May 2008
New Homes: The Five-Year Picture
The current over supply situation became undeniable when our
market exceeded the historical record for specs twenty-six months ago (2,400
specs reported the week of January 15, 2006). This article provides you with a historical
perspective and a glimpse at our current market in the big picture.
Five-Year Subdivision
Count
The first two years of the five-year graph below shows a
normal ebb and flow of active subs; the count climbs in late spring, when
builders are preparing for the summer when sales are typically higher, and
declines a little in late summer. In 2004
and 2005 the active sub count dropped dramatically with the investor/speculator
boom, when plans for coming subdivisions could not be acted upon as fast as active
subdivisions were selling out. The
lowest count was 482 active subs in May 2005.
Compare that with the current count of 1046 active subs and you can see
that the active sub count is still double what it was two and one half years
ago, but the subdivision count has been declining for the last nine months.
UIS defines an active subdivision as one accepting contracts
from qualified buyers. The subdivision
count data we report comes from the Ultimate
New Homes (UNH) database, which covers the entire
Five-Year Spec Count
The Ultimate
Information System (UIS) spec count is made up of the individual properties
that each subdivision chooses to report to us to be included in the UIS system
for ARMLS affiliates. The degree of completion will vary from builder to
builder and from one subdivision to another.
We believe our current count is on the conservative side, as some
subdivisions do not report their total spec quantity to us.
We only have comprehensive spec data going back through
October 2004. Prior to that our data is spottier,
but we know that the highest historical spec count was 2,400 in May 2003. Even with this partial data, a pattern is readily
apparent. The spec count maintained a
low to normal level throughout 2004, and fell sharply in 2005 during the real
estate boom when supply was unable to keep up with demand. For a year after October 2005 the spec count climbed
steadily and then declined over the next six months to a new plateau. Since April 2007 the spec count has remained
at a level well above the normal market level.
Five-Year Builder Count
Again, UIS lacks complete five-year data, but a pattern is
still clearly visible. We have the
highest historical builder count in March 2003 (159 builders), and a slow
decline of builders since then. The
builder count started rising again in June 2005, and is now at 174.
Commentary
The subdivision and spec counts and graphs clearly
illustrate that the
1. Offering huge buyer incentives
2. Offering unprecedented Realtor®
co-broke rates.
3. Offering very substantial price
reductions
It is our belief that we will not see what would be
considered a normal market until the spec count has been reduced to about 2,500
and the subdivision count is back in the range of 800. These counts have been leveling off in the
past couple months, however even when these levels are reached the resale
inventory must be considered. Therefore, we conclude that we are still many
months away from a balanced market.
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