Home sales increase 2%; inventories decline

Economists and others weigh in on the 2% increase in existing home sales amid declines in inventories.

· Sales have now been on net about unchanged and have shown little month-to-month volatility over the past six months, further indicating that high levels of housing affordability are stabilizing demand. This has also been seen in recent months in the new home sales figures. Inventories of unsold homes remain extremely high, but if sales continue to show stability and starts come down substantially further, a more balanced market could be achieved by the first part of next year. –Ted Wieseman, Morgan Stanley

· In what should be the best month of the traditional summer buying season the market observed a modest increase of 2.0%. The fall in prices did facilitate a decline in inventories, which provided a rare bit of sunshine in the market. However, at this juncture the conditions for a bottom to form in the housing sector are not ripe. Long-term rates have reassumed an upward trend and it is still quite difficult to obtain a non-conforming jumbo loan. While there are some good bargains for cash buyers and those that have information on prime foreclosures, the market is extremely fragile and has many more months of difficulty in front of it. –Joseph Brusuelas, Merk Investments

· Since October, existing home sales have been in a narrow range from 4.89 million to 5.06 million, suggesting that we could be near a bottom in the resales market… The months’ supply figure stood at 10.8 months in May, down marginally from 11.2 in April but still the second-highest level on record (the series began in 1999). Thus, although the resale market is showing some signs of stabilization in demand, there is still a glut of inventory that could take at least another year to work off. –Omair Sharif, RBS Greenwich Capital

· The real story in the monthly home sales data lies in the details on inventories and prices, and the bottom line to this story is that inventories remain at levels that suggest further significant declines in prices in the months ahead, particularly as the demand-side drivers of home sales continue to soften. There are some signs that sales of existing homes are forming a bottom, as suggested by the behavior of the six-month moving average of sales shown in the first chart below. –Richard F. Moody, Mission Residential

· We do think sales are approaching a bottom, as improved affordability has likely stimulated demand. In addition, an increase in foreclosure sales has likely contributed to the leveling off in sales. Foreclosures typically sell quicker than regular sales since lenders are motivated to clear the stock of foreclosures. As such, they often sell at a discount, which puts downward pressure on home prices. The existing home market is still very much out of balance, with 10.8 months of supply on the market. We expect the market to remain out of balance this year and most of next year as foreclosures add to inventory and sales remain sluggish. –Michelle Meyer, Lehman Brothers

· Existing home sales peaked during the summer of 2005 and have fallen steadily ever since. However, the pace of contraction has slowed in recent months with gains in 2 of the last 4 months. Nevertheless, the inventory of unsold homes remains very high, putting downward pressure on both new construction and particularly home prices. Home prices have been falling on a year-on-year basis for almost 2 years and, in recent months, the price declines have accelerated. Home sales will fall as long as home prices are falling, continuing to create turmoil in mortgage-related finance. –Stephen A. Wood, Insight Economics

In my earlier post, I noted the recent increase in median home prices which is positively correlated with the increase in home sales. Have we bottomed out? Personally, I think we're there or real close. Now for the LONG climb back...

Lawns offer positive carbon footprint

Sustainability is a major topic of discussion these days, particularly at the recent Seeley Conference. It may not seem like it, but ultimately sustainability IS an economically-based subject whether you view it from a short-run or long-run perspective. The more the Green Industry can demonstrate its sustainable practices (and mitigate those that aren't), the better off economically the industry will be.

Several folks in the media and otherwise have articulated the need for our industry to be proactive in demonstrating its "sustainableness." Project Evergreen, America in Bloom, Arbor Day Foundation are examples of just that.

Research is desperately needed to document the carbon offset, or better yet, the "oxygen credit" that is provided by our industry's products. One such piece of research recently released is a study that documents the fact that healthy turfgrass can capture as much as four times more carbon from the air than is produced by lawnmower engines.

See http://www.opei.org/carbonreport/ for the full report.

Other university studies are underway, but it will take some time because life cycle analysis is far from an exact science at this point. But in the historic words of Larry the Cable Guy, let's "Git-R-Done!"

Glass is half full...

The WSJ reports:

"Home resales rose to a 4.99 million annual rate, a 2.0% increase from April's unrevised 4.89 million annual pace, the National Association of Realtors said Thursday. The median home price was $208,600 in May, down 6.3% from $222,700 in May 2007. The median price in April this year was $201,200 (see chart above).

High inventories have exerted downward pressure on prices. The decline has kept would-be buyers from signing off on property as they wait for still-lower price tags."

Reuters reports that:

"The housing market has been shaken for months by a credit crunch and a wave of failing home loans that have spooked lenders and prospective buyers.

The disappointing new homes data is nonetheless in line with the pace of the last eight months, which have seen sales hover around the 5 million level, said Paul Bishop, a senior economist with the National Association of Realtors."

Aren't these reports missing the following seemingly good news: After declining for 7 out of the last 8 months, median home prices have increased for 3 months in a row, and the median price of $208,600 in May was 6.65% above the $195,600 level in February?

Seeley Conference Delivers!

Wow!

It's been 48 hours since we closed to door on this year's Seeley Conference and I am still chewing on some of the stellar presentations that were made.

Jim Marstiller kicked off the conference in good fashion. He is Senior Vice-President of Consulting Services for TNS Retail Forward, a leading management consulting and market research firm specializing in consumer behavior and its impact on retailers, those that supply retailers, and the economy. He is also the author of The Power to Innovate. Jim's talk focused on growth strategies, category reinvention, brand development, and innovative merchandising solutions. For a publication that provides much of his discussion, click here.

I followed Jim on the program (not an easy task I might add) with a discussion I called Industry 2015, which focused on the driving forces and historical trends of the green industry. For an overview of that talk, click here.

That evening, Bill Lipinski, Chief Executive Officer, First Pioneer Farm Credit discussed the difficulties that many businesses had had in expanding while adjusting to the ever-changing business climate. Very few firms have done this successfully for several reasons: (1) the leap from hands-on management to delegating is difficult; (2) there is often a disconnect between strategy creation and strategy execution; (3) there is a hesitancy to change business strategy to the changes going on; (4) a lack of management systems and information; and (5) a lack of an ability to lead.

I opened the Monday morning session with a discussion of the economic drivers underlying differentiation strategies, particularly addressing the nature of perceived value on the part of our customers. Click here for more on this discussion. You can also click on the "differentiation" label on the right hand side of this blog page for more posts regarding this strategy.

The rest of the day highlighted a series of case studies illustrating firms who have been successful in differentiating themselves in the marketplace including Brian Minter of Country Garden and Minter Garden Center, who has one of the premier gardens & garden centers in the Northern hemisphere.

He was followed by Gary Mangum of Bell Nursery, who has been featured in several trade journals articles (click here). Gary discussed the Bell Nursery model and the unique and innovative ways they carry out their own differentiation strategy in servicing Home Depot.

Ball Publishing's Jennifer Duffield White finished off the day by asking whether sustainability in floriculture is a tipping point for producers, retailers and consumers. The last morning of the conference, Peter Moran, Executive Vice President/CEO of the Society of American Florists (SAF), concluded the conference with a discussion of the draft sustainable standards for agriculture currently being proposed by SCS, the firm who is behind the Veriflora certification.

Needless to say, it was a busy 2.5 days but well worth it. If you missed the conference, the only respite you have is that your brain probably hurts less than mine right now.

Seeley Conference Begins Today

For the next several days, I will be participating in the Seeley Conference here at Cornell University (for more info, see www.hort.cornell.edu/seeleyconference). The topic of the day? One of my favorites, of course, differentiation in the marketplace!

As you have heard me say in previous posts many times, in a time of heightened rivalry resulting from a maturing marketplace, firms need to differentiate themselves from the competition. This year’s topic -- “Profit Squeeze: Is Differentiation the Solution?” -- addresses changes in the industry’s marketplace, focusing on differentiation and innovation as ways to achieve success.

Stay tuned for insights gleaned from the conference!

Early registration extended for Southwest Growers Conference

Attention all growers! The early registration deadline has been extended to June 30 for the annual Southwest Growers Conference that will be held in Conroe, TX on July 8-9, 2008. Refer to the conference website (http://swgrowers.tamu.edu) for more details and to register.

On Tuesday, July 8, there will be tours to four innovative nursery/greenhouse operations.

On Wednesday, July 9, there will be a full day of timely educational sessions at the Lone Star Exposition Center. Two morning sessions will focus on the practical and economic applications of environmental sustainability. Afterwards, a session on hiring a legal work force will cap off the morning program.

In the afternoon, there will be sessions on water quality and alkalinity, controlling new insect and disease pests, the use of PGR's, reducing weed control costs, and a laws/regs session to cap off the day. TDA Certified Pest Applicator CEU credits as well as TNLA CEU credits will be available.

Register now for the early-bird discount! It'll be worth the gas, I promise!

Which windfall profits should we tax?

Let's proceed with a game I'd like to call ... Pick the Profiteer! Your choice will indicate the industry that's clearly making more than its fair share. We'll tax those excess profits to subsidize the unreasonable prices that consumers pay for the industry's products. Sound good? Here are your choices:Take all the time you need.

Ready to tax that windfall? That was pretty easy, right? Clearly the oil company is C, the one making the most money off of every dollar of sales. Nope! Actually, that's Coca-Cola (NYSE: KO). And B, the company with the second-highest margins, is 3M (NYSE: MMM).

Hmm. Fine, then it must be E, right? It is, after all, the company earning the most relative to the amount invested in the business. Sounds like excessive profitability to me! Well, that would be Accenture (NYSE: ACN).

Let me stop you -- it's not A, either, which I should note also happens to sport the highest free cash flow growth among the five. That would be Apple (NYSE: AAPL). Whichever "parasitic" company you chose, I hope you're ready to fire off a missive to your senator, demanding an excise tax on those rip-off Cherry Cokes, Post-it Notes, consulting contracts, or iPods.

While the sheer size of a company like Chevron (NYSE: CVX), company D, translates to some eye-popping profit numbers in absolute terms, I would hope this exercise gave you a little more perspective on Big Oil's profitability relative to its large-cap brethren.

Thanks to Toby Shute for the game idea.

Phantom recession???

"A funny thing happened on the way to the most predicted recession in US history: it didn’t happen." I'm not fulling embracing this quotation just yet, but it is interesting commentary by Wesbury and Stein. Click here for their full elucidation.

New IPM blog available

The East Texas Nursery and Nursery Greenhouse IPM Program has recently added another method to distribute information -- the "East Texas Nursery and Greenhouse IPM Program Blog" at http://etipm.blogspot.com/. This site will have regular updates regarding advances in greenhouse and nursery pest management, meeting information, efficacy study results and newsletters. If you would like to have updates emailed directly to you the day they are posted, go to http://etipm.blogspot.com/ and simply enter your email address.

On the Road Again

After being out of the office at 5 different meetings over the last two weeks and talking to literally dozens of folks about their business performance this spring, I am convinced now, more than ever, that those who are successfully differentiating themselves from the competition are weathering this economic contraction better than those who aren't.

Not that there isn't some belt-tightening going on. There is plenty of that, but those who are focused on their marketing strategies [and even expanding them] are confident that they are gaining ground instead of losing it.

Ecomomic Rx for Business

"In good times, running a company is exhilarating. Money is flowing, customers are happy, employees have a spring in their step. In not-so-good times—like now—the very same job can feel like scaling Mt. Everest in a snowstorm while wearing a knapsack filled with bricks and suffering from a bad case of the flu."

In the latest Florists' Review magazine, Quint Studor offers "Eleven Ways to Infuse Your Company with the Leadership Skills to Thrive in Tough Times" -- a good read. For more, click here.

Another good read is George Whalins article on "Strategies for a Changing Retail World" -- click here.

Other good reads include:

Don't Just Survive—Dominate
When the Going Gets Tough...
Maintaining Strong Sales During the Summer
The Upside to a Downturn
The Business of Retail is Going to be Brutal in 2008

Largest minimum wage increase in 50 years

Fellow blogger Mark Perry makes a good point. In nominal dollars, the upcoming change in the minimum wage from $5.15 per hour in 2007 to $7.25 per hour in 2009 will be a 41% increase. In real, inflation-adjusted dollars (assuming a 3.8% increase in 2008-09), it will be a 25.5% increase, and will be the largest 2-year increase in the real minimum wage in at least 50 years (see chart below -- click on it for larger view).

Register NOW for the 2008 Southwest Growers Conference!

Attention all growers! The early registration deadline is approaching for the annual Southwest Growers Conference that will be held in Conroe, TX on July 8-9, 2008. Refer to the conference website (http://swgrowers.tamu.edu) for more details and to register.

On Tuesday, July 8, there will be tours to four innovative nursery/greenhouse operations.

On Wednesday, July 9, there will be a full day of timely educational sessions at the Lone Star Exposition Center. Two morning sessions will focus on the practical and economic applications of environmental sustainability. Afterwards, a session on hiring a legal work force will cap off the morning program.

In the afternoon, there will be sessions on water quality and alkalinity, controlling new insect and disease pests, the use of PGR's, reducing weed control costs, and a laws/regs session to cap off the day. TDA Certified Pest Applicator CEU credits as well as TNLA CEU credits will be available.

Register now for the early-bird discount!