational exuberance" in the late 1990s and hovered around 110 in early 2002, which was the last time we saw consumer confidence that high.)
· Existing home sales in the U.S. rose 3% in January to a seasonally adjusted annual rate of 6.46 million sales, the highest pace in seven months. This is significant because we need to see some momentum in the velocity of new and resale homes to reduce those unsold inventory numbers.
· Many of our homebuilder clients in the southwest report a notable uptick in sales in the last four weeks. None of our clients are going so far to say that the market has been corrected, but the general sense is that the last month or so has been better that any in the last six to eight months. Now if builders can continue to pay attention to sales prices, the market might find some equilibrium.
Indeed, vigilance in all areas of the economy is going to be key moving forward. With a slowdown in the U.S., as well as the Chinese markets – as evidenced by the recent sharp dip in the Dow – there is some worry in the equities market that a recession is ahead. Additionally, we want to closely monitor the actual supply of foreclosed homes, as it's these homes that will become true competition.
But the brightest light of opportunity amidst the clouds of correction is that there are still buyers out there – buyers who will respond to a great product and appropriate pricing, regardless of market conditions.
Volume 7
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Indeed, vigilance in all areas of the economy is going to be key moving forward.
- Tim Sullivan
Who's Who in Homebuilding
Builder And Developer Magazine
As one of the prominent figures featured in Builder and Developer's "Who's Who in Homebuilding", click here to see what Tim Sullivan had to say about how Sullivan Group will change the way it does business in 2007 and beyond (scroll to the bottom of the linked page).
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