BuildingTeam Construction Forecast

Notes from Jim Haughey

Reed Construction Data Chief Economist Jim Haughey discusses how current developments in construction markets and the ecomony will bring opportunities and challenges for designers, contractors, and materials and services providers. His reports will cover near-term building demand, cost and financing changes, and will provide early notice on changes in the detailed two-year construction forecasts elsewhere on this site. Feedback and questions from readers are encouraged.

Thursday, October 25, 2007

Location Preferences Now Being Revealed in the Buyers' Market

Oct 25 2007 6:43AM | Permalink | Email this | Comments (1) |
Blog This! using: | |

There is important site planning information for homebuilders and developers in how different towns and neighborhoods are faring during the steep, metro wide decline in housing permits in most local housing markets. Compare the current location options for prospective homebuyers to their options from late 2003 into early 2006 in most major markets.

Today, homebuyers can realize their location preference because of the huge surplus of available homes, especially existing homes. Two years ago, homebuyers often had to buy wherever they could find a reasonable home for sale. Remember the lines of prospective buyers in California, Florida and other supply-constrained markets hoping that they were close enough to the front of the line to be allowed to buy a home in whatever subdivision was being sold that weekend.

I faced a different type of supply-constrained market when I moved to Boston in 1980. There was very little for sale in a housing market well into a deep recession and with 16% plus mortgage rates. I picked six towns to look in. Three had nothing available in the price, size and style range whether suitable or not and three others had a single home for sale that turned out to be much overpriced or a handyman special. I bought elsewhere where a few suitable homes were available.

The buying decisions being made today more accurately reflect household location preferences rather than revealing where homebuilders got a good price on vacant land. Here are three examples of how different parts of a metro housing market have fared during the ongoing housing collapse. I will not generalize from a small sample but only demonstrate that the map of where homes are built changes when buyers, rather than builders control the location decisions on new homes.

This does not suggest that builder misread their market and made dumb location decisions. Builders made the right decisions in a sellers’ market by choosing locations that would maximize their margins because buyers were forced to come to them. Now that most housing markets are buyers’ markets, builders have to accept the location preferences made by homebuyers. This will be the situation for at least several more years.

Eighteen northwestern suburbs had a combined 19% decline in housing permits this year through August compared to the same period last year. But 6 of the 18 towns had an increase in permits. The inference is that these towns are where people prefer to buy and do buy now that they have the ability without being constrained by what builders make available.

Eleven northwestern suburbs had a combined 60% decline in housing permits. But one town had an increase while three towns had only marginal drops and permits nearly vanished in two other towns. Again, this reveals where people prefer to buy with these preferences likely persisting until the next period of supply constraint.

Eight Virginia suburbs had a combined 42% decline in housing permits. But one town had a large gain, three have relatively small declines and two had declines over 70%.

Reader Comments

at 10/31/2007 2:23:35 PM, Robert Sheehan said:
Question: What was the source of the Stats used & was this SF &\or MF combined? X

Post a comment

RCD Tool Center
RCD Links
Project Information
Building Product Info
Regional Publications
Other Products
Please visit these other Reed Business sites