Long term trends.
I was looking into building a SIP panel factory in 2003. Part of the research was learning about the real estate industry.
I found a couple of interesting things,
- A house typically has a 50 year economic life. This is becuase of several factors and it is not a simple thing. But I will try to boil it down.
Neiborhoods cease to viable as built. Either do to changes in technology or changes in the way the economy of the area is functioning. Things that seem to be completely unrelated; like how many miles a car will last, or the falling demand for paper cause changes that make the neighborhood unattractive.
Houses get old, even hoises that are well, maintained, must be updated for new looks and with new technology. Even with complete technical upgrades, old houses do not meet the needs of modern families.
- The country is growing. 1 to 2 percent now, but households are still forming.
When you take these two together, we need to build 2 percent of all houses that are standing every year just to breakeven and another 1 percent to keep up. Additionally, we often end up building the wrong houses. From 2000 to 2008 we typically built McMansions. Of course not everybody needs, wants or can afford a McMansion. So after a 8 year hiatus in building we now have a pent up demand. Not only that, we really did not focus on starter homes, as LGIH does, for close to 20 years. This leave really big gap.
When a young family is looking at homes, they can look at 20 year old houses in the same price range as new houses. The trade offs between high maintenance, high utility bills, out of date feature, and nieghborhoods that are about to enter decline make a new home, even a smaller one with a smaller yard and less pretty trees, a good buy.
Finally, while I consider myself very fortunate to have escaped Houston, the city has a very strong economic moat, and the price of the raw materials feeding into the petrochemical industry has very minuscule effect on that economy.
Qazulight (I actually think low oil prices are having a bigger impact on Casey’s as they have a lot of thier business in the mid west that supports the Balkin.)