Just a small part of the future of home building

As I was reading a national headline today about industries that will not recuperate full force from the recession and over time will be phased out of the consumers needs, it struck me that nobody actually mentioned the construction industry. Of course the obvious industries such as Wired Telecommunications, Video and Record Stores and Newspaper Publishing are the ones mentioned to head the line up, followed by more obscure industries such as Photo finishing, Video Post Production, Formal Wear and Costume Rental, Textile and Apparel Industries (overseas competition) and yes Manufactured Homes

For some reason the experts have not yet made the connection between advances in technology and the potential demise of the traditional homebuilding industry. Of course construction is a life enforcing activity for every species on earth. Whether it concerns a roof over our head, a road to connect us to others or the support of conveniences or necessities, building stands quite central in our lives. Yet, even more than the mortgage massacres that caused the 2008 recession, advancing technology has been the leading “culprit” behind the fact that home construction in the United States is all but coming to a halt.

Americans are on track to buy fewer new homes than in any year since the government began keeping data almost a half-century ago. Sales are now just half the pace of 1963 — even though there are 120 million more people in the United States now. The sliding sales show just how far the housing market has fallen since the bubble burst four years ago. And they’re a blow to the economic recovery as it draws strength from other places. Diminished sales have driven the nationwide median price of a new home down to about $202,000, the lowest since 2003.

If the sluggish sales continue, analysts say, many small homebuilders will fold, meaning less competition as the market improves and higher prices later.
I’m actually surprised that experts really believe this traditional price mechanism is still in place in a world where technology is outpacing and changing everything else. Optimists say it is going to take another year or two before things are going to turn, but if they would just analyze the numbers, they would have a clear indication that this is not true.

Here is a simple calculation:
• Sales of new homes nationwide plunged in February to an annual rate of 250,000. It was the third straight monthly drop. The pace is far below the so-called healthy level of about 700,000 a year. In 2010, 323,000 new homes were sold — the worst year on record and the fifth straight year of declines. Nobody expects this year to be any better and say it could take two years or more before sales return to a healthy pace. In 1963, when the U.S. population was about 190 million — compared with today’s nearly 310 million — far more new homes were sold: 560,000.
• The news a few weeks ago, that Florida is sitting on more than 1.6 million vacant homes and more foreclosures are yet to force down prices for previously occupied homes even faster than they’re falling for new homes. As a result, new homes are less attractive to buyers.
• In the past economic recoveries were mostly fueled by the construction industry. Especially here in Florida where we went through 7 decades of excessive population growth, the construction industry was a major employer, fueling the cycle of income and spending.
We can safely say that if Florida’s vacant inventory resembles more than 6 months of the entire nation’s current “demand” in new homes, we’re looking at a new paradigm. One that says that in certain regions of the country it may take up to 8-10 years to deplete current inventories.

People may still look at purchasing new homes, but many would-be buyers say they can’t justify the price difference between inventory and new. The median price of a new home is now 30 percent higher than that of a resold home, twice the typical markup in a healthy economy. Builders are responding by scaling back. In February, they broke ground on only about 40 percent of the number of homes they typically do in normal markets. That signifies a 60% unemployment for the sector new construction, which in turn is also slowing the broader economy. Each new home creates an average of three jobs for a year and $90,000 in taxes, according to the National Association of Home Builders.

So now the open ended question is: who in their right mind thinks that by the time the next 10 years have passed and we’re possibly looking at a new balance between supply and demand of homes, – don’t forget that every normal economic cycle (recovery-recession) takes 8 to 10 years -, advanced technologies in energy, water supply, aero dynamics(storms), family size, communications, transportation storage etc. will not have completely turned the final product upside down? The current generation of home builders will be completely obsolete and what’s more – out of practice.

Of course I mentioned the same to some newspaper execs more than a decade ago, and they didn’t believe me either (and instead called us doomsday thinkers).
And in the meantime the “experts” without a clue keep repeating meaningless remarks such as: “Falling housing prices of existing homes are robbing demand for new houses, and until that changes, the housing market will be in trouble.”