Second Half Surge Bodes Well for Green

It’s hard to believe it, but we’re more than halfway through the year. Even more astonishing is the optimism builders are feeling about the back half of 2015.

Each month, HomeSphere and Morgan Stanley take the pulse of homebuilders throughout the country, including HomeSphere’s builder base of local, regional and large, publicly traded builders. Survey participants offer their outlook on the future—how they feel about sales, pricing and building costs, including labor and materials.

Our survey results have never been more positive. Builders believe the six-month outlook for new home sales is strong—a whopping 79 percent of builders expect higher new home sales, and 78 percent expect prices to increase in the next six months. Moreover, this optimism is based on a very good first half of the year. A majority of our survey respondents reported a yearover- year increase in home sales in June. That percentage was as high as 71 percent during the strong spring selling season. Moving forward, Kiplinger reports that home sales will continue to improve in the second half of the year. The publication predicts a 6.8 percent rise in existing sales and a further 23 percent pickup in new home sales for the rest of 2015.

Prices continue to improve, as well, and 74 percent of builders surveyed expect prices to increase in the next six months. CNBC recently reported that 33 states are now at or within 10 percent of their price peaks, and 10 states—Alaska, Colorado, Iowa, Nebraska, New York, North Carolina, Oklahoma, Tennessee, Texas and Vermont—reached new price peaks.

Not only does this trend imbue the market with confidence, more builders expect home price increases to outpace cost increases, the first time we’ve seen this ratio since we started the survey in January 2014.

So what does this mean for green?

This stage of the housing cycle remains the most fertile for green homebuilders, according to Herb Gardner, president of City Venture. Rising prices cover the additional costs associated with green building, while the ROI of marketing and government incentives lower overall building costs. The result is a win for the sustainable builder, and a win for homebuyers now able to experience the benefits of a sustainable home.

Demand for sustainable homes may also experience an uptick. While 91 percent of homebuyers want energy-efficient home products that save money, not everyone has been willing to spend for green. That attitude seems to be changing. In a recent survey by the NAHB, 84 percent of buyers said they would pay a 2 to 3 percent higher price for an energy-efficient home in exchange for savings on utility bills, and John Burns Real Estate Consulting found that 65 percent would pay as much as $7,500 or more for green products that delivered monthly savings.

As we look further down the road past 2015, the percentage of buyers most likely to choose green is only likely to grow. The biggest driver is the slow-to-start millennials, who may finally be entering the market as homebuyers. According to David Crowe, chief economist for the NAHB, new household formations have exceeded one million for the first time in nine years. Millennials have been delaying marriage and the purchases that result, but it seems the changing economy has changed their minds.

Rising household formations mean rising housing demand, and millennials are the “greenest” generation on record. They are the most likely to pay more for a sustainable product, more likely to check packaging for sustainable labeling and more likely to work for and purchase from sustainable companies. Once homeownership is in their sights, chances are the “echo boom” babies also will choose a sustainable home, given the opportunity. Of course, the market at large still faces some headwinds.

Lenders are facing new regulations that will make them ever more careful, and it’s still relatively hard for builders to get a loan for land acquisition and development. Wage growth is slow, and renting holds its appeal among the younger generations.

But economists and our builders agree that basic housing market conditions remain fertile for growth—and optimism remains.

To participate in HomeSphere’s builder survey and receive survey results, visit http://www.homesphere. com/contact-us/ or contact the author.

Glenn Renner is President and COO of HomeSphere. He may be reached at grenner@homesphere.com.