Hitting Homes

©iStockphoto.com\emagine.designWhen the residential building industry crumbled, the aftershocks rocked landscape professionals like Jeff Berghoff, president of Jeff Berghoff Design Group in Scottsdale, Ariz. Calls for the residential, estate-type homes Berghoff’s design-build company specializes in nearly came to a stop.

As a result, the company laid off a number of designers and cut its construction group in half. Many of the construction employees were moved to the maintenance side of the company so they could stay on the payroll, and workweeks for the designers that remained were cut to 32 hours. “We’ve adjusted our scale and the way we do things this year, so the company still should do fine overall, but it’s not as profitable as it has been in the past,” Berghoff explains.

And Berghoff isn’t the only one feeling the pinch. “This year there are just not a lot of homes being built,” says Ted Bentz of Second Nature in Rapid City, S.D. Because fewer houses require landscape design and construction, Bentz says the companies that get the nod must have a working relationship with the builder or homeowner, come up with incredibly competitive pricing or do something to stand out above the rest. “You certainly aren’t just handed the project, that’s for sure,” Bentz says.

Many of these business owners have found that more, smaller design/build/installation projects are paying the bills, as well as expansion into maintenance services vs. a total reliance on design/build.

In the meantime, the housing situation is improving, albeit slowly.

Economists claim housing and manufacturing – two cyclical industries that contribute to the landscape market – are leading the economic rebound.

According to Aaron Smith, senior economist for Moody’s Economy.com, the U.S. economy is on track to grow 3 percent or more in the third quarter of 2009 with “the initial phase of growth being driven by rapid recoveries in housing and manufacturing, diminishing drags from equipment spending and nonresidential construction, and government support.”

Other research backs this theory, particularly where housing is concerned. Most housing indicators – home sales, housing starts, building permits, pending home sales – point to a turnaround.

Bolstered by affordable interest rates and low prices, nationwide housing affordability during the second quarter of 2009 continued to hover near its highest level since the statistic was tracked 18 years ago, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index.

Specifically, 72.3 percent of all new and existing homes sold in the second quarter of 2009 were affordable to families earning the national median income of $64,000, up from 55 percent during the second quarter of 2008. 
 
This recovery in housing appears to have been largely driven by the $8,000 federal tax credit for first-time home buyers, making smaller, less expensive housing the strongest sector of the market. July’s existing home sales were 5 percent above the rate of one year ago – the first time in five years existing homes have shown a positive year over year increase. An estimated 1.5 million taxpayers are expected to claim the credit that went into effect in February, according to NAHB. “In the process a chain reaction has been unleashed,” explains Lawrence Yun, chief economist for the National Association of Realtors, adding that the number include 350,000 buyers who would not have purchased a home without the credit. “Many existing homeowners were able to sell their homes to first-timers and thus purchase their next home.”
 
The flipside of this coin is that a share of the sales are distressed or foreclosed properties – another factor pushing down median existing home prices, NAHB reports. Although home prices may have stabilized, they are still down significantly. The S&P/Case-Shiller 20-city and 10-city Home Price Indexes were both down 15 percent from one year ago. The 20-city index is down 31 percent from its peak in July 2006. All 20 cities were down from last year. Only five cities – Denver, Boston, Charlotte, N.C., Cleveland and Dallas – had year-over-year price declines of less than 10 percent. The inventory of 3.3 million existing homes for sale, an 8.6 months’ supply, seems tolerable, though elevated, NAHB says, adding analysis predicting many homeowners who would put their houses on the market if they thought they could sell them within a relatively short period at reasonable prices.
 
So while the tax credit helped stabilize the housing market, falling home prices are the real reason why sales are rebounding, according to Mike Larson, real estate and interest rate analyst at Weiss Research. “I believe the tax credit is the icing on the cake of this housing market recovery – not the cake itself,” he says.

When it comes to new homes, NAHB says single-family new home sales are down 13.4 percent from a year ago. The median square footage of homes that have been started has fallen from a peak of 2,309 square feet in the first quarter of 2007 to 2,091 square feet in the second quarter of this year. Median new home prices have fallen from a peak of $262,600 in March 2007 to $210,100 in July 2009. What is most troubling is that the median number of months for a sale after the completion of a new home rose to 12.4 months in July, a record high for this measure since the Census Bureau began tracking it in 1975.

Fortunately for landscape professionals and residential builders alike, things may be improving in this segment of the market – though more slowly than other housing segments. Home builder confidence rose to its highest level in more than a year, according to the August reading of the National Association of Home Builders/Wells Fargo Housing Market Index. In October 2008, most contractors (73 percent) and equipment distributors (63 percent) surveyed for Wells Fargo’s Construction Industry Forecast for 2009 expected to see a turnaround coming within 12, 18 or 24 months, which means, if their instincts are right, the building market is headed for an upswing any day now.
 
Though the numbers aren’t all positive, the improving picture of housing is the most important factor helping to kick-start the economy, Yun says.

What can aid the housing market toward continued improvement? According to NAHB Chairman Joe Robson, who is also a home builder from Tulsa, Okla., “to keep the recent upturn in home sales going into next year, Congress will need to extend the tax credit for another year and make it available to all buyers in an effort to encourage activity in the trade-up market.” SOI

The author is editor of Lawn & Landscape. Reach her at nwisniewski@gie.net. Lincoln, Ill.-based freelance writer Julie Collins contributed to this story.