Investment propertyRemodeling Replacing Custom Homes
You would expect a home remodeling website"s survey to be a self-serving survey if it reports home remodeling is on the ups and custom home purchases are on the outs.
It is.
There"s also some built in bias, but that doesn"t mean the survey isn"t dead on.
Custom homes are high-end homes. High-end homes are high-priced homes. Resale or new, sales of homes with the highest prices are the first to choke when the air gets a little thin and starts to seep out of the bubble.
At some point even affluent buyers get squeezed out of the custom home market and realize they can save a bundle of their bundle by staying put and upgrading.
For some, the housing market in general has already reached the squeezing-out point.
A relentless eight consecutive weeks of mortgage interest rate increases, escalating energy costs and fall out from a devastating hurricane season have all contributed to higher housing costs.
"The housing market is seeking out a peak. The power of long-term interest rates for housing is incredible," said National Association of Home Builders chief economist David Seiders.
Nowhere is that more true than in one of the most expensive housing sectors.
Well, just ask Toll Brothers.
The Horsham, PA, custom home building leader will enjoy record profits for the fourth year in a row, thanks to ever escalating home prices, but those same high prices, in part, have forced the builder to roll back production projections, based on "preliminary and unaudited" data from its fiscal fourth quarter and full fiscal year ended October 31, 2005.
The company claims the primary culprit is a "lengthening entitlement environment," but longer entitlements come with greater costs, costs typically passed onto the buyer who has already suffered record level home price increases across the board.
In a prepared statement, Robert I. Toll, chairman and CEO, puts it this way: "Faced with an increasingly complex regulatory process, our new communities are taking longer to come to market. The positive side is that once a community is approved, its value greatly increases. As a result of this lengthening entitlement environment, we ended this quarter with 230 selling communities; our last projection had been 237. We expect to remain at approximately 230 through the first quarter of 2006.
Because we have fewer selling communities than previously anticipated, and because we delivered some homes in fiscal year 2005 that we had projected would be delivered in fiscal year 2006, we now estimate delivering between 9,500 and 10,200 homes in fiscal year 2006 versus our 8,769 deliveries in fiscal year 2005. This compares to our previous guidance of 10,200 to 10,600 home deliveries in fiscal year 2006."
RenovationExperts.com a network of remodeling contractors recently released a survey of home owners who used the Renovation Experts site and found an 8.5 percent drop in the number of home owners looking for a residential general contractor to build a custom home.
In September 2004, 15.49 percent of homeowners using Renovation Experts Web site were looking for a residential general contractor to build a custom home. This year only 6.96 percent were looking for a custom home builder.
To be sure, most of those who visit the website aren"t looking for custom home builders to begin with, so the results are biased, but the change is noteworthy -- fewer people with a predisposition to remodel are taking the custom home path.
Those with a predisposition to buy a model home can"t be far behind.