For 2015, Lennar Will Wait-and-See about Houston

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Lennar has noted a slight pullback in the higher-end housing market, and the company expects “further reconciliation” within the housing market. The dip is no doubt attributable to the recent drop in oil prices, as much of the city’s job growth was related to the energy sector. In last week’s fourth-quarter earnings call, Lennar Corp. CEO Stuart Miller is hopeful that Houston’s diversity will offset the petroleum decline, but also said the company would adopt a “wait-and-see” approach to the Houston homebuilding market. The following excerpts from the earnings call were provided to the Houston Chronicle from Seeking Alpha.

In response to queries about Lennar’s position in Houston, Miller acknowledges that there are more questions than answers at the moment. “Houston, of course, is at least in part, as an economy dependent on the oil complex and the oil complex is going through a reconciliation,” says Miller, “we haven’t seen a significant change in that market condition. We are seeing a little bit at the higher end of a pullback but we have anticipated in our internal projections that there will be further reconciliation in that marketplace.”

When asked about the potential for a housing market slowdown for the entire state of Texas, Miller cites that existing cross-currents are affecting the economic picture for the state which should negate the impact of the oil slump. “I think that the downside, even in a market like Houston, the downside is kind of defined by a change in the employment structure of the market where you start to see the oil complex really shed some jobs and that affects confidence and home sales,” says Miller, “but I think that there are some countercurrent kind of considerations.”

Miller does go on to add that, “while the oil complex moves down, gas prices come down and Houston is a more diversified platform than it has been in prior oil downturns. So we are not looking, we are not expecting a very sizable downturn, but I think that the way that we have configured our company and we have focused on purchasing assets.” The real estate assets Lennar has acquired have demonstrated that, “even in a downturn scenario, are the locations that hold up the best, that continue to perform the best in the market and we think that any downturn ends up being fairly shallow and we move forward.”

 

 

D. R. Horton’s Express Strategy Shift

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Development giant D. R. Horton’s latest quarterly results, these numbers are a strong indicator that the U.S. homebuilding industry is shifting in ways that will benefit the national economy, even if the trend does irk investors. By market closing on Jan 26th, D. R. Horton posted a 35% increase over a year ago in orders for its first fiscal quarter ending Dec. 31. Each of Horton’s regions gained 26% on a year-over-year basis, demonstrating a widespread improvement over analysts’ expectation of a 25% gain for 2014.

While markedly improved over 2013’s rates, new-home sales for 2014 slumped intermittently throughout the year and average only 57% of the national housing market. But the uptick in new construction bolsters job creation and the U.S.’s GDP. The outlook for 2015 is bullish, with January sales already picking up and an inventory of 1,000 more spec homes ready for sale than last year.

  1. R. Horton Chief executive David Auld says that “I think we’re better positioned this year coming out of the blocks than we were last year, and we are well positioned to capture what we think is going to be a good spring.” The economic climate for home-buying has improved in all regions, which leaves the developer optimistic about the 2015 market. Lower gas prices and consumer confidence gains due to federal pledges to ease mortgage-lending qualifications standards are also contributors to the rosy outlook.

The part of the story which irks investors is D. R. Horton’s shift from upscale higher-end homes to entry-level starter homes beginning in 2015. The majority of home builders spent 2011-2014 building big, high-priced homes because the more affluent citizens were the only creditworthy homebuyers during that time. The lower inventory of pricier homes has translated to thick profit margins for the company. But entry-level buyers are expected to return to the market in 2105 as federal mortgage criteria relax for first-time buyers. Key to enticing these new buyers is the quality of the incentive package being offered to new homeowners. The incentives also cut into profit margins.

Margins are also being squeezed by the decelerating home prices coupled with increased construction costs. The land currently exiting the development pipeline was purchased in 2012-2013 when lots were becoming pricey. Materials costs and labor shortages also contribute to the shrinking profit margin. D. R. Horton avoided the fate of KB Homes by fully disclosing its predictions of margin decline months ahead of the downturn, and their predictions about rate of shrinkage were accurate.  The overall effect, according to  Raymond James analyst Buck Horne is that although “the entire home-builder industry has been under pressure as margin expectations have been ‘reset’ due to increased incentives and higher-cost land that will weigh on profitability (this year),” Horton’s margin decline “was well communicated and likely better than many had feared.”

To capitalize on the entry-level boom predicted for 2015, D. R. Horton founded its Express line of new homes.  As a high-volume builder, D. R. Horton has the resources and strategic wherewithal to begin the entry-level home building trend.  Selling for an average of $169,000, Express homes accounted for 13% of Horton’s bottom line for 2014. Horton’s entry-level home gambit is essential for developing the homebuilding market’s long-term capacity to draw new buyers.  Securing customer loyalty early on will translate to brand loyalty in the following decade as buyers upgrade into pricier homes.

USGBC Elects New Board of Directors

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The United States Green Building Council has finally announced the members of its 2015 Board of Directors. The following five directors will each serve three-year terms:

Stephen Bushnell, of Stephen Bushnell & Associates will serve as the  Insurance Director (incumbent)

Linda Chipperfield, of Green Seal, Inc. will serve as the Environmental Nonprofit Advocate Director (newly elected)

Amy Costello, of Armstrong World Industries will serve as the Product Manufacturing Director (newly elected)

Denise Grabowski, of Symbioscity will serve as the Urban/Regional Planning Director (newly elected)

Christopher Schaffner, The Green Engineer, Inc. will serve as the Sustainable Practice Leader: Engineer Director (newly elected)

USGBC founding chair and CEO Rick Fedrizzi says that, “USGBC’s Board of Directors provides invaluable direction and perspective, collectively bringing decades of experience to the table and using their individual expertise to shape the future of the organization, the community and the green building movement as a whole.”

In its recent New York Meeting, the USGBC appointed two directors to fill the two-year appointed positions:

Mark James, of Urban Green LLC, will serve as the Director of Sustainable Community Leadership (formerly in the Green Affordable Housing seat)

Vance Voss, of Principal Real Estate Investors will serve as the Director of Commercial Real Estate Executive Leadership (newly appointed). During his 22 years as portfolio manager for Principal Green Property Fund I at PRI, Voss has managed the oversight of over $1 billion in Leadership in Energy and Environmental Design (LEED) projects nationwide.

Of his prior experience and its impact on his new role, Voss says that “Principal Real Estate Investors has a long-standing commitment to corporate stewardship and an established track record in responsible property investing. It is an honor to be chosen to help further the idea of a sustainable future through green buildings.”

According to Fedrizzi, “Delivering on the promise of developing buildings that sustain and enhance the vitality of life within a generation is no small undertaking. Our Board of Directors is comprised of representatives from many different segments of the building industry and will undoubtedly make great strides in the coming year. I know that Vance will be a valuable contributor in his role, given his wealth of experience and knowledge.”

Florida Realtors Summit 2015 Reports Strong Market

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The state’s economic and realty markets in 2014 had experts from the MarketWatch asking, “Has Florida found the secret to saving the economy?” That year saw the state’s market recovery level since the 2008 meltdown outperforming nearly every other housing market in the nation. According to Florida Department of Economic Opportunity Executive Director Jessie Panuccio, the picture looks even brighter for 2015.

Panuccio addressed the Florida Realtors’ 2015 Summit, the kickoff event for the recent Florida Realtors’ Association Mid-Winter Business Meeting. He was joined by Dr. Brad O’Connor, economist and director of economic research for Florida Realtors, and Ted Jones, chief economist and senior vice president for Stewart Title Guaranty Company.

“Things have changed quite remarkably for this state,” says Panuccio. “The U.S. Census recently announced that Florida has officially become the third most populous state … about 800 people move to the state each day now. Why are they moving here? We’re a destination state again – people feel they can make a future here, and that’s good for Florida, the economy and the real estate industry.”

The past 12 months has seen Florida’s private sector growth rate reach 3.4%, and the broad-based recovery has buoyed across all industries and all fields in each region of the state. Panuccio states that “Our labor force is growing over four times faster than the national labor force [over the past years]. Of the 10 largest states, we are the fastest-growing labor force in the country.”

Economist Ted Jones is “bullish on what’s ahead for 2015” for the state and national economies. Job growth dominated by an increase in higher-earning positions, are a major factor. “There were 2.95 million total jobs added in the U.S. over the last 12 months,” Jones says, “To beat that growth period, you’d have to go back to 1999. We created 246,000 jobs in each month of the last 12 months. Here in Florida, we expect between 2.2 to 2.4 percent total job growth in the next year. I’m trying to tell y’all you’re setting yourself up for a great year next year.” Jones also says that affordable mortgage rates, and demographic shifts that will increase the market pool are all expected to help make 2015 a strong year for the market.

Dr. Brad O’Connor discusses how the Florida market is now showing normal, balanced growth, as the pace of sales, median home prices, and other statistics indicate a sustainable level of growth. “For the first time in a couple of years, we’re seeing new listings outpace sales. Months supply has returned to hover between 5 to 6 months, which historically we say is a ‘balanced’ market.” In contrast to the 2013 market, O’Connor says that “in 2014, we saw a return to more historic levels of 4 to 5 percent price increases. Investor participation has started to decline again, slightly. However, as house prices have gone down, rents have gone up, so some of these investment properties remain attractive to rent out.” The investment property submarket will continue to be strong in Florida through 2015.

Lee County Commercial Building Permits Soar

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According to HBW’s building activity report for Lee County, a surge in massive commercial projects boosted the economy of Lee County last year. The total value of Lee County construction permits jumped 84% to nearly %1 billion.  In 2103, the total construction value for residential and commercial permits totaled $510 million, but the 2014 numbers jumped to $943 million That is still much lower than the $3.9 billion historic peak Lee County had in 2005.

The huge gain is attributed to a handful of mega-projects. The Hertz Global Holdings world headquarters in Estero brought in $30 million, with Estero’s Wal-Mart bringing an additional $13 million. The renovation of the Centurylink Sporks Complex in South Fort Meyers brought $19 million. 206 permits were issued for commercial structures, a 54% increase over 2013. General construction in the county was valued at $144 million, a jump from the $56 million earned in 2013.

2015’s numbers are expected to be strong, but not so strong as last year’s earnings. According to mark Stevens, president of Mark Stevens Construction, “there was a pent-up backlog of projects that were released” when the economy improved, but “If they were going to be repeated we’d hear about them by now.”

One concern for county revenues going into 2015 is the March 13 expiration of the 80% reduction in impact fees for new construction. Gary Tasman, of Cushman & Wakefield Commercial Property Southwest Florida, thinks that “clearly this was a year of rebounds for the economy, but the market’s still very fragile for construction. Tasman says that “we’re in a position where we need to let the economy expand a little bit more before we put the brakes on,” because if impact fees rebound to the old rates, “I think you would see an 80 percent decrease in construction this year.”

Stevens predicts a spike in permit pulling prior to the March 13 deadline. “In January, February and March you’re going to see a huge surge of projects go into the building department,” he says, but “April, May and June are going to be pretty slow.”

 

Improved Curb Appeal is key to Selling a Home

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Until lending standards loosen up enough for home owners to switch to upgrade their homes, many folks have chosen to remodel their existing houses into fresh, new, homes. For those who are determined to sell their home this year, major remodeling projects aren’t the best return-on-investment. According to Bonhia Lee of the Fresno Bee, the key to a quick sale is improved curb appeal.

Realtor Jason Farris explains that times have changed the way that realtors appraise houses. “Four or five years ago,” he says, “an appraiser would give you more money if you had granite countertops or new appliances. Nowadays, we’re not seeing that.”

The best way to get every penny your house is worth is keeping it clean and tidy, even though home prices are slowly rising again after the downturn. According to Farris, “If a home doesn’t show well or is not well cared for, then you’re going to get offers that are lower than market value.”

In the 2015 Cost vs. Value Report compiled by real estate research firm Hanley Wood’s Remodeling Magazine, small, exterior home improvements are the most valuable projects for a resale. The report compares actual improvement costs with realtors’ estimated values of a house thus improved.

Surprisingly, replacing vinyl siding with stone veneer is one of the smartest improvements home sellers can make. The average cost of replacing 300 square feet of vinyl siding with stone veneer is $7,000, 96% of which will be recouped upon sale of the home. The next best investments are replacing entry doors, windows, and garage doors, which bring returns of 80% to 85%. Cost-effective interior improvements include new paint, replacing the baseboards, adding chair rails. Keep kitchen and bath remodels simple to increase your return on investment. Refurbish kitchen and bathroom fixtures, replace outdated hardware, and upgrade from vinyl flooring to tile in bathrooms. Surprisingly, deep cleaning the interior and power-washing the exterior can really improve a home’s appeal.

According to Farris, “home prices have continued to slowly move upward, and more and more homeowners are finding they have enough equity in their homes to move up to larger ones.” But with money still tight in many markets, don’t overspend on improvement projects that have slim profit margins.

Muskogee, OK’s Downtown Welcomes New Homes

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As the energy industry in Oklahoma continues to stay strong, smaller towns like Muskogee have begun to invest in making their downtowns more welcoming to young professional families that want to stay out of the big city.  Muskogee’s downtown has slowly been building its credibility as an arts and entertainment district, which is walking distance from new homes being built in the area.

In June, the Muskogee City Council awarded developers zoning support for the Muskogee Arts District Homes project. The project was awarded tax credits in November for its status as an income-qualified housing project consisting of the construction and rehabilitation of 36 residential units.

According to Debbie Hart of Housing Plus, LLC, a Springfield, MO- based firm collaborating in the development, eight of the units will be loft apartments on the second floor of the historic Severs Block Building. Each two-bedroom loft is being designed in consultation with a historic preservation consultant and an architect whose work with the state historic Preservation Office brought her to work with the building on previous occasions.

Single-family, three-bedroom homes will be built near the site of the new Muskogee Little Theater facility, just south of downtown. The houses will be built to LEED 2009 green building standards. “We are absolutely getting ready to do that,” Hart said about her company’s plans to move forward with the housing development. “We are pretty darn excited about it, too.”

With the development’s financing being distributed in stages, construction of the single-family houses will begin in April. After the foundations are poured and the sub-contractors have begun construction, work will being renovating the Severs Building Apartments. Hart and her company have reportedly worked round the clock with city staffers to ensure that permitting issues are handled in the best interests of Muskogee. The City of Muskogee will donate 19 lots to the project, holding a total value of $13,500. It will also realign traffic flow to accommodate construction, address the storm water drainage issues, and supervise water and sewer improvements worth over $14,500.

Free Tutorial Primer on LEEDv4

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As we here at HBW have blogged about before, the LEEDv4 standards are significantly more complex than the current LEED 2009 standards. The complexities are so significant that the USGBC extended its deadline for the standards changeover until 2016. One major change in the new rating system compels builders to account for life cycle, and environmental, and health impacts of the materials they use in order to maximize their LEEDv4 project credits.

The LEEDv4 certification program utilizes Life Cycle Assessment (LCA), Environmental Product Declarations (EPD) and Health Product Declarations (HPD) to ensure that buildings are healthier, greener, and more sustainable. HPD’s and EPDS give information about materials and contents related to health issues for buildings and for people. To aid with the overwhelming amount of new information that green building industry stakeholders must learn, GreenCE has created a series of tutorial primers on LEEDv4 standards to help make sense of those upcoming study sessions! GreenCE has mobilized an inter-disciplinary team of biologists, architects, and LEED experts to develop and deliver their cutting-edge primers.

According to Dr. Tara Blank, founder of Elixir Environmental, “design professionals now have the ability to make intelligent specification choices based on full disclosure of material content and potential hazards. The HPD is the most significant game changer for project specifications in decades. Building product manufacturers that embrace HPD early on will benefit greatly in the years to come.”

Dr. Blank’s predictions about the importance of the HPD requirement are echoed by Glen Phillips, GreenCE Director of Sustainable Education. “With the overhaul of the LEED programs, especially as they relate to the contribution of building products, it is important for manufacturers to review, and where necessary, update literature to make sure that references to LEED contributions are clear and align to the significant changes in LEED v4,” says Phillips.

Educating the sales force and marketing teams of manufacturing and construction firms about LEEDv4 is a major task for the coming year. This situation has motivated GreenCE to launch the industry’s first no-cost LEED exam Prep program. The program aims to educate stakeholders about the new green rating system through a series of 10 web-based modules ranging from three to 70 minutes in length. Videos, animation, and case studies are among the activities included in the modules.

GreenCE Media Director Brad Blank anticipates that there will be “a significant interest from building product manufacturers who are in dire need of training their sales force. If representative[s] can’t intelligently discuss [a] product in the context of LEED, they may lose out to their competitors. Our programs are designed to bridge the gap between building product manufacturers and design professionals.”

Over 100,000 industry professionals subscribe to GreenCE’s sustainable continuing education programs. In partnership with the U.S. Green Building Council and the American Institute of Architects, the GreenCE LEEDv4 program helps building product

 

Lennar’s Top 4 Trends for the 2015 New Housing Market

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In Kris Hudson’s rundown of Lennar’s predictions for 2015, there are four that really stand out. While there is good news for home buyers and the broader economy, news for industry investors is less optimistic. 2015 will be a year that the housing market’s course finally begins to self-correct, and the impact will be different for each set of stakeholders in the industry.

  1. The Houston Market Will Drop

The new construction market in Houston has redefined the concept of a “hot” real estate construction market. The energy boom created a lot of jobs and drew a lot of support industries to the area. But the new downturn in oil prices will eventually trickle down into the Houston housing market. KB Homes and Taylor Morrison Home Corp. haven’t yet noticed much drop off as of yet, but Lennar has registered a slight impact in Houston. The firm decided to factor this activity into its 2015 outlook. Lennar president Rick Beckwitt says that, “we haven’t seen a significant change in that market condition. We’ve seen a little, at the higher end, of a pullback. We’ve anticipated…that there will be further reconciliation in that marketplace.”

  1. Incentives for New Homeowners Will Rise

Lennar joins its competitors in raining incentives upon buyers of new homes in their luxury developments. Free upgrades and financial assistance with closing costs are two major types of incentives being offered by developers. What seems to be a profit cut has proven to be a persuasive sales strategy for new home buyers. According to Lennar, its 2014 Q3 incentives program increased the firm’s sales revenue 6.6% from Q3 2013’s 6.3%. KB Homes and D.R. Horton have also adopted similar incentives to convince homeowners to buy now.

  1. Slowing Price Gains offset by Rising Sales

Lennar’s 2014 Q4 average home prices increased 7.2% to $329,000 in 2013 Q4. But 2013’s average price had increased 17.6% over 2012’s numbers. The price slowdown is welcome news to home buyers, who are seeing the highest median new home prices in three years. The slowdown is largely attributed to the shift from high-dollar properties to budget-scaled developments. As lending standards begin to relax, job growth increases, and student load debt programs kick in, the barriers homeowners have faced in entering the new home market will lower, and they will be seeking out entry-level homes. Lennar will being building several entry-level communities in 2015.

  1. Shrinking Gross Margins

Home prices are still lower than the market should be, but materials costs are rising, labor is short, and the land prices are very high. Although builders like Lennar have posted high gross margins in recent years—historically high, to be honest—their success has come from focusing on the higher-end properties for affluent buyers who qualify for mortgages. As they scale back to accommodate budget-minded buyers seeking less expensive homes, their gross margins will grow slimmer. Lennar predicts a 24% gross margin in 2015, down from 25% in 2014.

 

D. R. Horton Moves In to Oneco, TX

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For a few decades, Bradenton has been the only town in the area where one could buy a house, be it an older home or a unit in one of the town’s numerous mobile home parks. Now that D. R. Horton has come to neighboring Oneco, things are going to change. The mega-developer has set its sights on a new bricks-and-mortar housing development with all homes priced below $200,000.

The Express Homes division of the Fort Worth-Based D. R. Horton has begun developing the Park Place neighborhood on 53rd Avenue East. Work began last week on the forested, 16-acre property located amidst an already dense development. The work finally brings development to a parcel which had been the object of a comparatively expensive bidding war prior to the housing market collapse in 2008.

Express Homes will build 58 single-family homes at Park Place. Compared to D. R. Horton’s typically upscale fare, the homes of Park Place will feature limited options. The Express Homes division focuses on building homes for an “entry-level” price range. Founded in April 2014, the Express Homes division has focused its development efforts in Texas and Florida. It is expected that the neighborhood will appeal to budget-minded home buyers, and unlike most of the developer’s other developments, park Place will not have neighborhood maintenance fees.

R. Horton spokeswoman Jennifer Hansen has high hopes for the development. “Given the limited supply of entry-level new home construction in the area, along with no CDD and low HOA fees,” she says, “we expect this project to be very attractive to potential homebuyers.”

The development fell together after D.R. Horton snagged the land at a deep discount. The acreage was purchased from Park Place investments for $834,500. In December of 2014. Park Place Investments had bought the land out of foreclosure from Rottlund Homes of Florida for $245,000 ago and immediately began the lengthy entitlement process. The land had originally sold for $2.4 million in 2005.

Park Place is currently working on the infrastructure elements, installing roads, power lines, and sewers. The final subdivision plat has yet to be submitted. Although there is much work to be done, D. R. Horton hopes to begin building the neighborhood’s first new homes by the end of the year.