Home Builders, Preparing for a Thaw
Some market experts predict that the new-home sector will be the first to recover in the housing market. Working in its favor, they point out, are less expensive construction materials and land, with a significant slowdown in building. “There’s not a lot of speculative building happening,” said Megan McGrath, an analyst at Barclays Capital. “Most builders are only starting construction for a home on which they have an order.” Shifting demographics also augur well for builders. “This is a market that is increasingly dominated by first-time buyers,” said Nishu Sood, a real estate analyst at Deutsche Bank Securities. He noted that this market segment, which encompasses adult offspring of the baby boomers, is unencumbered by a home to sell or a mortgage under water. Further, these buyers can take advantage of a rising number of builder financing programs, along with lower prices and interest rates and the $8,000 federal tax credit. As a result, demand for entry-level homes is expected to increase. That is why McGrath says she favors companies like D. R. Horton and KB Home, which are focused on building smaller, less expensive houses. She said she also liked Toll Brothers because of its relatively low debt level, and because the company will probably benefit from pent-up demand for the luxury homes it builds after the market recovers. But even the more established buyers are scaling back right now. “What you’re seeing in the new-home market is a preference for simpler homes,” said Paul Puryear of Raymond James & Associates. Pulte Homes has embraced the trend toward simplicity. “There’s a bit of a move toward a smaller product nationwide in our communities,” Richard J. Dugas Jr., the president and chief executive, said in a recent interview. He explained that floor plans for some of its new homes are more basic, and their architectural features less elaborate, than those the company once specialized in, with a greater focus on energy efficiency. (www.nytimes.com)
New York Times (4/26/09); Vivian Marino
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Mortgage Safety Net May Help More New Buyers Take the Plunge
A previously obscure charitable group based in the District of Columbia, the Rainy Day Foundation, suddenly is doing a booming business in what’s called the mortgage payment protection niche. According to its chief executive, Richard Del Sontro, Rainy Day is offering free job-loss protection coverage and home buyer financial counseling through approximately 100 builders and lenders across the country, plus two large real estate brokerages. Some of the clients and partners are big: Long & Foster Real Estate is the largest independent brokerage in the country, according to industry estimates. Builder Lennar is active in 17 states — including California, Florida, Arizona, the Carolinas, Illinois and the metro Washington area. Keller Williams, whose South Florida affiliate began offering coverage earlier this month, is the third-largest real estate franchise firm in the U.S. Under the Rainy Day plan, people buying homes through a participating builder, lender or real estate agency can qualify for up to six months of mortgage payments — capped at $1,800 per month in some versions and $2,500 in others — if they lose their job during the two years following their closing. There is no direct cost to the buyer. The insurance coverage is underwritten by Virginia Surety. The emergency fund, which Del Sontro estimates will pay out $8 million to home owners in 2009 — up from $4 million last year — is designed to “bridge the gap” and keep full payments flowing for a month or two following an unanticipated financial problem. If the owners only have $1,000 available in a given month, but their mortgage bill is $1,500, Rainy Day contributes the missing $500. (www.washingtonpost.com)
Washington Post, (4/25/09); Kenneth R. Harney
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Best Cities for Jobs
Joel Kotkin, a presidential fellow in urban futures at Chapman University, and Michael Shires, associate professor in public policy at Pepperdine University, for five years have been compiling a list of the best places to do business in the U.S. But this year, it might be more appropriate to call them the “least worst,” writes Kotkin, because “you can barely find a fast-growing economy anywhere in this vast, diverse country. In 2008, 2% job growth made a city a veritable boom town, and anything approaching 1% growth is, oddly, better than merely respectable.” The No. 1-ranked big city of Austin, Texas, for example, enjoyed job growth of 1% in 2008 — less than a third of its average since 2003. Out of the 333 regions in the study, Texas dominates in both the best big and small cities for jobs and is home to a remarkable eight of the top 20 cities on the list — including No. 1-ranked Odessa, a small city in the state’s northwestern region. Further, the top five large metro areas for job growth — Austin, Houston, San Antonio, Ft. Worth and Dallas — are all in the state’s “urban triangle.” A healthy energy industry is one factor behind the state’s relative success. Other top-ranked locales boosted by the surge in energy prices in 2007 include Grand Junction, Colo.; Houma-Bayou Cane-Thibodoux, La.; Tulsa, Okla.; and Bismark, N.D. Other factors correlating with job growth — as evidenced by the current and past studies — are lower costs and taxes. For example, the area around Kennewick, Wash. is far less expensive than coastal communities in that state, and residents and businesses there also enjoy cheap hydroelectric power. Compared with high-tech centers in California and the Northeast — such as San Jose and Boston — places like Austin offer both tax and housing-cost bargains, as do Fargo, N.D. and Durham-Chapel Hill, N.C. (www.Forbes.com)
Forbes (4/14/09); Joel Kotkin
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CEO Helps People Keep Their Homes; That’s CitiMortgage Chief’s Personal Goal
Just eight months ago, Sanjiv Das, CEO and president of CitiMortgage, found himself charged with motivating 10,000 employees and revitalizing a franchise caught in the throes of one of the biggest housing crises to hit the USA. “The single biggest issue I face is to be able to deal with this onslaught of unemployment and negative sentiment (toward banks) out there that none of us control,” says Das, 47. “We all feel, in our own small way, if we can ebb the tide, it will go toward turning around the economy of this great country, and belief in the housing market and trust in the banking system.” Another goal of Das is to do what he can to avert some of the foreclosures crippling the housing market. About 3.7% of Citi-serviced loans were 90 days or more past due at the end of 2008. Das helped pioneer a first-of-a-kind program at CitiMortgage, the nation’s fourth-largest lender, to help home owners who have lost their jobs. Under the program, CitiMortgage allows eligible borrowers who have been newly laid off to have their monthly mortgage payments lowered by about $500 for three months. The performance of CityMortgage’s loan modifications also has beaten national averages, the company says. It reported in March that 23% of delinquent home loans it modified over the past year fell into default again, far below federal figures that show about 55% of modified loans done by national banks were in default after six months. Since 2007, CitiMortgage has modified 440,000 customers’ loans, affecting $43 billion of mortgage debt. “Our people are driven by the ability to find innovative solutions, as opposed to doing the same thing we do in good times,” Das says. “Our mantra to people is very clear: It’s about keeping people in their homes.” (www.usatoday.com)
USA Today (4/27/09); Stephanie Armour
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The Makeover Moment
Across the country, even as many people are being more cautious than ever about spending, some home owners with a little extra cash on hand are deciding that it’s a good time to renovate. Prices are down for both labor and materials, and contractors are readily available and able to lavish more attention on individual jobs. NAHB Chief Economist David Crowe said the current climate is unlike any he’s seen in his 30-year career. “Consumers are the ones in the driver’s seat now,” he said. “It’s the worst of times for builders and remodelers, who are very anxious, but it’s the best of times for consumers.” A recent survey by Angie’s List found 75% of its contractors were willing to cut prices by 10% to keep busy, with some willing to go higher, according to a spokesperson for the online directory. Many people are also discovering that lower bids by contractors are just the beginning. After years of research, Juliette Reynolds, who works for a publisher of travel guides, and her husband, Billy Hanson, a shop foreman at a sheet metal company, decided to build a prefab guest cottage in their backyard in Sarasota, Fla. last June. Contractors’ prices were already falling precipitously in the area, where the foreclosure rate was one of the highest in the nation last year and new construction had ground to a halt. The couple’s contractor dropped his bid from $125,000 in June to $95,000 in August, when they tried him a second time. And their savings have continued to accrue as the cost of materials and services decline. “Everything’s coming in under what the contractor estimated, like electrical, gas, plumbing,” said Reynolds, 42. “Plumbing was supposed to be $6,000, but it’s only costing about $4,500.” The couple is hoping that the project, now 75% complete, will come in as much as $5,000 under budget.” (www.nytimes.com)
New York Times (4/23/09); Julie Scelfo
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R.I. Urged to Speed Up Process for Issuing Building Permits
A panel studying Rhode Island’s Economic Development Corporation says the agency should fight to speed permitting procedures across the state, saying the path to construction is slow and unpredictable. A typical project may require approval from as many as eight agencies, “a regulatory morass” the EDC “does not do enough to address,” the report said. The panel also proposed a municipal “streamline permitting” process for projects “of critical economic concern.” The procedure would combine local planning and zoning approvals, set time limits and deputize the planning board as the “one-stop” authority. Local building departments have been a bête noire of developers for years. In 2005, the Rhode Island Builders Association sued nine cities and towns, arguing that the glacial pace of decision-making violates state law and deprives landowners of their property rights. The suit sparked some reforms. But Richard Welch, an association board member, said problems persist. Not even the steep drop-off in permit applications during the recession has reduced waiting times, he said, noting that his business, Apple Construction Corp., had lost 14 days before getting the go-ahead to add a handicap ramp to a building last summer. “You would expect that things would move more smoothly through the system since the amount of work has changed,” Welch said. “But the permitting is as slow as ever.” (www.projo.com)
Providence Journal (4/23/09); Benjamin N. Gedan
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