A survey of chief financial officers and tax directors at more than two dozen major U.S. homebuilders reveals cautious optimism that the single family home market is poised for another period of growth. The survey, based on responses received through 15 April 2012, paints a picture of an industry especially hard hit by the economic downturn but which has now achieved stability and is preparing for expansion.
“The homebuilding sector was rocked by the downturn, but in the last two years of polling key executives, we’ve witnessed a return to equilibrium. The general consensus of the industry seems to be that while there are still challenges to face, the stage is set for expansion to resume sometime in the next 24 months,” said Ernst & Young LLP U.S. homebuilding co-leader Steve Friedman.
The Ernst & Young LLP survey, which polled private and public homebuilders, shows that nearly 85 percent expect their companies to break even or realize net income in 2012. This is a sharp increase over last year, when 71 percent of respondents expected to break even or better, and even more markedly optimistic than 2010, when 52 percent of companies polled expected to make a net loss on the year.
Homebuilders are bullish about 2013, with almost 95 percent of respondents projecting break even or net income gains next year. Much of the optimism seems based on a belief that average selling prices for new homes are on a definite uptick. In 2011, 57 percent of respondents seemed to think that prices would remain stagnant or decrease slightly during the next 24 months, due to lackluster demand. But this year, a majority of respondents (58 percent) see prices increasing during the next 24 months, with almost 16 percent expecting average price increases exceeding 3 percent.
The biggest impediments to sales growth this year perceived by homebuilders are consumer confidence and the ability of potential buyers to sell their current homes. Consumer confidence has always been a big factor for homebuilders in anticipating sales growth, according to the survey. However, in this year’s survey, concerns over interest rates presenting an impediment seem to have diminished. But other major impediments that were cited by respondents in the last two years: interest rates and the ability of buyers to obtain mortgage financing seem to have diminished, according to this year’s survey.
Nevertheless, a majority of respondents (59 percent) don’t expect U.S. home sales to hit the benchmark one million units sold on an annualized basis until 2015 or 2016 -- where last year, 54 percent thought they would hit the benchmark in 2014 or 2015.
The survey covers a wide range of questions seeking sentiment from the homebuilding sector, including trends in green living, land, banking strategies, capital markets trends and financing as well as tax and audit issues. To download the complete survey results, visit www.ey.com/us/realestate.
