ULI Capital Markets conference—Kiawah Island September 30th-October 1st, 2013

Michael Cohen-Property and Portfolio Research

Labor force in the south has consistently risen since 2010; housing recovery contributes to growth as does the demand for autos.

Growth is contingent upon the global economy—Housing, health care, manufacturing.  Consumption is the largest share of the US economy—grown from 57% in 1952 to 72% in 2012.

Exports as a % of GDP rose in the 2nd qtr of 2013.  Sunbelt will continue to have positive population growth—Charlotte has grown 3 times the national average in the last 10 years.

Education levels matter—Raleigh is in the top 5 cities in the US in terms of employees with advanced degrees.(RTP)

Median home prices are up 15% over the entire market—energy markets like Houston and Dallas have fared the best.

Tech metros like Austin, Houston, Dallas and Raleigh are doing well.

Healthcare employment has risen by 210% from ’82 to ’12-driven by demographics-aging adults.  Currently 50 million uninsured Americans, with ACA-22 million of those will be insured. Economic impact for the South will be positive.

Manufacturing sector has added 500,000 jobs but he expects that sector to be flat.  Energy—spike in oil and gas production.  Every recession in US has been preceded by an oil shock-(increase in price by 40%). A real concern is that Federal debt is 104% of GDP.  Long term structural issues are the entitlement programs.  Interest rate shock of 200 basis points could result in loss of 3 million jobs and 10% unemployment!!!!!!!

Residential panel consisting of Charles Teal, Diana Permar, Pulte rep, David Frame of Landeavor made the following points:

In the next 20 years, 43% of the US population growth will be concentrated in 10 strategic growth corridors—Charlotte is well positioned.

Charles—the markets they build in—Charlotte, Raleigh, Charleston are very competitive—he looks at submarkets and neighborhood by neighborhood.  Pent up demand has been met and the low levels of activity are behind us—the recovery has begun, but the ability of buyers to move up is strained due to interest rates moving up.  Locations are key.

David Frame—Landeavor is developing land with cash flow and equity, can’t develop lots fast enough in Charlotte or Raleigh.  Hard to know how much demand is out there since our business is driven by job growth.

Charles—local developers are out of business, large banks are starting to do some A&D financing.  Saussy Burbank is doing a fair amount of infill product, replacing the small custom builders who are mostly gone. Concerned about the void in the new lot development space with entitlement process taking 9-12 months and development time of 6-9 months.

Diana Permar—we have not seen the innovation you would expect coming out of this recession—reason is that capital is saying prove it works first before lending on it.  People have learned from this downturn—no short memories this time.  Buyers today ask a lot of questions, people will own houses longer—not churning-that cuts down on demand.  We better know what today’s buyers want in a house to be successful.  Boomers are back—want nice finishes, not necessarily high priced homes.

David—D.R. Horton is buying lots of land nationwide, land prices in Texas have doubled in the last year.  Thinks it will be 18-36 months before we see a supply-demand balance.

Pulte—find a partner you can trust—they definitely see a shift to smaller houses.

Charles—today’s buyer is constrained by lack of appreciation—might rent if don’t know how long his job will be for.  Shock to young buyers that rates have risen from 3.125 to 4.25%.

Generation Y-want to be owners—“practicality” is the buzzword here. They live with a high degree of uncertainty—want good school districts, yards and flexibility.  Opportunity for home design with multigenerational buyers and how families change over time.

David—Cost is a huge issue—materials and labor are up 25%–creep of cost is impactful in overall housing.  Charles—Dependable trades are a challenge as well.  Buyers are really focused on “A” locations and want value appreciation.

Opportunities in the residential housing market:

Diana-data mining, social media and understanding customers in real time.  Design-look at how customers want to live their lives today.  They want walkable communities, parks, trails, open spaces where they can walk and bike.  Technology must work too.

David-the boomers are back—if you have product available, they will buy.

Charles-mark your assets to market—you make $ when you buy the land.

2nd home market—Diana—the best places are selling well.  2nd/3rd tier will struggle longer.  Wealthy in this country are doing well.  Need more structures built in 2nd home communities—must be easy to get to for 2nd home buyers—people want available product—ready to move into.  No price increases yet—private equity is slowly coming back in this market.

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