Laughing in the aisles? Not hardly
CHANTILLY, VA. —When Ivy Zelman, the polished and bearish housing industry analyst from Zelman & Associates, finished her outlook presentation at the 2008 ProDealer Industry Summit in Chantilly, Va., a question rang out from the back of the packed conference room.
“My daughter turns eight next week,” came the voice. “Do you do birthday parties?”
It was a light-hearted moment to break the tension built up over 45 minutes of charts and graphs generally heading in the wrong directions.
Just outside of Washington, D.C., and against the back drop of financial uncertainty and Congress’ push to rescue the credit markets in the wake of the Lehman Brothers bankruptcy, the marquee session of the conference offered sobering analysis of housing trends.
Fortunately, not all the views emanating from the two-part economic outlook session were negative. Economist Paul Jannke, senior vp-wood and timber information for RISI, presented a power point with the relatively uplifting title: “North America Housing Markets: Not All the News is Bad.” His optimistic message included growing afford ability of housing and pent up demand for housing. Still, he cautioned: “It will get worse before it gets better.”
Not all of the educational sessions at the summit focused on the economy. Sam Rashkin described the growth of the Energy Star for Home program. A panel discussion on supply chain improvements shared industry research and details of a partnership between Pro Build Holdings and Beazer Homes. And Huntington, N.Y.-based pro dealer Diana Perenza shared best practices on running a tight credit operation and avoiding losses. She shared the stage with bankruptcy lawyer Annie Catmull.
But it was the economy that was front and center during the summit’s day of educational sessions.
Chief enemy of a housing rebound, according to Zelman’s presentation, is foreclosures. She said there are 800,000 to 1 million foreclosures owned by institutions today. Furthermore, almost 10 million people in America today have zero to negative equity in their homes, she said.
A recent trend affecting the market is cancellations caused by appraisal shock. She said builders are increasingly running up against appraisals that are 5 percent to 10 percent below the contract price, swelling the cancellation rates.
“What we need to do is stop the foreclosures from coming on to the market, depressing prices, reducing appraisals and continuing to burden the market,” she said.
Delegates expecting to hear how the troubled asset relief plan would help matters left disappointed. Zelman indicated Treasury Secretary Henry Paulson’s plan—all 400 pages of it—may boost confidence, it might help mortgage rates, “but it’s not addressing our problems.”
Jannke agreed, adding: “I’m not sure if the people who got us into this mess are the people who should necessarily be getting us out.”
Also on the economic outlook panel was Joshua Rosenbaum, executive director of building products for UBS Securities. He chimed that “there’s a ton of capital still looking at this sector.”
But he described the shocking events of September, from the bailout of Fannie Mae to the bankruptcy of Lehman Brothers, as unsettling. “It has been unbelievable,” he said. “I think anyone who tells you they’ve seen anything like it, or knows where it’s going is lying to you.”
Positive analysis was in short supply, but it raised its head on several occasions.
Jannke described housing prices as running 17 percent or 18 percent below their peaks—bad news for builders. “But if you’re looking for when this market is going to turn around, that’s good news. In order to reach the end of the beginning, we do have to see home prices come off, and they have come off.”
Jannke’s housing starts forecast calls for a credit-crunch induced drop to the 750,000 to 800,000 seasonally adjusted annual rate, then “snap back” to a 900,000 to million rate and stay there through 2009.
Jannke: “Yes, we are drastically underproducing the housing market right now. We overproduced to the tune of about 1.2 million, so by the end of 2009, with our optimistic forecast we’re still going to have some pent up demand for housing.”
He said to expect a turn around in 2010.
Zelman described the RISI analysis as somewhat bullish.
“How do you fix housing?” she asked. “I really don’t believe there’s a silver bullet. You fix it one consumer and one household at a time. But the more the government steps in, where does it stop?”
Around the Web: Obama tackles housing market
The Barack Obama administration started a temporary program to boost state and local housing finance agencies (HFAs). The purpose of the program is to spur lending and buying in a depressed housing market.
“Through this initiative, the administration aims to help HFAs jumpstart new lending to borrowers who might not otherwise be served and to better support the financing costs of their current programs,” U.S. Treasury Secretary Timothy Geithner said in a prepared statement.
True Value fall market held in Atlanta
When True Value president and CEO Lyle Heidemann addressed co-op members at the opening session of the 2008 fall market Oct. 17 in Atlanta, he stressed the importance of Destination True Value — encouraging retailers to adopt the new, more consumer friendly store format in one form or another.
“Much of our future is centered on Destination True Value, both for our existing stores as well as our growth with new ones,” Heidemann told the group assembled at the Georgia World Congress Center. “This year we will open, expand, relocate, convert or remodel more than 100 stores to the new format. In addition, another 75 stores will implement the DTV decor package.”
The point hit home with show attendees Kurt and Kathie Stringham, owners of Stringham’s True Value in Santaquin, Utah, which will undergo a DTV remodel starting next month. “Our sales are down this quarter, but we’re not pessimistic,” Kathie Stringham said. “I’m not sure about the economy, but for hardware stores, if you’re wise you can still do well.”
Carol Wentworth, vp-marketing, also addressed members at the opening session, trying to drive home the importance of national and local advertising in these tough economic times. She said stores that participated in three spring circular programs saw a 7 percent increase in sales and an average of $45,000 more in revenue during the spring season than stores that didn’t use the promotions.
“I think those numbers tell a pretty compelling story about using circulars to help you get ready for the spring selling season,” Wentworth said.
More than 1,000 vendors are introducing new items and offering market-only deals on merchandise from every major product category. Retailers attending the market will also have an opportunity to attend educational classes on everything from merchandising and marketing best practices to the True Value Rewards program and leveraging point-of-sale technology.
The market is open through Oct. 20.