Landsea Homes executive gives his insight on the 2023 housing market and housing fundamentals, and what’s working in the new home market
Mike Forsum: The new home market thus far has been surprisingly good considering where we were at the beginning of the year. It’s been active from a sales standpoint, and it continues on as we just finished up our second quarter.
Through all of our communities throughout the country, we’ve been experiencing high levels of absorption and traffic, wonderfully. It feels that, from a production standpoint, our cycle times are coming down, and we seem to have worked through a lot of supply chain issues.
B&D: Where do you think the market is headed?
MF: I think that it’s a little hard to predict against the macro forces of what we continue to hear as there is some looming potential for a recession, albeit a mild one. Then, there’s what seems to be a constant drip of the increase of rates going forward to slow down inflation from the Federal Reserve. What we have seen is that the economy has held strong through this, and for the most part, employment in some sectors is getting a little softer, high tech particularly but continues to stay strong. Wage increases have also been helpful.
The market seems resilient against the backdrop of some desire to manage inflation, but we’re also seeing inflation go down. I think that’s partly due to getting our supply chain in order and bringing that supply into the market. A lot of those disruptions have gone away. From that standpoint, going forward, it feels good.
We’re into our summer season, and we’re seeing a slight seasonality adjustment that we’ve seen in the past. It’s not a dramatic drop-off. We still have lots of people coming through our sales offices, and there’s still a very strong desire for homeownership for those that are out there.
For the most part on rates, they’ve increased, and there’s been this acknowledgment that we’re not going back to three, 3.5 percent 30-year-fixed rates. The very, very high fours or up to the mid-fives is the rate that’s getting tolerated and we’re able to transact around that range. It feels steady. It feels like we’re going to continue the momentum that we’ve seen through the first half of this year, going into the second half.
It’s this dearth of resell in the market that is forcing those that are seeking homeownership to get into the new home market because we’re the ones that are providing the solution.”
B&D: What are some current housing trends and how is Landsea Homes addressing them?
MF: There’s still a movement towards traditional, single-family-detached homes on lots with ample outdoor space. There’s a need within the house for the greater utility of spaces. There’s a lot more going on now with, most likely, a permanent adjustment to working from home, whether it’s hybrid to full-time. We’ve seen the idea of a traditional workspace, that obligatory room in the front of the house that was a hybrid, makeshift office, is now something moving around the house. A lot of it is because of the mobility of technology. You don’t need to necessarily be stuck in one spot plugged into a wall. With WiFi, you can move all over. We’re seeing that sort of home office now. Maybe in the back of the house or upstairs. It could be upstairs where there’s a deck. It’s interesting to see the evolution of the house by accommodating the worker coming home and working from home, and then coexisting with the typical movement of a home during the day, and in the evening.
B&D: Can you provide insight on housing fundamentals?
MF: The new home housing models are incredibly strong in the fact that one that has traditionally been our biggest competition, the resale market; there’s absolutely no supply there currently. We believe a large part of that is because of an aging population that’s staying in place and staying in their homes longer than they ever have before. This has traditionally contributed to the recycling of housing stock, which would allow in some cases, an entry-level homeowner to come into homeownership as someone ages out into an active adult community or downsizes. That’s just not as available. It’s all being exacerbated by the fact that we now have roughly, almost 80 percent of all outstanding mortgages in the United States today have interest rates roughly around 3.5 percent, and they’re not going anywhere. They’re locked in place until circumstances change and they have to move.
It’s this dearth of resell in the market that is forcing those that are seeking homeownership to get into the new home market because we’re the ones that are providing the solution. We’re the ones that are building the inventory today. And we’re also providing, for those of us who have mortgage affiliates or capture mortgage companies, a drawdown of that mortgage product to get rates more into the fours and the fives.
In cases with resale, it’s a little bit tougher, it’s expensive, and it’s harder to get that done. We’re providing inventory and we’re making it more attainable in the new home industry. We’re increasing our market share exponentially.
Over this last run, because of the fact that we have the thing that people want, and we’re able to provide the mortgage products for them to get it, it’s been great. Then again, for the most part, in all the markets that we’re in, economies are stable, and employment rates are some of the lowest they’ve ever been. Over the course of the last couple of years, it’s been people getting lots of pay raises, and I’m feeling pretty good about their economic position; they have money in the bank, and we have great credit coming through, with FICO scores the highest they’ve ever been. There are a lot of really good secular tailwinds in the new home business right now, and it’s all around very positive.
B&D: If any, what specific features have you noticed homebuyers asking for?
MF: They’re looking for added functional, valued technology in their homes, and more ability to have multi-functioning uses within their houses. There’s so much demand, particularly through WiFi that you have to have a whole house mesh WiFi so there are no blank spaces in the home. With everybody either riding a stationary bike, on their laptop, or playing a game, it’s just the sense of a full, robust, functioning technological experience in their house that’s meeting all those needs. There’s also this AI anticipation of “How I’m living in my home. What is being offered to make that an enjoyable experience and make my life better?” I’m not saying that you need to have a smart dishwasher but in the sense of “if I leave in the morning every day at the same time, it starts to understand my pattern lifestyle that when I’m closing my garage door in the morning, my upstairs bathroom in my master, lights are turning off because it knows I’m leaving for the day.” It’s not that they’re leaving things unfinished in the home, rather the house is helping them follow up behind it, making sure thermostats are set and lights are turned off. It’s not necessarily about spaces anymore. It’s about the experiences of how you live in the house that’s becoming more important.
B&D: What’s next for Landsea Homes?
MF: What’s next for Landsea Homes is to continue on our quest to grow our business, gain greater scale in the markets that we’re in currently and to enter and grow in markets that we’re not.
We think we’re just scratching the surface in terms of our coverage, in the new home marketplace in the states in which we want to operate in. It’s just the beginning for us. We believe we have a lot of runways, particularly in the states of Florida and Texas. We’re really happy with our businesses in California and we want to continue to grow and be formidable in Phoenix and in other places along the way.
We’ll continue to pursue them whether it’s up in the Carolinas, or some of the other southern states. We have high aspirations to be a top 10 homebuilder in the U.S. in the near term horizon. We’ve got a lot of work to do, but we’re excited. We think we’re onto something with our high-performance home strategy, it seems to be resonating with our homebuyers and differentiating ourselves out there in the marketplace. We’re going to continue to build upon that as well.