During the recent CEDIA Management Conference in Carefree, Ariz., there was some good news and, unfortunately, a whole lot of bad news from housing expert Tim Costello, CEO of Builder Homesite.
First, the good news.
Residential integrators are one of the few trades that offer cutting-edge amenities that the next generation of buyers will want. "We are going to have a smaller homebuilding industry for a very long time," Costello says.
"But your industry is one of the few that is positioned to gain a greater share of wallet from builders. I can guarantee you that drywallers, roofers and carpenters will not be making more money from builders in the foreseeable future, but integrators will.
"Due to the demographics [of future homebuyers who will desire electronics], you can grow. Integrators are one of the few bright spots in the building industry."
Costello also says integrators are well positioned to be the "power management trade" for the home, which he believes will become even more important as electric cars are more prevalent.
Those vehicles will need to be plugged in and powered up in the home with the electronic usage being regulated.
Costello says homeowners will also be spending more time at home vs. out spending their money, so they will be looking for technology amenities.
The Bad News
Costello reminded attendees not to "shoot the messenger" during his presentation entitled "Remaining Relevant in Today's Dynamics Environment."
He says that much like the 1930s are called the "Great Depression," this era will be remembered as "The Great Recession." He added that "there was nothing 'great' about it."
According to Costello:
- Housing prices, which have already dropped 26% on average nationwide, will drop another 35%
- The new home market will not stabilize until 2013
- He estimates there are more than 3 million excess homes that need to be sold
- 50% of all mortgages will be "underwater" by 2013 (Owners will owe more to the bank than the value of the home)
- 25% of home mortgages in 1996 were speculative investor buyers
- 70 builders built more than 100 homes per year are bankrupt
- 25 of the largest 100 homebuilders have folded
- Within two years, there will be at least one homebuilder who constructs more than 100,000 units per year
- DR Horton is the largest builder with more than 35,000 units
Builder Consolidation
Costello foresees massive consolidation among builders of all sizes, saying even custom builders will be going bankrupt at faster rates because they will be unable to get loans to construct homes.
With the market concentrated so heavily with a few large builders, Costello predicts extreme hardball tactics by these builders with all their trades.
For example, he describes a scenario in which mega-builders will purchase all the electronics on their own (at cheaper prices because of their buying power) and negotiate installation-labor-only costs with integrators.
"Some people predict a housing recovery in 2009. I put no credence in that because of all the wealth destruction that has occurred," Costello says, adding that even when the economy makes a comeback consumers "will not spend freely."
"We are living the nightmare. Let's have a plan for when we wake up."