New home lot supply drops to cycle lows
Our recent Orange County outlook, in partnership with HomeAid, gathered a warm room of experts filled with reflections from past years and ideas for 2016. We learned about roadblocks and successes our peers are experiencing and discussed strategies to navigate the current environment. The charity event raised $46,000 for the homebuilding industry’s main philanthropy, HomeAid. Their mission is to fight homelessness and they have placed nearly 250,000 previously homeless people thanks to the generosity of the building industry. To date, Meyers Research has raised over $275,000 in proceeds for the charity. Below are some key highlights from our event.
HIGHLIGHTS
Economic Overview. Our Chief Economist, Kevin Gillen Ph.D., presented on the national economy and the Southern California landscape. Kevin highlighted that the national economy is still recovering. He pointed to different positive macroeconomic indicators that showcase this, including improving consumer confidence, gains in the labor market, and steadily increasing inflation. This recovery, however, is starting to exceed the time of a normal expansion period; only three business cycles historically have been longer than the one we are in. The majority of national economists predict the next recession will come in 2018, though it is expected to just be more of a slowdown as opposed to the last crash we experienced.For the Southern California housing market, real estate has yet to fully recover, even though we are five to six years into the recovery. Here are some of the reasons for the nascent recovery (and they all come back to price):
Looking past the headwinds, 2016 will still be a decent year; we should continue to see GDP growth, price appreciation, and job growth, but at a slower rate.
Capital session. Moderated by Jeff Meyers (President of Meyers Research), the capital session with Dan Hanson (Executive Vice President National Production at imortage), Tom Orradre (Managing Partner at Isles Ranch Partners, LLC), and Connie Emmitt-Stern (Executive Vice President of Investments at The Resmark Companies) discussed the opportunities they see at this point in the cycle. Consensus was that home price appreciation is still occurring in highly desirable locations, but overall has moderated compared to the past few years. The market isn’t telling them to be aggressive this year, rather to monitor margins closely and get disciplined with their investments. The potential for pent-up household formations to unleash over the next few years is a big source of confidence, but a dearth of inventory could interfere. The panelists were asked what their top market picks are and the group came up with Phoenix, the Bay Area, Orange County, Texas, San Diego, and Los Angeles.
Building session. Tim Sullivan (Practice Leader of Meyers Research) moderated a homebuilding session with panelists Jeff Roos (Regional President at Lennar Homes of California), Bert Selva (President and CEO of Shea Homes), and Frank Suryan (Chairman and CEO at Lyon Living). In the Orange County rental market, they believe rents have topped out due to an oversupply. With Millennials delaying major life events (getting married, having kids, buying a home, etc), the way people rent and live in an apartment has changed dramatically and developers need to figure out ways to keep up with the shifting preferences. They discussed how slowing absorption rates in the Orange County for-sale market also have to do with an over-saturated market (though some stats show this is more related to a slowing number of international buyers). The panel finished with how the builders are positioning themselves for a downturn in 2017/2018. Their strategies included growing conservatively, looking at deals on a shorter timeline, keeping relationships with patient capital, continuing to improve and stay ahead of the game, and not getting greedy.
Thank you to our sponsors and to all the attendees for the support! Our next event in partnership with HomeAid America will be in Atlanta in October. Stay tuned for updates.