More on the Housing Market

We get together with our residential broker every month or so to assess the current market and our plans. I posted about our last conversation as well as a WSJ article here. We had another lunch and chat yesterday, and I thought I'd share my takeaway from the conversation.

Our broker said before that things are going to look worse than they are for a while, and he has proved to be prophetic. The main problem is that the large, national homebuilders insist on shooting themselves in both feet. It is a complex situation that I don't pretend to understand, even as a CPA, but in large part, the publicly traded homebuilders must estimate their sales volume and then try like the dickens to meet those numbers. Most of us business owners look to the long-term in our planning, and most of us are willing to bear some economic pain to ensure the health of the company. But if a company is trying to maximize its volume quarter by quarter rather than adjusting to the market as it is and taking a hit in the early going in hope of better profitability later, then things begin to look screwy. I'm not implying that they are doing anything illegal, but I am bluntly saying that they are making stupid decisions, like trying to dump subdivisions at below the cost of development - except that nobody's buying, because they are doing the same thing. Or they are drastically cutting prices of houses in order to keep their volume of sales up, while infuriating the residents who purchased mere months earlier at the higher price. All this to please Wall Street, which is working, because their stock prices are going up. I don't know what they are privately thinking for the long term - perhaps that the market will turn up again soon and that will overcome the short-term knucklehead decisions?

This is not a crash, like the RTC years back in the late 80's. During that housing crash, the overall economy was down, there was no cash, no consumer confidence, and no demand. Today, Wall Street is setting new records, the Fed is making noises like inflation is not going to be a problem, and there is plenty of cash. The thing we are lacking today are the gray-haired folks that have ridden through a housing downturn. It leads to a lot of knee-jerk reactions.

So while the home-builders are chasing their tails and biting each other, what does that mean to Morrison Ranch? Very little, actually, other than timing. Lakeview Trails North is proceeding with construction more rapidly than ever before. We had three crews putting in the wet utilities, and it was done within the construction schedule; last year, we would have had one crew working. Morrison Ranch continues to be an "A" property, which means very desirable, in laymen's terms. We are a Master Planned Community with sewer and all the infrastructure, and now are considered to be infill rather than on the outskirts. So when they are ready to build again, Morrison Ranch will be one of the first places they will look. We are under no pressure to sell.

Besides, there are other fish to fry; we've heard some renewed whispers about some options for the Albertson's building - sorry, nothing concrete enough to share with you, but the fact there is whispering is very encouraging. Our industrial site's zoning is on the Mesa town council's docket for Monday night, so we can spend some time concentrating on industrial users.

Who knows? Maybe I'll even have time to finish the conversion to paperless.