KB Home CEO Speaks; Should We Listen?

Posted by urbandigs

Tue Jan 8th, 2008 02:19 PM

A: Not really, but in this case I think I can relate two things this homebuilder's CEO talks about to the Manhattan real estate marketplace moving forward. In addition, it lines up with what I have been discussing for so long on this site as what I consider to be forward looking indicators that may ultimately affect our marketplace.

Thanks to Calculated Risk, KB Home CEO sums up his views on the housing market and the trouble he is seeing for his business:

"Several factors weighed on the entire housing industry this year, including a persistent oversupply of new and resale homes available for sale, increased foreclosure activity, heightened competition for home sales, reduced home affordability, turmoil in the mortgage and credit markets, and decreased consumer confidence in purchasing homes."
So, relating this to Manhattan real estate I see a few points worth discussing: AFFORDABILITY + CONSUMER CONFIDENCE.

With Manhattan being so different than most markets, and that being proven by our strong marketplace, we can immediately dismiss OVERSUPPLY, FORECLOSURE ACTIVITY, HEIGTENED COMPETITION FOR SALES (at least for now), & TURMOIL IN MORTGAGE / CREDIT MARKETS. We do not have an oversupply problem. The fact that we are 65-70% co-op takes out foreclosure activity as a major concern. With such tight inventory, sellers do not face any serious competition with other sellers resulting in battling price reductions. Finally, in this market I think mortgages are available and that buyers are qualified to obtain loan commitments. So, I do not think these fundamentals are hurting us in any significant way.

However, looking ahead, I am concerned about affordability and buyer confidence. Some people dismiss these fundamentals, but not me. I think these two phenomenons are the most important items to watch in the Manhattan real estate marketplace, for any signs of a slowdown. And I discussed both in depth for months. Affordability is linked to jobs and we are about to head into a period where layoffs in the financial sector are coming. I hope I do not need to explain Manhattan's link to wall street and the financial sector here. Buyer confidence is linked to sales volume; as a drop in confidence will result in one of two things for a prospective buyer ---> cutback in budget for the property purchase OR a putting off of the purchase altogether. Either one will affect sales volume and put some pressure on prices. The lagging result is a build of inventory as days on market lengthens. The lagging result of that is heightened competition amongst sellers; something that does not affect us right now.

I'll continue to report on our jobs market and on buyer confidence to see if these indicators change the fundamentals of our marketplace.