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DFW New Home Activity:
Down But Not Out
Ted Wilson
National Perspective
U.S. Housing Starts (Annual) Single‐
Family Detached Only
2,000 Peak:1.823mm
1,900 % Decline To Date
1,800 National ‐81%
1,700
DFW ‐67%
1,600
1,500
1,400
1,300
1,200
1,100
358K units
1,000
900
800
700
600
500
400
300
200
100
0
05
06
07
08
09
A
A
O
O
Jan'
Jan'
Jan'
Jan'
Jan'
Source: U.S. Bureau of the Census (in ‘000s) Seasonally Adjusted Annual Rate
2008 Was Another Forgettable Year
National Perspective
Existing Home Sales New Home Sales
Existing Home Sales
New Home Sales
(Single Family)
6,500 1,500
1,400
Slight uptick in sales for 2/09
6,000 Recent up tick due to 1,300
stronger sales of 1,200
5,500
foreclosures 1,100
1,000
900
5,000
800
700 337,000
4,500 600
500
4,000 400
300
3,500 200
100
3,000 0
APR
APR
APR
APR
APR
APR
APR
APR
JAN 05
JAN 06
JAN 07
JAN 08
JAN 09
JAN 05
JAN 06
JAN 07
JAN 08
JAN 09
JUL
OCT
JUL
OCT
JUL
OCT
JUL
OCT
JUL
OCT
JUL
OCT
JUL
OCT
JUL
OCT
Figures in (000s) Sources: US Census Bureau, NAR, NAHB
Any Relief In Sight?
National Perspective
Housing Market Index (2001‐2009)
Housing Market Index
Single-Fam ily Sales: Present
Buyer Traffic 50 level is difference between positive
100
or negative reading
90
80 • Builder confidence shifts into crisis
70 mode in 4Q08
60 • Housing Market Index contracts to
50 lowest level in 20 year record in
40
1Q09, climbs higher in April
30
20 • Sales (present) hits low in January,
10 noticeable improvement last 3
0 months
Jan '01
Jan '02
Jan '03
Jan '04
Jan '05
Jan '06
Jan '07
Jan '08
Jan '09
Source: NAHB/Wells Fargo 50=Equilibrium Between Positive and Negative Responses
Builders Remain Bearish
National Perspective
Existing Homes New Homes
US DFW Equilibrium US DFW Equilibrium
12 13
11 1.438 million excess 12 162K excess
10 listings, SF & Condos 11 homes
9 10
8 9
7 8
6 7
5 6
5
4 4
3 3
2 2
1 1
0 0
Jan '05
Jan '06
Jan '07
Jan '08
Jan '09
Jan '05
Jan '06
Jan '07
Jan '08
Jan '09
J
J
O
O
A
A
National inventories remain stubbornly high, yet DFW stays balanced
When Will The Excess Inventory Get
Mopped Up?
National Perspective
Monthly Mortgage Rate Resets
(First reset in $US billions) • Subprime mortgages have
been the focus of the market
Yet to Come for the past two years—
subprime resets now subsiding
• But Option Rate Mortgages
and Alt‐A mortgages were
especially prevalent in markets
that saw massive increases in
home prices
• As pointed out in 60 Minutes
review of housing market,
another wave of resets is
headed to hit the market
Mortgage Issues Will Persist in 2009‐2010
• 2008 postings up 17% over
DFW Foreclosure Activity 2007
• About 40% of postings go to
60,000
forced sale
50,000
50,324 • 5,200 postings for April,
40,000 2009
– Some lenders have been
30,000
holding back, now going
20,000 forward
10,000
• But foreclosures should be
leveling out in 2009
0
2002 2003 2004 2005 2006 2007 2008 – Subprime resets appear to
Postings Forced Sales
have filtered through
– Job losses now the biggest
Dallas, Tarrant, Collin and Denton Counties feeder to foreclosures
Source: Foreclosure Listing Service
Foreclosures—Are We There Yet?
OFHEO National Perspective
% Annual
S& P Case Shiller
Change U.S. Texas Dallas Ft. Worth
12
Year‐over‐year % Change of Indices
11 20%
20 City Composite Index
10 Dallas
15%
9
8 10%
7
6 5%
5
0%
4
3 -5%
2
1 -10%
1/2008 vs. 1/2009
0
Dallas: +1.86% U.S.Composite ‐18.97%
-15%
-1 Ft. Worth: +1.21% Dallas ‐4.87%
-2 Texas: 2.09% -20%
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
-3 U.S.: ‐4.47%
-4
-5
Sources: OFHEO, Case Shiller
1Q01
1Q02
1Q03
1Q04
1Q05
1Q06
1Q07
1Q08
Year‐over‐year changes: Phoenix ‐35%, Las Vegas ‐32%, San Francisco ‐32%, Miami ‐
29%, Los Angeles ‐26%, San Diego ‐23%, Tampa ‐23%, Detroit ‐23%, Minneapolis ‐20%,
OFHEO Measures Just Those Houses With Mortgages Originated
Washington DC ‐19%, Chicago ‐16%,Seattle ‐15%, Atlanta ‐14%, Portland ‐14%, New
By Fannie Mae and Freddie Mac York City ‐10%, Boston ‐7%, Charlotte ‐8%, Cleveland ‐5%, Denver ‐5%, Dallas, ‐5%
House Price Trends
• Builders continue to downsize as • Appraisals an issue in areas that have seen
market demand dictates high levels of foreclosures
• Layoffs, consolidations now almost – Builders see net $ on sale eroded
‘mechanical’ based on company cash when appraisal comes up short
flow
• Most builders unwilling/unable to make
• For smaller and regional lot takedowns without house sale
independents, interim lines of credit
– No more inventorying of lots
critical, builders lifeline
• Only a few builders willing to make
• Several builders that have violated
commitments on new position
interim covenants are losing lines
– New positions must show good
– Difficult to establish new lines
margins and absorption
with other banks
• Many of the big builders still waiting for
• Only specs in market are those
lot prices to drop
stemming from cancellations
DFW Builder Issues 2009
• Developers have limited options when • Concern is for loans that need
builders pass on a take down renewal
– Taking a builder’s earnest money – Appraisals are coming back with
likely will cause him to exit, hard lower values based on slower
to find a replacement builder absorption, higher discount rate
except in best locations
• How does developer respond?
– Many builders now asking for
– Very much dependant on loan
reduction in lot prices; inability
balance, outlook for timeline to
for builder to make a profit at
get out of bank, financial ability
current price
of developer
– How does the developer
• In many cases, prolonged takedown
respond?
has eroded equity, second lien
• Many development loans are now in position
technical default due to slower
– In worst case, first lien is under
takedown
water
• But lenders don’t want the problem,
prefer a resolution
DFW Developer Issues 2009
• Lenders complain of situations where • But to date, regurgitation of properties
developers are unresponsive to has been limited
curtailment (principal reduction) • Reasons for the slower process
situations – Ongoing discussions with
• Classifying a loan requires setting developers prolonged
aside loan loss reserves – Regulators have been more
– Further constraints on banks focused on markets other than
capital Texas
• Several smaller banks have violated – Concerns that initiating
CRE guidelines regarding capital to foreclosures could cascade,
real estate loan ratios worsening the real estate and
– Several have opted to reduce, banking situation
eliminate interim lines – Push back from developers means
• Expectation is that an increased litigation
amount of REO is on the horizon – Internal denial by the banks
DFW Lender Issues 2009
DFW Activity
• 4Q08 saw an accumulation of unsold • Starts were off in 1Q09 as builders
housing inventory focused on selling finished
– Consumer confidence rocked by melt inventory for much of the quarter
down of credit and equities markets, • Closings outpacing starts by 5,500+
official proclamation of a severe units per year
recession
• Housing inventory greatly reduced
– Cancellations on sales from Summer,
2008 were especially pronounced in Market Drivers
November & December • $8,000 tax credit and historically
– Builders entered 2009 with little low interest rates getting many
momentum or backlog new buyers off sidelines
• Decent traffic and sales in January; • Primary drag to demand is spiking
buyer behavior closely tracks layoffs. Federal Reserve projecting
performance of stock market in March 2009 job loss likely will exceed that
• Last 4‐5 weeks have been solid, new of 2001 in DFW
home starts should pick up in April
Current DFW Market Conditions
Dallas Ft. Worth DFW
$ Vol. Starts (Billions) $2.81 $1.59 $4.41
Median Home Price $225K $187K $208K
Annual Starts 10,365 6,652 17,017
Annual Closings 14,084 8,521 22,605
U/C Home Inventory 2,427 1,428 3,855
Month Supply 2.07 2.01 2.05
FV Home Inventory 4,259 2,170 6,429
Month Supply (1) 3.63 3.06 3.41
Vacant Lots 60,263 33,011 93,274
Month Supply (2) 69.8 61.0 65.8
Lots Under Development 5,383 3,431 8,814
(1) 2.5 mos. is considered equilibrium (2) 24 mos. is considered equilibrium
DFW Housing Vital Signs 1Q09
DFW Activity
Year‐Over‐Year
Change In
Year‐Over‐Year Growth Annual Starts By
Annual Starts: ‐39.1%
Starts Closings Lot Deliveries Price Point
Annual Closings: ‐32.9%
60,000 Annual Lot Deliveries: ‐39.5%
Year‐Over‐Year Growth <$150K
Annual Starts: ‐37.6% 1Q08 5,500
55,000
Annual Closings: ‐35.4% 1Q09 3,181
50,000 Change ‐2,319
45,000 % Change ‐42.2%
40,000
$151‐200K
35,000 1Q08 7,750
30,000 1Q09 4,859
25,000 Change ‐2,891
20,000 % Change ‐37.3%
15,000 $201‐300K
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2
3
4
2
3
4
2
3
4
2
3
4
2
3
4
2
3
4
2
3
4
2
3
4
2
3
4
2
3
4
2
3
4
2
3
1Q08 6,955
1Q09 5,123
Change ‐1,832
% Change ‐26.3%
$301K+
1Q08 7,084
DFW Annual Starts, Closings 1Q09 3,854
Change ‐3,230
& Lot Deliveries % Change ‐45.6%
DFW Activity
10000
8000
6000
4000
2000
0
2Q
3Q
4Q
2Q
3Q
4Q
2Q
3Q
4Q
2Q
3Q
4Q
2Q
3Q
4Q
04
06
08
9
1Q0
1Q0
1Q0
1Q
1Q
1Q
•Builders close 1,702 more houses than they start in 1Q09 alone
•Since 3Q06 builders have closed 16,569 more houses than they have started
DFW Quarterly Starts & Closings
DFW Activity
$207,931
$210,000
Compare change in
start activity since
$200,000 peak in 2Q06
<$200K ‐69.8%
$201K+ ‐49.3%
$190,000
$180,000
Median Home Price Change
1 year +$3,052 +1.5%
$170,000 2 years +$a4,118 +7.3%
$160,000
$150,000
04
04
04
04
05
05
05
05
06
06
06
06
07
07
07
07
08
08
08
08
09
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
Median DFW New Home Price-Starts
Slower activity at lower price points pushes median price higher
DFW Median New Home Price
DFW Activity
Tot Inv 11,500
Total inventory declines 1,701 units (‐12.9%) in 1Q09 MS 6.11
30000 Model 1,216
27000 F/V 6,429
U/C 3,855
24000
21000
18000
15000
12000
9000
6000
3000
0
2Q
3Q
1Q Q
2Q
3Q
4Q
2Q
3Q
4Q
2Q
3Q
4Q
2Q
3Q
4Q
2Q
3Q
4Q
2Q
3Q
4Q
2Q
3Q
4Q
2Q
3Q
4Q
2Q
3Q
1Q Q
99
00
01
02
03
04
05
06
07
08
09
4
4
1Q
1Q
1Q
1Q
1Q
1Q
1Q
1Q
1Q
U/C FV Models
8
Month Supply
6 month
7
supply is
theoretical
6
equilibrium
5 for total
inventory
Total Housing Inventory
DFW Activity
Total Finished Vacant & Month Supply
Total Finished Inventory Month Supply
12000 4
Dallas Dallas 3.6 MS
FV inventory declines Ft. Wo rth
10000 by 741 units (10.3%) 3.5 Ft. Worth 3.4 MS
in 1Q09
8000 3
Maximum
6000 2.5
Optimum
4000 2
FV Invento ry
Finished vacant housing inventory has declined for 9 consecutive quarters. Credit and equity market challenges
in 4Q08 caused higher cancellations; builders resume inventory reduction in 1Q09
Finished Vacant Housing Inventory
DFW Activity
Total U/C Months Supply
17000 6
16000
15000
14000 Builders lower U/C inventory
5
13000 to lowest point yet this cycle
12000
11000
10000 4
9000
8000
7000 3
6000
5000
4000 2
3000
2000
1000
0 1
2Q
3Q
4Q
2Q
3Q
1Q Q
2Q
3Q
1Q Q
2Q
3Q
4Q
2Q
3Q
1Q Q
2Q
3Q
1Q Q
2Q
3Q
1Q Q
2Q
3Q
1Q Q
2Q
3Q
1Q Q
00
01
02
03
04
05
06
07
08
09
4
4
1Q
1Q
1Q
Under construction inventory declines from 4,736 in 4Q08 to 3,855 in 1Q09,
a reduction of 881 units (‐18.6%). Since peak in 2Q06, U/C inventory has declined 76%.
Under Construction Inventory
DFW Activity
Total # of models = 1,216 in 1Q09, down Annual closing rate has declined
591 units (‐33%) since peak in 3Q06 51.5% since peak in 2006
DFW Model Count Annual Closings Per Model
1900 34.00
1800 32.00
1700 3Q06=Peak in Gross
30.00
Closings
1600
28.00
1500
26.00
1400
24.00
1300 1Q02=Peak in Yield
22.00
1200
1100 20.00
1000 18.00
900 16.00
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Builders continue to build‐out or exit subdivisions, but decline in closings is happening at a faster rate
Yields Per Neighborhood
DFW Activity
100000 72
68
90000 64
93,274 lots
65.8 mos 60
80000
56 Dallas 69.8 mos
52 Ft. Worth 61.0 mos
70000
48
60000 44
40
50000 36
32
40000 28
24
30000
20
20000 VDL supply declines just 16
925 units (1.0%) in 4Q08 12
10000 8
4
0 0
1Q00
2Q00
3Q00
4Q00
1Q01
2Q01
3Q01
4Q01
1Q02
2Q02
3Q02
4Q02
1Q03
2Q03
3Q03
4Q03
1Q04
2Q04
3Q04
4Q04
1Q05
2Q05
3Q05
4Q05
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
Month Supply of Lots
Total Lot Supply 24 months is considered By Greater Market Area
theoretical equilibrium
Vacant Lot Supply
DFW Activity
Number of lots under development declines to 8,814 in 1Q09. 5,138 are at grading/staking stage and
3,676 are at street/utility stage
Equilibrium
40000 10
35000 9
30000 8
25000
7
20000
6
15000
5
10000
5000 4
4Q
4Q
2Q
3Q
2Q
3Q
2Q
3Q
4Q
2Q
3Q
4Q
2Q
2Q
3Q
3Q
4Q
4Q
03
07
08
04
05
06
09
1Q
1Q
1Q
1Q
1Q
1Q
1Q
Lots U/D Month Supply Lots U/D
Lots Under Development
DFW Activity
Suspended Lots?
Economic Issues
Real GDP Growth
Quarter-toQuarter Growth in Real GDP • Evaluating the recession
8
7 – Initial thinking in 2008 by most economists
6
5 was that economy would show signs of
4
3 recovery in Summer, 2009
2
Percent
1
0
– Federal Reserve now conceding that
2Q
3Q
4Q
2Q
3Q
4Q
2Q
3Q
4Q
2Q
3Q
4Q
2Q
3Q
4Q
2Q
3Q
4Q
1Q03
1Q04
1Q05
1Q06
1Q07
1Q08
-1
-2
recession more problematic; significant
-3
-4
employment issues likely to extend into
-5
-6 late‐2009 or beyond
-7
– Is the equities market signaling the
Source: Bureau of Economic Analysis
beginning of a recovery?
MBA Forecast (Real GDP % Growth) • Still to come…
– Commercial real estate defaults
1Q 2Q 3Q 4Q
– Bank failures
2008 0.9 2.8 -0.5 -6.3 – Credit card debt write‐downs
2009 -5.1 -0.6 0.0 2.5 – Retail fallout
2010 2.4 2.6 2.8 3.5
Source: MBA 4/10/09 Forecast
Economic Outlook
Economic Issues
April 9, 2009
30YR : 4.87%
30‐Yr Fixed Rate Outlook
15YR : 4.54% Mortgage Bankers Association
1YR ARM : 4.83% Conforming Rates: 4/10/09 Forecast
1Q09‐5.1%, 2Q09‐4.9%, 3Q09‐4.9%,
4Q09‐4.9%, 1Q10‐5.1%, 2Q10‐5.2%
Conforming Rates
7
6.5 Jumbo Rates (loans over $417K)
• Jumbo rates starting to become
6
more affordable
5.5 • Rates decline from 7.9% in Oct.
2008 to current level of around
5 6.3%‐‐still 150 bp over
170 Basis Point drop since October conforming, but better than the
4.5
200 bp spread of late‐2008
2005 2006 2007 2008 2009
• Bank of America leads charge
Source: Freddie Mac
Mortgage Rates
Economic Issues
Sindlinger & Co. Survey
Household Money Supply
DFW Texas U.S.
March confidence levels flat after February
80
low (lowest level since survey began in 1967)
75 Boom
DFW: 50.1 The Conference Board (National)
9/11/01
70 Texas: 47.5 Consumer Confidence Index
US : 45.3 125
65 115
105
60 95
85
55 Positive 75
65
55
50 45
35
45 Recession 25
A
A
A
A
08
09
05
06
07
4
J
J
J
J
O
O
O
O
O
0
20
20
20
20
20
40 20
2Q
3Q
4Q
2Q
3Q
4Q
2Q
3Q
4Q
2Q
3Q
4Q
2Q
3Q
4Q
2Q
3Q
4Q
2Q
3Q
4Q
2Q
3Q
4Q
2Q
3Q
4Q
'00
'01
'02
'03
'04
'05
'06
'07
'08
'09
1985=100
U.S. and Texas fall to recessionary
levels
Consumer Confidence
Market Drivers
Feb. 2009 Total Employment (TWC) = 2,934,000
(‐1.06% Annual Growth Rate)
Annual Change December, 2008
TWC: +2,500
DFW January, 2009 ‐7,000
February, 2009 ‐31,500
120,000
100,000
80,000
60,000
40,000
20,000
0
‐20,000 DFW
‐40,000
'06 F M A M J J A S O N D '07 F M A M J J A S O N D '08 F M A M J J A S O N D 09 F
Source: TWC
DFW Non‐Agriculture Annual Net
Employment Growth (CES) Not‐Adjusted
Market Drivers
8 Dallas
• Repeat of 2001‐2002? Ft. Worth/Arl
• In last economic downturn, DFW lost 7
84,800 jobs (6/01 to 6/02) before
recovery 6
• Dallas Federal Reserve economist
Keith Phillips projects a 2.8% decline 5
in jobs for Texas (‐296,000)
Unemployment Rates
• Employment recovery not expected 4 (NonAdj)
February, 2009
until Spring, 2010
Dallas 7.0%
• This would suggest a loss of over 3 Ft. Worth/Arl. 6.7%
Texas 6.6%
80,000 jobs for the DFW area in 2009 United States 8.9%
Source: TWC
2
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09
Unemployment Trends
Market Drivers
Mos Supply
Annual Resales Listings
140,000 Annual Resale Rate (2/09) 91,633 9
120,000 Down 17.5% vs. 1 Year Ago 8
7
100,000 6
80,000 5
4
60,000
3
40,000
2
20,000 Mos. Supply – 6.04 1
0 0
n n n n n n n n n n n n n n
5 -Ja 6 -Ja 7 -Ja 8 -Ja 9 -Ja 0 -Ja 1 -Ja 2 -Ja 3 -Ja 4 -Ja 5 -Ja 6 -Ja 7 -Ja 8 -Ja
9 9 9 9 9 0 0 0 0 0 0 0 0 0
19 19 19 19 19 20 20 20 20 20 20 20 20 20
Source: Texas A&M Real Estate Center
Compilation of MLS: Dallas, Ft. Worth, Irving, NE Tarrant, Collin Co., Denton Co., Arlington, Garland
Compilation of MLS: Dallas, Ft. Worth, Irving, NE Tarrant, Collin Co., Denton Co., Arlington, Garland
DFW Resales & Listings
• Spring market has shown improvement • Recovery of DFW housing market is
in late‐March and April going to track local economic
• Sales activity and traffic vastly conditions
improved over 4Q08, but still not quite – Downturn of 2001‐2 was not felt by
as strong as 1Q08 the builders due to the artificial
• Entry level showing hints of promise buzz of low rates and easy credit
– Consumer understands the $8,000 tax • Most builders feel that market will
credit bottom at 15‐16,000 annual units
• Buyers are responding to the low – Most pessimistic see 12,000 units
mortgage rates
– 1990 bottom was 10,000 units
• But mortgage qualification standards
are going to remain rigid – But population has grown from 3.5
to 6.1 mm in between
– 620 is about the lowest level for
conforming rates. Elimination of the • Good news is that Texas and DFW
580‐620 shoppers removes about 20% will continue to fare better than
of the first time and first move up rest of nation
buyers
2009 Outlook