Building with the housing market

Other than weather patterns, no single influence has a greater impact on golf and its related businesses than housing. The housing engine drives demographic changes, which, in turn, create new markets and change the face of established ones.

As housing recovers from a recessionary body blow, its impact on golf will be favorable. Developers and homebuilders, as they have for decades, will continue to view golf courses and country clubs as primary amenities for many of their projects. However, predicting the vagaries of the housing cycle is an imprecise process. It’s this symbiotic relationship between golf and housing that makes it important to keep a careful eye on this recovery.

As the housing market heats up, it’s interesting to remember the dire prognostications of some market watchers from only a few years ago. “The glory days of the housing economy are gone forever,” predicted some of the least informed. As often happens, many failed to remember the fundamentals that drive the housing cycle: developers’ access to capital, homeowners’ access to mortgage debt and the confidence levels of both buyers and sellers. The doomsday prophets also forgot their history and the reason that cycles are so named: they come and they go.

As the economy slowly and fitfully recovers, developers of residential and mixed-use properties are starting new projects. Tonette Echols, a financial advisor at Wells Fargo Advisors in Phoenix, observes that the combination of declining unemployment and moderating inflation is helping the economy find a “sweet spot” of opportunity.

Homebuilders seem to agree. Rick Judson, chair of the National Association of Home Builders and a Charlotte-based builder, said recently, “Builders are noting an increased sense of urgency among potential buyers as a result of thinning inventories of homes for sale, continuing affordable mortgage rates and strengthening local economies.”

After several years of record slow growth in new home starts, the pressure of pent-up demand is driving a new surge in construction. Where this new activity shows up first and remains strongest will help determine golf’s future health.

Demographically, the greatest demand for new homes is driven by more than 70 million Baby Boomers. This is a population segment that has what home mortgage companies love to see: cash and credit worthiness. According to John Burns, the respected California-based real estate observer, people over the age of 50 have purchased 39 percent of new homes thus far this year.

Traditional wisdom held that the Sun Belt held the greatest allure for the over-50 crowd. However, for the past decade Baby Boomers have felt another tug: proximity to children and grandchildren. The markets benefitting most are along the coasts and in population centers of Arizona, California, Florida, the Carolinas, Georgia, Tennessee and Texas. Generally speaking, states with favorable climate and more affordable health care will prosper; states without those advantages and those with high taxes will be less attractive to current and prospective residents.

Some markets – especially those where the recession brought new construction to a standstill – are now seeing the effects of a supply shortage. After several years of near-zero growth, sellers have corrected prices and builders have relocated their tool belts. Until inventory levels stabilize, home values on resales are increasing and it’s once again a seller’s market. Nationally, prices have increased 5.2 percent since January, with several California markets, Phoenix and Las Vegas leading the way.

If you’re wondering if or when your market will join the housing resurgence, here are several trends to watch:

• Consumer confidence is growing and fueling activity nationally. But housing a local market dynamic, so look for close-to-home signs such as continued layoffs or new businesses moving in.
• Homebuilder confidence is growing as builders scurry to take advantage of market conditions and credit availability.
• Building permits (usually six to nine months ahead of the cycle) are increasing in hot markets.
• Housing starts (usually four to six months ahead of sales) are up 35.8 percent from April 2012 to May 2013, according to the Census and Department of Commerce statistics.

Consider two additional important impacts on golf:

• Golf participation will increase in areas with a growing concentration of homebuyers above the age of 50.
• Market radials (the distance radius that feeds a facility) are shrinking due to over-supply of courses.

How should those of us in the golf business react to the changes in the housing market?

• Monitor housing trends that favor new construction and neighborhood resurgence in your area and market to new residents.
• Because of the shorter drive-time to the nearest course, loyalty programs that reward repeat business have new importance. Evaluate yours to make sure it’s appealing to new customers and rewarding to your business.
• Research your close-in market to understand its demographics and see where your facility makes the strongest connection with residents. Identify your facility’s strengths and most attractive features. Then focus your communications to take best advantage of your marketing budget.

The rising tide of a stronger housing economy may not lift all boats, but it can lift yours if you plan ahead. GCI