The Rosy Affordability Picture Cannot Last Forever

Posted in Houston Market | Posted on 12-12-2014 | Written by Metrostudy News

 

  • Annual new home starts are up 9.4% YoY; only lot supply constraints are stopping builders from ramping up more quickly
  • Housing Starts are at their strongest since 3Q08
  • Builder bottlenecks are causing strong appreciation in home values; with rental rates rising buyers have little choice but to pay higher prices

December 2014:  The Houston new home market continued to surge in the third quarter, with builders starting construction on 8,531 new homes, about double the annual increase from last quarter. Representing a year-over-year gain of 9%, Houston hasn’t seen this many new homes since the third quarter of 2007. On an annualized basis, starts stand at 29,905, 8% above 3Q13, and the strongest rolling four quarters since 3Q08. The growth in the pace of starts continues to follow a measured linear trajectory as lot supply constraints have prevented Houston builders from ramping up construction more quickly.

“While annual starts have outpaced annual closings since 2012, closings have increased steadily over the last thirteen quarters,” said Scott Davis, Director of Metrostudy’s Houston market. “In the third quarter, area builders closed 7,625 new homes, bringing the annualized total to 27,647. This level of activity represents a 9.2% increase from prior quarter, and a 9.4% gain from a year ago. During the expansion phase of a housing recovery we expect to continue to see closings lag behind starts activity given the timeline of home construction and sales. The current annualized rate of new home closings is the largest since the first quarter of 2009 when builders were still liquidating their inventory as quickly as possible. Needless to say, the sales occurring today are of a much healthier nature.”

Metrostudy’s third quarter survey reflects 16.931 homes currently under construction; over 2,200 more than a year ago, and which equates to 7.3 months of supply. Conversely, the supply of homes sitting finished and vacant has increased 8% from a year ago to 3,453 units, although this level has held steady for the last couple quarters. Interestingly, this is a mere 30% of the number of finished vacant units available in the second quarter of 2007, the height of speculative building.

The number of finished vacant homes in the market remains at near historic lows as builders see their speculative homes purchased before reaching completion. The relative supply of finished vacant homes in the market is a mere 1.5 months, well below the 10 year average of 2.5 months. While Finished Vacant and Model inventory continue to shrink, the ramp up in Under Construction inventory was sufficient to offset the decline as months supply increased to 7.3 months for total housing inventory.

Median New Home Prices

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“As we continue through 2014, several significant trends stand out in significance for the Houston housing market,” said Davis.  “These include the continued job growth thanks to strong economic fundamentals, very low resale inventory, and high affordability resulting from continued low mortgage rates. All of these factors have been pushing homebuyers toward new housing, invigorating demand and pushing prices upward. Also contributing to higher prices on the supply side is the increase in input costs such as land, labor, and materials. Recently, builders have been able to pass along these increases to homebuyers as persistently low interest rates for 30-year mortgages have contributed to high levels of affordability. But between rising prices and an eventual increase in mortgage rates, the rosy affordability picture cannot last forever. A general rule of thumb to remember is that for every one percent that interest rates rise, the size of a loan available to homebuyers decreases by around ten percent. At some point, even a robust housing market like Houston will have to deal with the eventuality of interest rate pressure and high prices.”

Job growth is one of the single most important drivers of home demand, and Houston’s pace of job growth is one of the highest in the nation. While not as strong as last year, the general consensus seems to be that job growth in the Houston MSA will continue at a healthy pace throughout the rest of 2014.

Another important driver for new home demand is the extremely tight inventory of resale homes available on the market. Historically low resale inventory levels seem to be pushing would-be resale buyers into the new home market. Buyer traffic and net sales reported in Metrostudy’s monthly survey over the last 12 months have been consistent with the 12 months prior.

Tight supplies of available housing historically leads to home price appreciation, and prices in housing are rising quickly in both new and resale homes. On top of this, builders are coping with an overall increase in the real cost of building a new home in the market. Builders currently face fierce competition for a limited number of available lots to build on in suitable locations. In addition, builders are paying higher costs for materials and facing shortages in labor. These factors have contributed to a bottleneck which has limited growth in starts and has extended delivery times. Increased land and input costs are subsequently being passed down to consumers, as tight inventories have increased builders’ bargaining power and allowed them to raise prices. Consumers have little choice but to pay these higher prices or continue to rent at ever increasing rates, as inventories in both the new home and resale markets are quite thin. The result of all these factors is strong appreciation in home values, which Houston has already been observing as median closing prices for resales in Houston are up over 5% since last year and new sales are up 4.6%.          Other factors contributing to the increase in median home prices are fewer distressed sales and higher volumes of sales in the move-up market.

For information contact:
Scott Davis 713-622-9909 x132
sdavis@metrostudy.com

About Metrostudy

Metrostudy, a Hanley Wood company, is the leading provider of primary and secondary market information to the housing and related industries nationwide.  Established in 1975 in Houston, Metrostudy provides research, data, analytics and consulting services that help builders, developers, lenders, suppliers, retailers, utilities and others make investment and business decisions every day.  www.metrostudy.com

About Hanley Wood

Hanley Wood is the premier information, media, event, and strategic marketing services company serving the residential, commercial design and construction industries. Utilizing the largest editorial- and analytics-driven construction market database, the company produces powerful market data and insights; award-winning publications, newsletters and websites; marquee trade shows and executive events; and strategic marketing solutions. To learn more, visit hanleywood.com.

Oil Prices and Houston Housing Starts

Posted in Economy, Houston Market, In The News, National Housing Market | Posted on 11-05-2014 | Written by Scott Davis

Scott DavisThere’s no question that there is a strong correlation between home prices and housing starts in Houston.  A significant share of our economy is still based on oil, and energy has been the fastest growing employment sector this year.

1SD

Historically there is a pretty strong correlation between starts and oil prices, looking back to 1980:

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Oil prices have fallen significantly in the last 90 days, falling to $75, its lowest price since 2011.  There is some belief that the price drop may be geopolitical, rather than economic as Saudi Arabia may be trying to squeeze its OPEC competitors and Russia, most of whom require oil above $100/bbl to be profitable.  Even if true, US oil production is up almost 50% since 2011, and we see evidence of weakened demand from China and India.  It’s likely a result of a combination of these factors.

What does this mean for Houston?  We’ve plotted quarterly housing starts versus real oil prices from 1980 through Q3 of 2014, below.

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The conclusion we draw is as follows:  there is a “sweet spot” between $55 and $90/bbl that produces the highest demand for Housing in the Houston market.  Above $90 it would appear that high energy prices dampen demand for housing because of the squeeze on consumer budgets for housing and in a market the size of Houston, transportation.  Below $55 it appears that demand is lessened because of weaker job growth.  The Energy Information Administration’s pricing forecast for oil in 2015 is $91, and Saudi Aramco needs oil at about $93 to be profitable.  We expect oil prices to rise slightly to that level through the quarter and remain there on average through the balance of 2015.

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What does this mean for Houston?  We expect job growth, presently 112,900 (+4.3%), to slow and to place pressure on upward prices.  The resulting declines may make some newer developments less favorable and place them under financial pressure.  Overall, however the fall in oil prices will be beneficial because:

  1. Declining energy employment, particularly in the downstream sector, will relieve pressure on labor shortages for the construction industry, reducing one of our market’s key cost drivers.
  2. Lower gas prices will favor development in more remote markets, opening up lower cost sources of land and encouraging development of lots at the lower range of the market;  about one third of new home buyers in Houston are in the under $200K price band, a segment increasing difficult to meet.
  3. Lower energy prices may assist improving economies in other markets which should help the share of Houston’s economy dependent on national economic performance.
  4. Houston’s energy economy includes upstream, midstream and downstream energy.  Downstream energy, exploration and production, will likely suffer from extended low energy prices.  The two other sectors, midstream (pipelines) and upstream (petrochemical manufacturing) will likely improve as lower prices encourage more consumption nationwide requiring more oil/refined products to be transported (midstream) or manufacturing sees lower costs for feedstock (upstream).

Houston’s economy remains heavily dependent on the energy industry, both in direct employment and supporting economic activities indirectly tied to it.  It’s important to remember that energy projects are generally significant long term investments that are not very sensitive to daily or weekly price movements and the long term worldwide trend for oil consumption still points upward.  In the short to midterm timeframe, the recent declines in energy costs should actually prove to be a positive factor in Houston’s housing market, not a negative one.

Houston 2Q14 Housing Survey: Strong Employment Growth Continues to Fuel Housing Demand

Posted in Houston Market | Posted on 09-02-2014 | Written by Metrostudy News

September 2014: Metrostudy has released results from its 2Q14 survey of the Houston housing market, and for eight consecutive quarters we have seen an increase in the annual starts rate. The quarterly starts rate in Houston rose 16% to 7,977, and was up 3.5% when compared to the second quarter of 2013. The annual starts rate increased 1%, to 28,990 over the previous quarter, and up 10% from the second quarter of 2013.

The annual closing rate was up 13% from a year ago, the strongest level since the second quarter of 2008. Finished, vacant home supply continues to be constrained. The Houston market was at 2.7 months of supply.

“Houston’s housing market continues to outperform.  We are seeing strong pricing appreciation and low levels of inventory of finished product and vacant developed lots,” said Scott Davis, Regional Director for Metrostudy’s Houston Market. “After five and half years of strong job growth, the real challenge for builders in Houston’s new housing market is finding affordable lots in desirable locations.”

This finished-vacant months-of-supply metric is the number of finished-vacant homes divided by the number of move-ins over the last four quarters, then multiplied by twelve. Metrostudy has observed over the years that when this number rises above 3.0 and stays there, builders tend to reduce prices or make concessions, so this indicator is closely observed each quarter for emerging trends.

Vacant, developed lot (VDL) inventory continued to fall, down to 36,128 lots in the second quarter. This represents 15.0 months-of-supply, down from 43 months-of-supply recorded in the second quarter of 2009. At 15 months, this figure is far below the 20-24 months of supply that Metrostudy considers “equilibrium” for the Houston market.  VDL months-of-supply is calculated by dividing the number of developed lots by the current annual starts pace, and then multiplying by twelve.

Below are the top 10 communities in the Houston market, ranked by annual starts:

Rank Community

1       Cinco Ranch

2       Riverstone

3       The Woodlands

4       Cross Creek Ranch

5       Aliana

6       Canyon Gate West

7       Sienna Plantation

8       Woodforest

9       Firethorne

10     Pine Mill Ranch

“Housing markets in the northwest and far north sectors of the city remain strongest,” says Davis.  “Job growth from projects like Exxon at Springwoods and the opening of the Grand Parkway are really driving home development in those two submarkets.”

“With respect to buiders, Lennar remains the overall market leader, with DR Horton and Perry coming in close behind. Brighton Homes and KB Home are having a lot of success as well.”  Meritage, Village, LGI Homes, Ryland and Taylor Morrsion round out the top ten.

Housing Inventory is slightly above normal at 10.1 MOS. VDL inventory declined 5.8% quarter-over-quarter to 36,128, a 15.0-month supply. There were 6,375 lot deliveries in the quarter, and future lot inventory declined 1.1%, to 73,548.

For information contact: Scott Davis @ 713-622-9909 x132
E-mail: sdavis@metrostudy.com

About Metrostudy

Metrostudy, a Hanley Wood company, is the leading provider of primary and secondary market information to the housing and related industries nationwide.  Established in 1975 in Houston, Metrostudy provides research, data, analytics and consulting services that help builders, developers, lenders, suppliers, retailers, utilities and others make investment and business decisions every day.  www.metrostudy.com

About Hanley Wood

Hanley Wood is the premier information, media, event, and strategic marketing services company serving the residential, commercial design and construction industries. Utilizing the largest editorial- and analytics-driven construction market database, the company produces powerful market data and insights; award-winning publications, newsletters and websites; marquee trade shows and executive events; and strategic marketing solutions. To learn more, visit hanleywood.com.

Lots of Catch-Up

Posted in Atlanta Market, Austin Market, Central Florida Market, Dallas - Ft. Worth Market, Denver - Colorado Springs Market, Houston Market, Inland Empire Market, Jacksonville Market, Las Vegas Market, Maryland Market, Naples - Ft. Myers Market, National Housing Market, Northern Virginia Market, Phoenix - Tucson Market, Raleigh - Durham Market, Sarasota - Bradenton Market, South Florida Market, Southern California Market, St. George - Mesquite Market, Tampa Market | Posted on 08-04-2014 | Written by Brad Hunter

brad hWe have been talking for years about the lot shortages that builders are facing.  Now, it’s time to talk about how many lots are being developed.  Builders and developers are now playing “catch-up,” with builders buying land and lots and developers/investors paving roads and putting in infrastructure to serve the builders’ needs at a frenetic pace.

The pace of lot delivery (completion, ready for the builder) has gone up 140% in the past two years, much faster than the pace of housing production has risen (+84%).  Despite this increased pace, lot development STILL lags the pace of home production nationwide.

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In some markets, the lot production machine is in full gear, and has caught up with demand.  This is a good sign for builders, and a vital turning point for home production in 2015 and beyond.

The TOP TEN states for lot production in 2Q14 are:

State       2nd Q.   Starts        2nd Q. Lot       Deliveries
Texas 19,714 18,931
Florida 12,416 10,974
California 10,050 10,219
North Carolina 4,866 3,168
Georgia 4,489 1,270
Colorado 3,985 3,276
Arizona 3,519 4,596
Maryland 2,436 2,122
Utah 2,328 2,498
Virginia 2,198 1,850

Note that lot production has caught up with new home production in California, Arizona, and Utah.   Florida development is woefully far behind demand for lots, hence the skyrocketing cost of finished lots there.

Metrostudy defines “future lots” as those that are in the pipeline (some are pre-entitlement), and Florida has the deepest pipeline.   Below are the top 10 states ranked by known future lots.

State Future Inventory
Florida 1,597,055
California 1,378,299
Arizona 1,213,476
Texas 651,413
Colorado 406,613
Georgia 316,956
Illinois 281,054
Nevada 227,121
Maryland 194,829
Virginia 183,613

 

Is Activity in the South…Going South?

Posted in Atlanta Market, Central Florida Market, Charlotte Market, Dallas - Ft. Worth Market, Houston Market, Jacksonville Market, Naples - Ft. Myers Market, National Housing Market, Northern Virginia Market, Raleigh - Durham Market, Rio Grande Valley Market, San Antonio Market, Sarasota - Bradenton Market, Suburban Maryland Market, Tampa Market, The Triad Market | Posted on 08-04-2014 | Written by Brad Hunter

The brad hgovernment release on housing starts for June showed a sharp decline, concentrated in what the Census Bureau defines as “The South.”  Single-family starts were down in June by 9.0% from the previous month, and down 4.3% from twelve months earlier.  Within that number, almost all the decline was in the South, down 20.1% versus the previous month and down 14.5% versus a year ago.

Rumors of the South’s demise are greatly exaggerated.

Read Full Article and See Quarterly SFD Starts

 

 

 

 

Metrostudy Markets Analyses at the 2014 Housing Leadership Summit

Posted in Dallas - Ft. Worth Market, Houston Market, Las Vegas Market, National Housing Market, Northern California Market, Raleigh - Durham Market, South Florida Market, Tampa Market | Posted on 06-02-2014 | Written by Metrostudy News

The housing recovery hasn’t been a one-size-fits-all proposition. In Northern California, affordability remains a constant hurdle, while Tampa, Fla., and Las Vegas are clawing their way back after dramatic losses during the recession. In Dallas and South Florida, the markets are so strong that builders are being forced to come up with creative ways to manufacture lots. Raleigh, N.C., is also experiencing shirking supply but has recovered all of the jobs lost during the recession. And in Houston, buoyed by the strong energy sector, home prices have risen 17%. These were just some of the observations that came out from Metrostudy’s regional directors at Hanley Wood’s Housing Leadership Summit in Dana Point, Calif., in May. Check out the videos from the discussion below.

Watch Full Videos Here

Houston Housing Market Metrostudy 1Q14 Survey Results: Market Continues Surge in 2014; Inventory Constraints Cause Price Increases

Posted in Houston Market | Posted on 05-13-2014 | Written by Metrostudy News

May 13, 2014: Metrostudy’s 1Q14 survey of the Houston market revealed that housing continued to surge in the first quarter, and prices are rising quickly for both new and resale homes.  Builders started construction on 7,146 new homes this quarter, the fastest pace since the third quarter of last year.  “These numbers represent a year-over-year gain of 9%,” said David Jarvis, Regional Director of Metrostudy’s Houston Market. “Houston hasn’t seen this many new homes started in the first quarter of the year since 2007.”

On an annualized basis, starts stand at 28,930, 14% above 1Q13, and the strongest rolling four quarters since 3Q08.  The growth in the pace of starts continues to follow a measured linear trajectory as lot supply constraints have prevented Houston builders from ramping up construction more quickly.

While annual starts have outpaced annual closings since 2012, closings have increased steadily over the last eleven quarters.  In the first quarter, area builders closed 6,553 new homes, bringing the annualized total to 26,463.  This level of activity represents a 2.8% increase from prior quarter, and a 15% gain from a year ago.

“During the expansion phase of a housing recovery we expect to continue to see closings lag behind starts activity given the timeline of home construction and sales,” said Jarvis. “The current annualized rate of new home closings is the largest since the first quarter of 2009 when builders were still liquidating their inventory as quickly as possible.  Needless to say, the sales occurring today are of a much healthier nature.”

Job growth is one of the single most important drivers of home demand, and Houston’s pace of job growth is one of the highest in the nation.  While not as strong as last year, the general consensus seems to be that job growth in the Houston MSA will continue at a healthy pace throughout the rest of 2014.  Another important driver for new home demand is the extremely tight inventory of resale homes available on the market. Historically low resale inventory levels seem to be pushing would-be resale buyers into the new home market.

Moving forward, lot availability will continue to be a key factor for the growth of the Houston housing market.  Due to builder demand for more lots, most, if not all, lots being brought to market have a buyer before they’re completed.  Therefore, a number of publicly-traded builders and large, privately-owned builders have begun aggressively accumulating land and developing lots for their own use as a defensive posture.

Tight supplies of available housing historically lead to home price appreciation, and prices in Houston are rising quickly in both new and resale homes.  On top of this, builders are coping with an overall increase in the real cost of building a new home in the market.  Builders currently face fierce competition for a limited number of available lots to build on in suitable locations.  In addition, builders are paying higher costs for materials and facing shortages in labor.  These factors have contributed to a bottleneck which has limited growth in starts and has extended delivery times. Other factors contributing to the increase in median home prices are fewer distressed sales and higher volumes of sales in the move-up market.

“Increased land and input costs are subsequently being passed down to consumers, as tight inventories have increased builders’ bargaining power and allowed them to raise prices,” said Jarvis.  “Consumers have little choice but to pay these higher prices or continue to rent at ever increasing rates, as inventories in both the new home and resale markets are quite thin.  The result of all these factors is strong appreciation in home values, which Houston has already been observing as median closing prices for resales in Houston are up over 17% since last year and new sales are up 13%.”

For information contact: david jarvis @ 713-622-9909 x132
Email djarvis@metrostudy.com

About Metrostudy

Metrostudy, a Hanley Wood company, is the leading provider of primary and secondary market information to the housing and related industries nationwide.  Established in 1975 in Houston, Metrostudy provides research, data, analytics and consulting services that help builders, developers, lenders, suppliers, retailers, utilities and others make investment and business decisions every day.  www.metrostudy.com

About Hanley Wood

Hanley Wood is the premier information, media, event, and strategic marketing services company serving the residential, commercial design and construction industries. Utilizing the largest editorial- and analytics-driven construction market database, the company produces powerful market data and insights; award-winning publications, newsletters and websites; marquee trade shows and executive events; and strategic marketing solutions. To learn more, visit hanleywood.com.

March Madness in Houston’s New Housing Market

Posted in Houston Market | Posted on 03-28-2014 | Written by Patrick Mai

It’s time for March Madness in Houston, and I’m not talking about basketball.  The March Madness I’m referring to doesn’t require an advanced degree in bracketology, nor can it be streamed online at your desk (after hours, of course).  The March Madness I want to talk about is taking place in communities and subdivisions all over Houston, as builders and developers attempt to write their own Cinderella stories.

In each of the last three years, March has been the strongest month of the year in terms of home sales, and Houston area builders are hoping this March is no exception.  Have a look at the next two graphs, taken from Metrostudy’s monthly sales and traffic survey, which show gross and net sales by month:

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In the past two years, buyer traffic has also been at its highest levels in March.  Here’s a graph showing this trend:

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The trends show themselves readily.  So, this is it.  Will March 2014 live up to the hype created in the last three years?  I’d bet so.

What’s new from NAHBs International Builder’s Show?

Posted in Houston Market, National Housing Market | Posted on 02-12-2014 | Written by Metrostudy News

Here’s the 2014 New American Home.  6,000 square feet and an almost unlimited $5,000,000 budget.

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Read the rest of this entry »

Houston Continues to Lead the Nation

Posted in Houston Market | Posted on 01-29-2014 | Written by Metrostudy News

(Houston, TX – January 29, 2014) Throughout 2013, several significant trends continue to stand out in significance for the Houston housing market. These include robust job growth thanks to strong economic fundamentals, low resale inventory partially driven by investor activity, high rental rates, and high affordability resulting from continued low mortgage rates. This is according to a recent report by Metrostudy, a national housing data and consulting firm that maintains the most extensive primary database on residential construction in the US housing market.

The Houston new home market continued to surge in the fourth quarter, with builders starting construction on 6,141 new homes, the fastest fourth quarter pace in more than six years. Representing a year-over-year gain of 10%, Houston hasn’t seen this many annual new homes starts since 2007. On an annualized basis, starts stand at 28,233, 19.5% above 4Q12. “The growth in the pace of starts continues to follow a measured linear trajectory as lot supply constraints and shortages in labor and materials have prevented Houston builders from ramping up construction more quickly,” said David Jarvis, Regional Director of Metrostudy’s Houston Market. In the fourth quarter, area builders closed 6,500 new homes, bringing the annualized total to 25,627. This level of activity represents a 13% gain from a year ago.

“The number of finished vacant homes in the market remains at historic lows as builders see their speculative homes purchased before reaching completion,” said Jarvis. The relative supply of finished vacant homes in the market is a mere 1.5 months, well below the 10 year average of 2.5 months. While finished vacant and model inventory continue to shrink, the ramp up in under construction inventory was sufficient to push total housing supply to 6.7 months from 7.1 in the fourth quarter.

Deliveries of vacant developed Lots are starting to catch up to the pace of absorption. While last quarter the deficit was 602 lots, in the fourth quarter lot deliveries exceed lot absorption by 596. During the period, 6,737 new lots were delivered to the market while 6,141 new homes were started. On an annualized basis, 24,603 new lots have been delivered during the last four quarters, while builders have started construction on 28,233 new homes during the same time frame. That deficit is the smallest since the end of 2011, suggesting that the pace of lot development is finally gaining momentum. Houston’s relative supply of VDL sits at 16.4 months, well below the 10 year average of 25 months.

“Moving forward, lot availability will continue to be a key factor for the growth of the Houston housing market. Due to builder demand for more lots, most, if not all, lots being brought to market have a buyer before they’re completed. Therefore, a number of publicly-traded builders and large, privately-owned builders have begun aggressively accumulating land and developing lots for their own use as a defensive posture,” said Jarvis.

“Tight supplies of available housing historically leads to home price appreciation, and prices in housing are rising quickly in both new and resale homes. On top of this, builders are coping with an overall increase in the real cost of building a new home in the market. Builders currently face fierce competition for a limited number of available lots to build on in suitable locations. In addition, builders are paying higher costs for materials and facing shortages in labor. These factors have contributed to a bottleneck which has limited growth in starts and has extended delivery times. Increased land and input costs are subsequently being passed down to consumers, as tight inventories have increased builders’ bargaining power and allowed them to raise prices,” said Jarvis.

About Metrostudy

Metrostudy is the leading provider of primary and secondary market information to the housing and related industries nationwide. Metrostudy provides research, data, analytics and consulting services to help builders, developers, lenders, suppliers, retailers, utilities and others make investment and business decisions every day. For more information, visit www.metrostudy.com

About Hanley Wood

Hanley Wood, LLC is the premier information, media, event, and strategic marketing services company serving the residential, commercial design and construction industries. Utilizing the largest editorial- and analytics-driven construction market database, the company produces powerful market data and insights; award-winning publications, newsletters and websites; marquee trade shows and executive events; and strategic marketing solutions. To learn more, visit hanleywood.com.