Thriving in Wartime Conditions
Builder & Developer Luncheon offers an informative perspective on the housing industry
At the 8th Annual Builder & Developer Luncheon on February 27, Dr. Mark Dotzour, Ph.D., Chief Economist and Director of Research with the Real Estate Center at Texas A&M University, gave an entertaining and informative presentation on the current economic situation and its effect on the construction industry.
In his speech, “Thriving in Wartime Conditions,” Dotzour noted that the country is currently battling on five fronts: active fighting in the Middle East; cyber wars with Russia and North Korea; a currency war with China, Japan, and Europe; a carbon war with OPEC; and also a mortgage war with government regulators. Despite all these conflicts, he was optimistic about the country’s economic future.
“If they are told the truth, Americans will figure out a way to grow, thrive, and survive,” he said. And current statistics seem to support that claim. Dotzour’s bullish outlook on the economy appears to be accurate, although the economic recovery is progressing slowly.
He believes the reason for the slow recovery is that the only thing sustaining growth right now is government intervention. “A real economic recovery is moved by real businesses and real consumers getting busy, not the House or the Senate or some government program,” he said.
For the economy to truly turn around, he believes two key issues are at play: a volatile oil market and mortgage availability.
Volatility in the oil market, which has artificially driven prices lower and lower over the past several months, remains a key issue in international economics, and that eventually affects every area of the local economy. Oil-rich countries whose economies rely on oil profits for survival cannot maintain these low prices indefinitely, and how those countries respond will affect not just oil prices but government stability in some of these areas. This issue is one to be watching in 2015 because it will have an effect on so many other areas of the economy, Dotzour said.
In the housing market, government restrictions on mortgage lending are the key issue. These will need to be loosened if the housing market is truly going to open up, according to Dotzour. Single-family housing availability dropped significantly in the late 2000s, and it remains much lower than before the drop because entry-level buyers are having a hard time financing.
“We need the single-family housing market to start growing in order to continue the economic recovery, and to do that, we need inventory. And it’s not there,” he said. “Three months of inventory of homes is not enough, which is what you have in Des Moines.”
On top of that, Dotzour added, the next phase of economic growth will be at the middle-income level as mortgage opportunities increase.
“When these people start asking to see homes under the $200,000 level, how many homes will you be able to show them? None. Not enough lots available, land prices keep going up, and that’s where we’re at right now,” he said.
However, optimism across the board—from consumers on up to business owners and lenders—has led Dotzour to predict that more people will be buying homes in 2015 than in any of the past five to seven years.
“And that’s going to be a good thing for the economy as a whole,” he added, “because more people buying homes means more people building homes, and that creates jobs.”
Following the main presentation, Kalen Ludwig and Cannon Clark from Peoples Company provided a glimpse of the local housing market, which confirmed Dotzour’s view. Though some locations around central Iowa remain strong, some communities are struggling to grow and others are dealing with elevated land and home prices.
Steve Bruere of Peoples Company said this overview is exactly what they hope to achieve each year with the Builder & Developer Luncheon.
“We track every building permit in the Des Moines metro,” he said, in order to monitor activity and see where growth is happening and how the market is doing and that is what we pass on to attendees.
“We started it in 2008, just to get our hands around what the market was like,” he explained. “Each year this event keeps getting bigger as the market gets healthier.”
The first year, about 30 professionals attended the event. The 2015 luncheon boasted nearly 300.
A quick glance at the local market
- 2,291 new homes listed for sale
- 3.6-month supply of homes available
- $316,000 average sale price of new construction
- Fewer permits in 2014 than 2013
- More lots developed in 2014 than 2013
- Lower-priced homes shows greatest growth potential
- Busiest communities for new construction: Adel, Ankeny, Grimes, Johnston, Norwalk, Urbandale, Waukee, and West Des Moines
To view all the statistics from the local presentation, visit NewConstructionSpecialistDSM.com.
The Local Response
Here’s what some of the attendees had to say after the luncheon.
“I think there’s a lot of good momentum in our local community and in central Iowa. A lot of builders are talking about how they’re going to find that lower price point for the first-time home buyer. That’s going to be a big deal, and they’re going to have to look in the outlying areas, where the lot prices are better.”
Jason Worth, Gilcrest/Jewett Lumber Company
“A lot of the information that they’re talking through is that the economy is on its way up. Even though overall it’s down, there are cities in the Des Moines area where it’s up. You know, location, location, location is what it comes back to. The city you’re building in changes the business model you have to use.”
Alan Sprinkle, Destiny Homes
“There’s a lot of dirt being moved right now that will hopefully create more stability in lot pricing. The out-of-control lot pricing over the past couple of years has driven the price of new construction to an almost artificially high level. I think it’s all good news right now though—employment is strong, people are moving here because of the lifestyle, and our builders offer a really great product for the money.”
Kurt Schade, Coldwell Banker Mid-America Group
“I think the speaker was spot on with what he said. Two things concern me right now. In all the years I’ve been doing this, I don’t think I’ve seen so many price increases so quickly on home construction. And the second thing is lot prices—they’re higher than I ever imagined they’d be. Those two things are giving us a price point that’s unmanageable.”
Ted Grob, Savannah Homes
“Although the housing market has been growing slowly, it’s on an uptick. I don’t know how quickly that’s going to grow, but I do believe it’s improving. We’re diversified into new construction as well as the retail replacement market, and that portion of our business has actually buoyed our business over the last couple of years. That remains strong today.”
Brandon Klinge, Pella Company
“It’s always interesting to hear the national perspectives put against the Iowa perspective. There’s going to be an opportunity to hit that millennial buyer, and in new construction that’s going to have to happen below the prices they’re at today. That’s something good that came out of today’s presentation. Millennials are going to be a big part of the market over the next few years.”
Brennan Buckley, Iowa Realty