Tuesday, September 17, 2013

Buy Your Next House From a Warehouse

In a nondescript warehouse on the outskirts of Chicago's O'Hare airport, one of the largest U.S. home builders is doing what it does best—building homes, or, at least, parts of homes. There are full-scale frames of 11 main floors and second floors, complete with cardboard kitchens, stairways leading nowhere and floors taped with outlines of furniture and fireplaces. It could almost be the scene of a crime; instead, it is the scene of a unique experiment in market research.

"I remember watching one of our chief engineers at Toyota who spent a whole year watching how people interact and use their product, their vehicle, and we decided that would be the best thing to do here—have people run through homes, see what they need, how they would interact where they would go, and then as a team we started working on how can we actually do this in the home building," said Deborah Wahl, chief marketing officer for Pulte Group.

Wahl spent 20 years marketing cars and came to Pulte in 2009, when the nation's home builders were struggling to stay alive. They were barely building, eking out the lowest volumes in recorded history as home values plummeted and foreclosures raged. Pulte was in a better position than most, having bought out entry-level builder Centex and already being established in the active, 55 adult sector with its Del Webb division.
By 2011 Wahl had dreamed up the concept of Life Tested designs. The company would find huge warehouses, build prototypes of various home designs and run focus groups through them from top to bottom.

"It actually ends up being a cost savings for us," noted Wahl. "We would go and build the best house we could and build it fully and put it into market, and then if it sold we made money and if it didn't sell that was a sunk investment. Here we now have several points where we're able to test how these designs work, if people need them, so by the time they get built we know these houses are valuable. They'll sell, there's less waste in the system."
Source: Diana Olick
Focus group discussing test homes by Pulte.
Home builders are facing a tough buyer market, as mortgage interest rates rise and wage growth struggles. They are facing soaring land costs as well as limited labor and supplies. This pushed Pulte to raise prices 9 percent in the second quarter of this year from a year ago, even as the company faced a 12 percent drop in net new orders.

The summer has not proved much better for the builders. Mortgage applications to purchase a newly built home dropped 14 percent from July, according to a new report from the Mortgage Bankers Association. Still, demand is there, and after building next to nothing during the housing crash, U.S. builders are now faced with renewing the nation's housing stock. That, Pulte executives say, is why innovation is so important.

"When I was at my first conference, I met someone and referenced that I was doing market research," said Ian Wild, Pulte's director of market research. "The fellow said, 'Let me tell you how I do market research. I get in my car and I drive down the road to the competition and I say what's selling and why?' And as a result of that, the innovation in the home building industry is, well, there's very little."

So on a hot September morning, with the roar of O'Hare's traffic overhead, small groups of homeowners wind their way through the rows of homes in frames of back doors and out frames of front doors, gripping their clipboards and checklists, and eyeing every detail and every measure of space.

"It's much easier than looking at a blueprint, where you keep turning it around trying to understand which way the door swings. Will this be this way?" asked Chicago-area homeowner Sasha Zingerman, motioning. "It's much more comprehendible, and you can physically picture yourself in that space. You could see how you would orient yourself there."

The subjects are paid to offer their opinions, and after the tours they sit down with a moderator to tell what they like, and more importantly what they do not like.

"I like how it all flows together. It's open, it's airy, there's a lot of light coming in. It seems like a happy environment," said one woman.

Pulte gets at least five new design ideas from each of these events, which are held across the country, according to Wahl. The latest trends are full home automation (running every system in the home through a smartphone), larger mud rooms, or as Pulte calls them, Everyday Entries. Dining rooms are out, larger kids' bathrooms are in.

"I don't think I would ever use the formal dining room, so it would be a wasted space for a room that I don't use often enough," added another.

After living through the worst housing crash since the Great Depression, today's home buyers are more skeptical and less trusting of home builders. Some blame builders for throwing up far too many houses, selling them to speculators and turning a blind eye to an overheated market that was bound to bust. They are treading back in slowly and finding higher prices.
30 yr fixed4.53%3.58%
30 yr fixed jumbo4.77%3.52%
15 yr fixed3.55%3.02%
15 yr fixed jumbo4.06%3.21%
5/1 ARM3.69%2.67%
5/1 jumbo ARM3.33%2.55%
In fact, the premium for new construction today is, "abnormally high," according to researchers at John Burns Real Estate Consulting. They compared two similar homes, one built in 2003 and one built today; the older home was priced at $400,000, the new home at $480,000.

"With limited supply and elevated investor purchasing activity in the resale market, new home builders are benefiting from the spillover of demand for housing with the ability to provide homes and increase prices faster than their respective resale market," according to the researchers.

Most of the subjects in the Pulte focus groups said they would be interested in buying a new home, but some are still cash-strapped or underwater on their current homes. Still, they seemed energized just walking through the frames of future models.

"Overall desire for new home is huge, and that is the best news for all of us," beamed Wahl, as she headed through the door frame of the Everyday Entry.

Lon Mapes - Redlands Broker/Owner & Consultant

Multimillion Dollar Sales Producer
(909) 648-4091

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Wednesday, September 11, 2013

Housing Isn't Really Going Gangbusters

Housing isn't really going gangbusters. Despite those eye-popping price jumps, housing is not in a bubble or even a boom. Real estate is also not likely to be the same economic driver it once was, Duncan said. “We are of the view that housing is continuing to grow, but we are not of the view that it is robust,” he told The Times. While home prices have posted double-digit increases this year, those gains are just bounce-backs from very low bottoms. Meanwhile home builders have been slow to acquire land and hire adequate help, and that has made housing’s overall contribution to the economy smaller than it would be otherwise. When construction finally does get humming along at full tilt again, the industry will probably contribute a million fewer jobs than it did during the boom, Duncan said. Those jobs will simply have to come from other parts of the economy.

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The rise in mortgage interest rates will not choke off the recovery. Economists at Fannie Mae recently studied the relationship between a sharp increase in mortgage-interest rates and home prices. They found there is little correlation between the two. Sales may decline but prices are still likely to increase. Duncan also doesn't expect mortgage-interest rates to surge again. Expect a more gradual increase, he said. “I don’t think that the rate rises will be as sudden as the first piece we saw,” Duncan said.

Homeownership is the goal but renting has lost its stigma. The homeownership rate has fallen drastically since the boom years, raising questions about whether America will become a rental society. But much of the growth in the rental market has come from the single-family housing market, as investors have snapped up homes and turned those properties into rentals, meaning that former homeowners have tried to re-create their experiences. While the homeownership rate is not likely to rise anytime soon, even those people who lose their homes are likely to become homeowners again. The aspiration to be a homeowner remains unchanged by the crisis, and most renters would still like to own a home, Duncan said.

It is indeed a good time to buy. Home prices are still down considerably, even though they are up from their bottoms. Mortgage-interest rates are still very low despite the recent spike this year. But you should only buy a house if you can afford it, Duncan said.

Investors pose a possible risk. Big investors have become a significant factor in the housing market’s recovery. The question is, will new home construction increase supply, just as big investors decide it’s time to sell their holdings? If they were to do so, that could usher in another decline, though not one of the same magnitude as the last housing downturn, Duncan said. Investors should be watching the home builders closely. “If I were them, I would have a close eye on what's actually happening in construction, because that is going to be one form of competition,” Duncan said. Another form of competition for both investors and builders will be homeowners who are freed up to sell their house after spending years "underwater."

Lon Mapes - Redlands Broker/Owner & Consultant

Multimillion Dollar Sales Producer
(909) 648-4091

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Tuesday, May 21, 2013

US Home Builders Feeling Fairly Upbeat

U.S. home-builder confidence in the market for single family homes rose in May amid rising home prices despite increasing building materials costs, an index showed on Wednesday.

The National Association of Home Builders/Wells Fargo Housing Market index edged up three points to 44, from a downwardly revised 41 in April. Economists in a Reuters survey were expecting a reading of 43. Any number over 50 indicates that more builders view conditions as good than poor.

"Builders are noting an increased sense of urgency among potential buyers as a result of thinning inventories of homes for sale, continuing affordable mortgage rates and strengthening local economies," said NAHB Chairman Rick Judson, a home builder from Charlotte, N.C. "This is definitely an encouraging sign even amidst rising challenges with regard to the cost and availability of building materials, lots and labor."

Each component of the index rose in May. The index gauging current sales conditions inched up four points to 48, while the index measuring expectations for future sales rose a single point to 53, the highest level since February 2007. The index gauging traffic of prospective buyers increased three points to 33.
"While industry supply chains will take time to re-establish themselves following recession-related cutbacks, builders' views of current sales conditions have improved and expectations for the future remain quite strong as consumers head back to the market in force," said NAHB Chief Economist David Crowe.

Lon Mapes - Redlands Broker/Owner & Consultant

Multimillion Dollar Sales Producer
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California Builders Hold Lotteries for Eager New Homebuyers

Demand among homebuyers is so high in some parts of the country that builders are holding lotteries to decide who gets to purchase homes in their developments.

O'Brien Homes started holding a monthly housing lottery for its 228-unit development called Fusion in Sunnyvale, Calf., after seeing throngs of prospective buyers camp out at the openings of other new condo complexes in the area.
"We didn't want that," said Susie Frimel, a spokeswoman for O'Brien Homes. "We wanted our customers to be pleased with the process."

Each month, as new sections of the development came under construction, roughly 50 buyers would show up at O'Brien Homes' sales office hoping to be picked for one of the 10 or so sites available. The participants were already pre-qualified for a mortgage and had their down payment in place. After being assigned a number, they crossed their fingers and waited for each bingo ball to be plucked from the tumbler.

For each unit, the company drew a winner and a backup, just in case the winner backed out.

Lotteries are not a perfect solution, especially for the buyer who walks away empty-handed.

"Some people would come back month after month," said Frimel. "It got very frustrating for them."

Adding to that frustration was that home prices rose virtually every time a new group of homes went on sale. The two-, three- and four-bedroom homes started out between $420,000 and $620,000. The last grouping went for $555,000 to $815,000, a 32% increase.

Even with the price hikes, buyers kept returning. O'Brien started issuing returnees an extra bingo ball. If they lost for four straight months, they would get five chances the next time.

The last available home in the complex closed last week. Some customers got shut out. For Frimel, that was one of the hardest things to watch. She had gotten to know many of the regulars well.

In addition to O'Brien Homes, other Bay Area builders are also using lotteries, including Shea Homes at a development in Livermore, Calif. and Shapell Homes in San Ramon, Calif.
But lotteries aren't just taking place in California. In northern Virginia, Camberley Homes held a lottery to sell two model homes in a new community called One Loudoun last week. More than a dozen people participated.

In Florida, GL Homes held its first lotteries since the housing bust. In mid-April, the company sold off 11 of its model homes in Delray Beach, Fla.

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"[O]ur homes are at a price that we are willing to accept and not force customers to potentially get into a bidding war," said GL Homes division president, Marcie DePlaza. "So for us, the lottery is the fairest way to determine the priority in which customers will be able to purchase our model homes."

Last weekend, more than 1,000 people showed up for a sale of lots in its Boynton Beach, Fla., community featuring homes ranging from the high $300,000s to the low $600,000s. GL Homes held a lottery in which 75 homebuyers entered to win their first choice of lots.

"We set up a big tent outside the sales office to handle the crowd," said DePlaza. "We had them write out pink index cards and we put them in a tumbler. The first winner was so excited, she was crying."

Buyers seem to prefer the lottery system to competitive bidding or trying to be the first in line when a home goes on the market.

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"I thought the way [GL Homes] handled it was very professional," said Neal Rosen, a math teacher who, with his wife Felicia, participated in a the lottery on April 20. "There was no rushing. They had plenty of food. And I got the lot my wife and I agonized over for three weeks."

To keep up with the surge in demand, builders are trying to build faster and get as much inventory on the market as they can, according to Glenn Kelman, founder of real estate broker Redfin.

After the hard times of the housing meltdown, builders are savoring the return of the buyers.

"We went years without having to resort to lotteries or camping out," said DePlaza. "We're thrilled to see them back."

Lon Mapes - Redlands Broker/Owner & Consultant

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3 Big Banks Nearly Halt Foreclosure Sales after U.S. Tweaks Guidelines

Sales of homes in foreclosure by Wells Fargo & Co., JPMorgan Chase & Co. and Citigroup Inc. ground nearly to a halt after regulators revised their orders on treatment of troubled borrowers during the 60 days before they lose their homes.

The banks said they paused the sales on May 6 to make sure that their late-stage foreclosure procedures were in accordance with the guidelines. The banks wouldn't say exactly which issues had been under scrutiny.
Bank of America Corp., by contrast, continued foreclosure sales at a normal pace, apparently confident its procedures met the revised restrictions.

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“We manage our mortgage servicing operations in compliance with all laws, regulations and standards for sound business practices,” BofA said Friday in a statement.

The halted foreclosures are the latest complication stemming from a settlement between 13 large mortgage servicers and their federal overseers. Banks and regulators also have struggled to distribute billions of dollars in aid to borrowers equitably as required under the settlement.

Chase resumed a normal volume of foreclosure sales last week, saying its practices complied with the latest bulletin from the Treasury Department agency that regulates national banks, the Office of the Comptroller of the Currency, or OCC.

“In response to the OCC guidance and in an abundance of caution, we temporarily halted foreclosure sales where we could to validate that our process covered the guidance," Chase said in a statement. "We have since resumed sales.”

Wells and Citi were still on hold as of Friday, according to PropertyRadar.com, which tracks foreclosure filings in California, Nevada, Arizona, Oregon and Washington.

"We are in the process of complying and following the directive set forth in the OCC guidance," Citigroup said.
Wells, saying the latest OCC bulletin had "slight changes from the previous," declared that it "wanted to be absolutely sure that our interpretation of the language was the same as our regulators."

"We simply needed to take the time to assure that we can validate and document our compliance," the San Francisco bank said in a statement.

The bulletin, which changed the timing of certain measures aimed at preventing wrongful foreclosures, listed 13 issues for the banks to address -- "minimum guidelines" beginning with: "Is the loan's default status accurate?"

The issues touched on a laundry list of the legal and procedural problem areas in which errors and short-cutting, including the "robo-signing" of court affidavits, were common during the wave of foreclosures that struck in 2009 and 2010.

American Banker, which first reported on the pause in foreclosure sales, called the hiatus "an echo of the 2010 foreclosure halt that kicked off several years of wrenching procedural scrutiny of the mortgage servicing industry."

At Wells, the biggest mortgage servicer, foreclosure sales in the five Western states fell to 17 for the week beginning Monday, May 6, from 298 the previous week, the PropertyRadar data showed.

A bank official predicted Wells would soon resume selling the houses of defaulted borrowers. "It won't be long," Wells mortgage spokewoman Vickee J. Adams said, although she declined to say exactly when.

Lon Mapes - Redlands Broker/Owner & Consultant

Multimillion Dollar Sales Producer
(909) 726-5935

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