HIRI Fall Conference sees bottom
Chicago -- Has the market finally bottomed out? How do we transition from recession to recovery? And how do we market to "Generation Y?" These were the questions posed at this year's Home Improvement Research Institute's Fall Conference and tackled by its presenters.
Fred Miller, HIRI's managing director, summed the conference up this way: "I think the overall message that a lot of people took away was a feeling that we're starting to see a bottoming to the market, that there's some optimism that we're starting to see recovery. Whether it's smooth or not is another matter," he said. "I don't think anybody expects a rapid recovery, but there are definitely some signs that we're starting to bottom out."
Presenters touched on topics of reacting to the recovery, the state of remodeling contractors, identifying Generation Y from X and how to market to them, what's ahead for housing, what home improvement projects are still profitable, and how consumers use the Web for home improvement projects.
According to Miller, that information that was put out by the conference's presenters was consistent with HIRI's own forecasts, which refers to the decline this year and modest growth in 2010.
One of the highly anticipated presenters, Ivy Zelman of Beachwood, Ohio-based Zelman Associates, had some good and bad news for the members in attendance.
"I'll warn you that the presentation is not upbeat, but it's a little more positive than last year," she said. "The elephant in the room has been home prices," Zelman said. She pointed to the S&P/Case-Shiller home price index to show positive increases over the past two months, which indicates a substantial annualized increase of 15%.
However, "We believe that this optimism reflected in stabilization and improvement is not likely to be sustainable, and we expect home prices will go back down," she said.
Zelman said it was important to focus on why housing prices went up in the first place and what we can do to continue that trend.
"The good news is that in January of 2009, we experienced what it looks to be the bottom in volume, with transactions starting to improve at the beginning of the year in both new- and existing-home sales. So we're about 12% off the trough, but I think we still have a long way to go to getting back to what we perceive to be normal levels of volume."
Affordability has improved dramatically. She said that current home prices are accounting for 17% of monthly household income, a historic low. But while that record-low is impressive, Zelman said we have been seeing rates decrease since last year -- each time breaking the previous low record. But affordability hasn't yet come low enough to spark a sustainable recovery.
Another factor has been the growing rate of Federal Housing Administration (FHA) loans. Currently, Zelman said 30% of the loans for new home buyers are FHA, and 50% of the new homes being built are FHA. This is due in part to a lower standard for approval, as FHA loans are being offered at 3.5% down and often with no FICA score requirement. This practice has curtailed, and now potential buyers with less than a 500 FICA score are required to put 10% down.
Because of this, defaults for FHA have been on the rise. "The perception is that there is going to be another tax payer bailout," said Zelman.
"If it wasn't for FHA, we'd be in real big trouble," she said. "It's probably bad public policy, but nobody wants to change it because it would hurt way too much."
Other presentations focused on topics such as "What's Happening to Remodeling Contractors in this Down Market?" and "Home Improvement Projects -- What's Hot, What's Not."
"Ultimately, the value of [this research] comes with the actions that companies take to appropriately plan their business in this type of market," said Miller.
"In times like this, information like this and all the research that HIRI does is more important than ever," said Miller, on the viability of the conference in tough economic times. "The analogy I use is 'the rising tide floats all boats.' If you were in the industry when it was going well, you were probably going to do pretty well. Now the tide's pretty low, and there's some reefs you can hit if you don't know where to navigate," he said.