Bill Panebianco fancies himself an amateur magician.
He points to a stack of four nickels on the desk in his office at Pratt Home Builders, where he’s the vice president of sales and marketing. After placing a small cap over the nickels and then tapping the cap three times, he removes the cap to reveal a pair of dimes.
When asked how he pulled off the trick, Panebianco says he relies on people seeing what they want to see.
He then relates this to the housing market. People are seeing doom and gloom when in fact the market is as healthy as an ox, he says.
Why else would Pratt Home Builders have purchased every single one of the sites its largest competitor – Goodall Homes – owned in Chattanooga?
In this interview with the Hamilton County Herald, Panebianco discusses common misperceptions about the housing market and Pratt’s plans for its bolstered inventory.
If people see what they want to see, why are they currently seeing an unhealthy housing market?
“Don’t take this personally, but the media is making everything sound worse than it is. They say we’re in a terrible market when in fact we’re in a great market.
“The media has taught buyers that their rate has to be 2.9% and their house has to sell as soon as it hits the MLS. But for the last 50 years, if you average out the interest rates, they’d be 7%. I bought my first house at 11.9%. And they’re currently in the high fives. That’s a good rate.”
It’s a good rate for people who can afford a home, but not everyone can afford a home right now.
“Two kinds of buyers are currently out of the market. One of the groups is first-time homebuyers. A lot of first-time homebuyers can’t qualify for a new home right now because prices and interest rates have gone up too much. These buyers can no longer financially afford to buy a home. They’re going to have to wait until there are pay increases or they save more money.
“In the meantime, they’re becoming renters. And until enough of them are renters, the other segment that’s out of the market is investors. When interest rates spiked, investors said, ‘Let’s wait and see what’s going on.’ But they’ll be out for only a short time.
“These two groups being out of the market is affecting some sellers – but not Pratt.”
Why is Pratt Home Builders immune to these buyers being out of the market?
“Because real estate is still one of the best investments the average American can make. If you took a dollar and put it under your mattress, when you pull it out next year, it’s going to be 91 cents because inflation is 8.3%. With inflation at nearly 9%, investors are saying, ‘Leaving my cash here is costing me money.’
“But real estate has gone up every year since 1900 except for three times – a brief period during the 1930s, a brief period during the 1980s and in 2008. So if you have money to invest and are told housing has lost money only three times over the last 122 years and then it bounced back, would that not be a good investment?
“In 1980, a can of Coke cost 50 cents at a vending machine. If you had placed 50 cents into a savings account in 1980, you’d have 56 cents today, when a can of Coke costs $1.50 at a vending machine. So having your money in the bank is costing you money.
“Putting money in real estate pays dividends because housing outpaces inflation over time.”
Buyers are also still concerned about the low inventory.
“Greater Chattanooga Realtors says there are 1.8 months of inventory out there. In a seller’s market, there’s less than four months of inventory. In an average market, there’s between four and seven months of inventory. And in a buyer’s market, there’s more than seven months of inventory. So, yes, this is still a seller’s market.
“But the reason there’s not a lot of inventory is the average home in the Chattanooga area is currently lasting 16 days from listing to when it goes under contract. And that’s phenomenal.
“In January, there were 874 homes for sale. There are currently 1334 homes for sale. New sales last month was 1108. So the local housing inventory is going up.”
But the market still needs more homes.
“Correct – and the only way to get them is to build them. Reselling a home doesn’t produce a new home because you’re just swapping houses. Building a new home produces a new home. Homebuilders are the only people who can fix this.”
People were told ‘Buy now, sell now’ during COVID, so maybe they’re thinking now isn’t the time to buy or sell.
“Waiting only costs people money. The average sales prices in Chattanooga in 2022 was $350,012. The average sales price in August was $359,077. So it’s gone up.”
Which is good news for sellers but not buyers. Are prices going to continue to climb?
“We receive a lot of analytics from experts who tell us there’s going to be a brief market correction in the next 18 months. Not a true dip, but the market will flatten out for six to eight months and maybe go up or down a half percent during that period.”
Then the media is not getting it wrong.
“The media is not getting it wrong but it is reporting a distorted portion of it. If a cold front is moving in and the temperature is going to dip 4 degrees (Fahrenheit), does that sell papers or get people to tune in to your newscast? No. But a hurricane devastating the East Coast sells papers and attracts viewers. Bad news drives sales. The media sells the sizzle.”
So the market is healthy. Is this why Pratt Home Builders just purchased all of the Chattanooga holdings of its largest competitor?
“Goodall Homes is a great company. They’re still selling elsewhere in Tennessee, Kentucky and Alabama. We purchased about 350 local home sites from them. These are sites that are mostly ready to build on. We paid a premium for them because of that – and because we know the market is better than everyone thinks it is.”
How many home sites did Pratt Home Builders have before purchasing Goodall’s Chattanooga inventory?
“At any time, we have over 1,300 home sites. And at any time, we’re marketing 300 to 400 of those sites. From the day we buy something, it takes us 24 months to get it ready to sell. That’s turning raw land into a community. But of these 350 homes, 205 are ready to sell.”
Many people are still worried about the economy. How can selling those homes help?
“The National Association of Home Builders says building a home touches 300 jobs. That includes everyone from the people in the mortgage business to the people who make the supplies, sell the supplies, deliver the supplies and install the supplies. When new homes sell, the economy thrives, so we have to get back to building homes.”
Is Pratt Home Builders prepared to build on Goodall’s former lots?
“Absolutely.”
You have the lumber and the workers.
“Yes. That’s another thing Pratt has been doing. We could have sold more homes in 2022 than we did but we’ve been trying to not overextend ourselves so we can’t finish our customers’ homes on time.”
Is Pratt Home Builders finishing homes on time?
“Not as much as we’d like to because there are still labor and parts shortages. You can say COVID is over as much as you’d like but there are still parts shortages around the world because of COVID.
“Every country is different. We had a period when we waited for windows for 90 days on 160 homes. The holdup wasn’t the windows, it was one component that went into the windows that was made in a country that had closed all its factories.”
What’s currently holding Pratt Home Builders up?
“Tile. We’ll go to install a kitchen or bathroom floor and our supplier will tell us they discontinued the tile our customer wants. We get our tile from Shaw – and they’re discontinuing some of what they sell. So what a customer selected and we ordered six months ago might not be available today.”
Is labor still an issue?
“Yes. When COVID hit, a lot of people started working from home. Then that started to become the norm. But you can’t build a home from home. A lot of former builders have discovered they can do something different at home and watch their kids and save money on day care. That’s changed the workforce.
“It’s important to get people into the trades in Chattanooga. That’s why Pratt Home Builders is very active in the homebuilder associations. We help the associations get people into the trade through our financial support.”
Are there any other reasons for Pratt Home Builders’ confidence in the housing market?
“U-Haul last year voted Chattanooga the No. 1 place in the country to work from home because of our fast internet. So another reason we’re not afraid is because in 2021, 10% of our sales came from California and 25% of our sales came from out of the area.”
So, really, how were you able to pull off that magic trick?
“I’m just that good.”