When the new housing numbers were released and the May figures were lower than expected, many in the industry started to lose hope that the economic recovery wasn’t real. And then reports of the slowdown of the Phoenix housing market, a longtime litmus test of housing market health, also confirmed the fears that the recovery was slower than anticipated.
We believe these numbers, while disheartening, are no reason to panic. The housing market has traditionally been filled with homeruns and strikeouts, and we urge companies to take a look at longer-term trends versus the inning-by-inning volatility. A business like homebuilding isn’t agile; it depends on a lot of factors, in particular job growth, to drive sales and expansion.
We have been dramatically underserved for several years, and much of the research and data confirms that jobs are steadily increasing. And, thanks to a low interest rate driven by the Federal Reserve, homes are still largely affordable.
In this vein, the longer investors wait for signs of a “true” market recovery, the more opportunities they will miss. New home prices and the pace of absorption in 2014 and 2015 should increase, especially as homeowners achieve positive equity in their homes and are allowed to be more mobile with the proceeds of their home sales.
The demand will come. And in order to meet that demand, builders are going to need to obtain lots either through development or acquisition. The proof of this positive acquisition cycle has started with the announcement of several major transactions.
Legendary Communities- Acquired by Meritage Homes Deal Value= $130 Million
Polygon Northwest Co- Acquired by William Lyon Homes Inc Deal Value= $520 Million
Weyerhaeuser Real Estate Company- Acquired by TRI Pointe Homes Deal Value= $2.7 Billion
Shapell Industries- Acquired by Toll Brothers Inc. Deal Value= $1.6 Billion
We believe this trend will accelerate into 2015, resulting in a multi-year recovery that we are still in the early innings of. Job growth in the markets supported by health care, energy, and technology sectors, as well as the sun belt markets, will bolster this trend. The time is now, and the opportunity is there. The question is, will you swing at the pitch?