Here come the bubble bursters again. Last year at this time, as home builders finished one of the best first quarters in history, bubble talk abounded as pessimists warned that the industry could not sustain another record year of housing starts and all-time highs in sales of new and existing homes. Twelve months later, we're coming off of the best year ever in residential construction, with 1.95 million starts, 1.2 million new homes sold, and 5.9 million existing homes sold, according to stats compiled by the NAHB. Now, as interest rates creep upward and NAHB economists warn of industry softening, the naysayers are creeping back out of the woodwork, even as most builders and their supplier partners are tracking first quarter growth curves mimicking 2004 numbers.
“The U.S. housing market finally appears headed for a slowdown after four years of spectacular growth that has raised widespread fears of a real estate ‘bubble,'” writes Knight Ridder Newspapers reporter Kevin G. Hall in “Analysts Expect Housing Market to Slow; Some Fear Bursting Bubble,” a March 16 article on the impending housing slowdown. “Pessimists warn that many metropolitan markets may see bursts of housing ‘bubbles'—markets in which speculative investment drove prices higher than usual demand can sustain—similar to the collapse of the high-tech stock market bubble in the late 1990s,” Hall reports.
To get some insight into the similarities between the ticking dot-bomb of the tech-stock economy and the alleged bubbles hovering over residential construction markets, I checked in with Steve Zurier, senior editor-technology for BUILDER magazine, a sister publication of PROSALES. “Dot-coms with little or no business plans were one of the root causes of the tech crash,” says Zurier. “All the companies like pets.com and light-bulbs.com thought they could put up a Web site, spend some money on a few ads, and in days they would knock out the middlemen and change the world.” In contrast, Zurier sees residential construction as a bricks-and-mortar industry based in the practical realities of business. “Businesses need business plans,” he says. “They need to have salespeople selling and managers analyzing profit and loss statements.”
With little wavering, the vast majority of construction suppliers I speak with are budgeting for a 15 to 20 percent increase in sales over 2004, and most are tracking above budget for the first quarter. Continued record housing starts are fueling that growth. “It's perfectly clear that housing will remain an important component of GDP for the first quarter of the year. There's no question that the housing market is still an engine of economic growth,” said NAHB chief economist David Seiders in a March 16 statement reacting to U.S. Commerce Department numbers putting 2005 housing starts at a seasonally adjusted annual rate of 2.195 million units.
Will the housing market slow? Sure it will. According to Seiders, NAHB expects housing to plateau as the year progresses and the interest rate structure moves up further. But even with a prime rate of 7.3 percent factored in for 2006, NAHB still forecasts starts above 1.8 million in 2006, with new single-family home sales and existing-home sales expected to tally in at 1.1 million and 5.6 million units, respectively. Those forecasts surpass 2003 stats, a record year for pro dealers nationwide until 2004 rolled in.
So when the media start pumping up the bubble story, arm your team, your customers, and your suppliers with the facts. Keep your eye on the numbers and grow responsibly, but don't let anything stop you from following Zurier's advice to get out there and sell, sell, sell. Despite the propaganda, there are plenty of builders waiting to buy.
Chris Wood is senior editor for PROSALES. 202.729.3501 E-mail: firstname.lastname@example.org