The Buying Bubble

A co-worker of mine commented at lunch the other day that he and his wife are waiting for mortgage rates to bottom out before refinancing their home. They keep waiting but rates keep dropping. Eventually they will reach their breaking point, cave in and refinance. The same goes for millions of Americans waiting to buy homes; they won’t wait forever.

Just like the housing bubble was filled with too many overvalued homes, there is now a buying bubble filled with pent-up demand, and it too will burst one day. Stories keep trickling in about builders’ phones ringing more often these days, buyers suddenly knocking on their doors and people in general getting into the early stages of buying a home.

A design/builder I spoke with said he too has noticed an increase in buyer interest, but has never seen things as bad as this — having no projects in the works. Still, he says he’ll survive the year by finishing three homes and one huge job that keeps going and going. He has structured his business to weather a storm like this; no layoffs so far, and no plans for any, either. He must remain prepared for the day the buying bubble pops.

Layoffs are not in the plans for the huge majority of RDB readers who responded to our annual Market Trends survey. More than 90 percent of survey respondents plan on hiring more employees or maintaining current staff levels throughout the year. Only 6 percent plan on letting people go. That’s pretty good during such a serious housing downturn, don’t you agree?

Our survey results also reveal that custom home designers and builders expect profit margins to remain steady in 2008, production volume to keep pace with last year and square footage not to decrease this year. Mirroring our data, results of the home design trends survey released in February by the American Institute of Architects indicate that yes, the custom market is not doing as well as this time last year, but compared to the production market it is performing much better.

Speaking of having life a little easier than others, a different co-worker recently returned from a trip to a severely impoverished area of an Asian country where he helped build homes — advanced tree forts, he called them — for those in need. He returned with a sense of humility, a healthy perspective on life and appreciation for what he has. Similarly, I hope most of you in the custom home market appreciate the relatively better position you’re in compared to those building production homes.

For revealing information on the state of the custom home market, click here to read the 2008 Market Trends report.

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