| Importance of Knowing Today’s Buyer |
| Written by Jonathan Smoke | |
| 01.16.2008 | |
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Discuss this article on the forums. (0 posts) We can debate the timing of a bottom for the U.S. housing market overall and we can likewise debate the timing and extent of a recovery. What should be clearer is the picture of who is buying homes now and who isn’t.  During the first half of this decade, the ranks of traditional home buyers expanded greatly to include speculators and households who otherwise would have been more inclined to rent. As a result, for-sale housing demand far outpaced simple increases in households and drove up prices and new home production in many markets.The speculators were the first to run to the exits starting in late 2005. As a result, home prices, which had already stopped rising as dramatically, started to descend. By the spring of 2007, falling home prices began the great credit unraveling that is still impacting markets today. Today the speculators are gone, as are those who increasingly have better options in renting. But that doesn’t mean demand for housing has disappeared. When the final tallies are in for 2007, we are likely to have seen over 700,000 new homes and over 5 million existing homes sold. Over the last 40 years of housing data, those national numbers are respectable. So who is buying? Simply put, people who can afford a home, have the credit, and prefer ownership over renting. Some might call these “traditional home buyers,” but that phrase covers a range of very different household types. Last week, Jeff Mezger, the President and CEO of KB Home said the following in response to an analyst’s question about who’s buying today: “We’re definitely seeing a buyer that views owning the home as their lifestyle and something they intend to live in for a while. The days of buying it to flip it six months from now as an easy make or as an investment really are gone. This is a true normal housing climate traditional buyer.”
There’s a very important kernel of wisdom in his answer to anyone who wants to figure out which markets, which communities, and which builders will fare better in 2008. You can read more of what he had to say in the transcript of the KB Home earnings release conference call, which is in our Builder News. It sounds as though KB has a clear focus on who their buyers are and how to reach them. I’d be willing to bet that they will perform better than builders who are focusing on buyers who won’t be as compelled or able to buy in the current market. And they will certainly perform better than those builders who don’t have a clue about consumer demand and effective targeting. 
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