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Focus on Construction: News & Notes from the International Home Builders Show

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Judging by the nearly 125,000 people in attendance at the Home Builders International Builders Show, the home building industry is on its way back to recovery.
January 26, 2015

The annual Home Builders International Builders Show (IBS) was recently held in Las Vegas, NV. IBS was combined again with the Kitchen and Bath Industry Show to create a Design and Construction week.

Wow… judging by the nearly 125,000 people in attendance, the home building industry is on its way back to recovery. The Las Vegas Convention Center was full of both attendees and vendors, reminiscent of some of the record crowds prior to the recession. It has truly become an international event.

The Housing and Economic Outlook led by NAHB’s chief economist David Crowe and assisted by David Berson (Nationwide Insurance) and Frank Nothaft (Freddie Mac) continued to offer a very optimistic outlook for 2015 and 2016. Despite a flat 2014 (less than 2% increase), the economists are predicting starts to be up 26% in 2015 and a whopping 37% in 2016. Let’s hope they are correct. Reason for the optimism included:

  • Improving U.S. economy
  • Average monthly job gains highest since 2004
  • Rising consumer confidence
  • Growing pent-up demand....it is estimated that 7.4M sales have been deferred since 2009
  • Increasing home owner’s equity
  • Better household balance sheets....total debt/one year income has declined to an average of 103%
  • Medium household income has increased
  • Low mortgage rates are expected to continue
  • Mortgage access is improving under new guidelines recently enacted

The four biggest concerns going into 2015 discussed by many seem to be:

  • Shortage of developed lots everywhere: Inventories are near all time lows and the rise in raw land costs has been dramatic in many parts of the country. Lead times to bring projects on line continues to rise.
  • Increased cycle time: It went up nearly 9 days last year to 120 days, primarily due to labor shortages.
  • Shortages of trades: Even with a modest market, the available of skilled labor is a huge concern. During the recession, it is estimated 1.5M people left the industry and have not come back. Immigration laws will impact our future labor supply as they currently represent 28% of the work force. NAHB estimates 68 immigrants are needed for every 1,000 housing permits.
  • Consistent sales: The “yoyo” effect we see in our local markets seems to be a nationwide trend.
     

Some other items of interest that were discussed:

  • As was noted as far back as 2009, the year 2003 (1,343,000 single family starts) is expected to be the “new normal.” As a point of reference, we are currently operating at nearly 50% of this “normal.”
  • Homeownership continues to decline from a record 69% in 2005 to near 64% today, which is at 1985-1995 levels. All age groups have declined during this time period.
  • Fixed mortgage interest rates are expected to increase to 4.5% - 5% by the 4th quarter of 2015.
  • From 2001 – 2013, first time home buyers represented an average of 29% of the new home buying market. This number dipped to 16% in 2014. Student loan debt is widely blamed for millennials waiting to purchase a new home.
  • NAHB’s Build PAC continues to be one of the most powerful PACs in the country. $2.3M was raised in a non-election cycle with candidates they supported having a 95% winning record.
  • Existing home prices are still down 11% from the peak.
  • Tax reform will be a topic over the next two years. President Obama’s recent proposed tax increases for the wealthy have no chance of passing. However, there is substantial interest in reducing not only the corporate tax rate, but also the rate paid on “pass through business income.” It is not likely any serious reform will happen until after the next election.

 

Any federal tax advice contained in this communication (including any attachments): (i) is intended for your use only; (ii) is based on the accuracy and completeness of the facts you have provided us; and (iii) may not be relied upon to avoid penalties.

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