John Murphy Reports

Sorry, but I can’t resist at least making some comment about this. With the rapid rise in energy costs, organic food sales have been hit significantly. For a proxy of the environmentally thoughtful food consumer, check out Whole Foods – stock symbol WFMI.

Will Americans pay a premium for a “green-friendly” home right now? Green costs more. A lot more. Yes, you’ll get the sale pitch that they will somehow save more on energy costs and that you’ll feel better knowing that your purchased something that was “good” for the environment. I’ve got an idea for the national home builders. Forget the “green” stuff and just figure out how to make your new homes incredibly energy efficient and then sell that.

“Green” is nothing but another marketing gimmick promoted by corporate America. The builders should give it up and sell energy efficiency and savings.

Recently the City of Plymouth, MN was named “Best Small City” by CNN Money (CNN, Fortune and Money Magazine) in its annual review of places to live.  The article is filled with lots of interesting data points.

BusinessWeek interviewed two analysts from Standard & Poors regarding the U.S. home builders. While this takes a financial angle in terms of stock price and bond quality, it’s still helpful in getting a sense where we are in the overall cycle.

A couple of key items from the article:

• Single family home starts expected to end the year around 600,000 homes – that’s at 1/3rd the level from the peak in 2005 at 1.7 million homes
• they expect prices to lag and continue to decline for the next year
• Overall supply of homes for sale is 11 months – historically that has been around 6 months
• There remains a shadow inventory of homes to be sold – these are sellers who are not yet on the market because it remains so difficult to sell. As soon as it looks like the market is turning, they expect many more sellers to jump in slowing down the recovery

I would also say there is a massive shadow inventory all over the country and certainly in the Twin Cities and that is in the new developments where the lots have been fully developed, but the builders have not yet put up a house. It’s not listed on the MLS yet. There are literally tens of thousands of these empty, developed lots quietly for sale.