From file "124_PSs" entitled "PSVIEW10.qxd" page 01
From file "124_PSs" entitled "PSVIEW10.qxd" page 01
From file "124_PSs" entitled "PSVIEW10.qxd" page 01
From file "124_PSs" entitled "PSVIEW10.qxd" page 01

Out here in San Francisco, I'm supposed to be in a “housing pocket.” That's one of the main terms I've heard people using these days to describe regional markets where the housing bubble has apparently burst. To be sure, from the Bay Area to even the most working-class California towns and cities, the outlook for new construction activity in the Golden State is not as vibrant as it has been over the past decade, and every time the U.S. Commerce Department or the Census Bureau or the NAHB releases anything that even hints of moribund housing info, it's all over the papers, the Internet, and the evening news.

I've never counted myself among the dire predictors concerning the housing market. I'm easily swayed by any data—demographic, economic, or otherwise—that suggests a significant and sustained long-term demand for housing in the United States. Sure, I believe in speculative buyers and cyclical markets, and even recessions and depressions, but despite the ups and downs, I look around the Bay Area and I see an OK economy, plenty of people looking for and finding jobs, and some decent construction activity. I guess I'm an optimist.

Turns out, I've got a couple of friends at Business Week Online. In “The Strongest and Weakest Housing Markets,” an article by Janie Ho posted on Aug. 31, San Francisco and San Jose were mentioned as two areas where local economies are productive and corporate investment from companies like Intel and Hewlett-Packard will likely keep housing demand levels high, not low. “The economy outside of housing remains solid: Unemployment is low, household incomes are growing, and 30-year fixed mortgage rates, at a bit over 6.5 percent in mid-August, are hardly onerous,” writes James Cooper in “Housing: The Roof on the U.S. Economy Won't Collapse,” another Business Week Online article, posted Aug. 28. “The sharp drop in housing starts of more than 20 percent so far from the January peak implies builders are moving quickly to realign their stocks of unsold properties with the lower level of demand,” Cooper says. “The faster the adjustment takes place, the quicker the downward pressure on home prices will ease.”

William Rieser

That doesn't mean it's going to be easy. I wasn't on the scene in California when a housing recession hit in the early-'90s, but Eric Ziedrich, president of three-unit Healdsburg, Calif.–based Healdsburg Lumber, was. Ziedrich cautions that, despite my amateur (though well-intended) long-term economic hopefulness, local and regional housing slumps can get ugly. “It's too early in the cycle to tell, but if it's anything like what occurred in the early-'90s, I'm going to pack my bags and leave,” he says. “That was an absolutely devastating period. It was rugged.”

Ziedrich warns in particular that, prior to dips in activity, high growth markets can neutralize the operating errors that some pro dealers commit. While Healdsburg's customer focus on custom home builders and remodelers offers some resiliency, Ziedrich is nonetheless stressing proactivity rather than reactivity to his team while business is still somewhat robust. “I'm modest enough to acknowledge that it is coming our way,” he says. “Storm clouds are approaching, and it's time to hunker down and tighten the hatches. You learn that after you get bloodied enough times.”

Chris Wood is executive editor for PROSALES. 415.315.1241 x307 E-mail: cwood@hanleywood.com

Count my optimism appropriately corrected. I've also got to make my own modest admission that there are no doubt plenty of markets outside of California where the economy is already in the tank, permits are way off, and pro dealer teams are beginning to sweat. I will stick to my prognosis, though: Residential construction comes out of this funk a stronger industry, and in shorter order than expected. Proactivity versus reactivity is becoming a common industry refrain, and I'm going to side with Ziedrich on that count. Regardless of your impression of the length or depth of housing's downturn, it is becoming increasingly clear that a plunge—however deep—is in store for all. It's time to tighten the hatches indeed.