Nation's Building News Online: December 8, 2003Print All Articles Text Version |
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White House GSE Plan Would Mark Dark Days Ahead for Home Finance SystemHousing would suffer under a White House proposal that would transfer the responsibility of overseeing the programs of Fannie Mae and Freddie Mac from the Department of Housing and Urban Development (HUD) to the Treasury Department, according to NAHB policy analysts. Debate over how to restructure regulation of the two Government Sponsored Enterprises (GSEs) has held center stage on the legislative agenda in Washington for the past few months and is expected to continue in the year ahead. The discussion, spurred by the accounting debacle at Freddie Mac, has focused on two proposals — one to move oversight of the GSEs’ safety and soundness from the Office of Federal Housing Enterprise Oversight (OFHEO) to the Treasury, and the second to also allow the Treasury to review and approve new programs. A broad consensus has emerged in support of the first proposal, but on the second there has been major disagreement between most housing groups and the Bush Administration. The Administration maintains that program control is an essential element of safety and soundness regulation, while an NAHB-led coalition of housing groups holds that HUD must continue to regulate GSE programs as well as establish GSE affordable housing goals. NAHB analysts note that the housing GSEs have been a critical component of the home finance system during a period when housing has provided the backbone of support for the nation’s sputtering economy. Further, the GSEs have been tremendously responsive in developing new programs to help achieve the Administration’s goals of expanding homeownership for minorities. Under the auspices of HUD, Fannie Mae and Freddie Mac have provided support to primary market lenders for the development of hybrid mortgages that combine the benefits of adjustable and fixed-rate loans; lower downpayment requirements; and new mortgage products for borrowers with tarnished credit histories. And the GSEs have been at the forefront of technological innovations to streamline the mortgage process and reduce the time and cost of obtaining a mortgage. Progress in this area will be in jeopardy if the Administration succeeds in shifting program regulation from HUD to the Treasury. There is a nearly unanimous belief within the industry that the Treasury does not view housing as a national priority and that innovative programs making housing more affordable and accessible will be threatened if program authority is placed in its hands. Here, according to NAHB, is what will likely happen if the Administration gets its way: First, there would be fewer new mortgage programs to address the special needs of underserved markets. With financial safety and soundness as its primary objective, the Treasury could severely slow the development of innovative programs that provide liquidity to the housing credit markets, particularly in areas affecting minority, immigrant and low-income home buyers . Home builders would also experience negative fallout from the Administration’s plan. A number of loan programs on which builders rely could be curtailed or even eliminated if their approval authority were moved to the Treasury Department:
Second, the Administration’s proposal is also likely to result in an effort to decrease or freeze the conforming loan purchase limit, which will be $333,700 in 2004. For buyers in higher-cost markets, this would limit the benefits of Fannie Mae and Freddie Mac purchase programs and could lead to higher mortgage rates. Moreover, the impact would fall disproportionately on high-cost areas, such as California and the Northeast. Third, given the Treasury’s frequent criticism that too much capital is flowing into housing, a reallocation of capital away from housing and into other sectors of the economy would put upward pressure on mortgage rates. The existence of Fannie Mae and Freddie Mac has lowered interest rates by at least 25 basis points. At current mortgage rates, on the purchase of a median-priced new home this represents an average reduction in mortgage payments of $336 per year, or more than $10,000 over the life of a 30-year loan. This savings enables an additional one million families — especially low-income and first-time buyers — to qualify for a home purchase. The Administration’s plan can be viewed as the first step in the path toward the privatization of Fannie Mae and Freddie Mac. Indeed, current Administration officials have suggested that the GSE-status of Fannie Mae and Freddie Mac is no longer necessary. If Fannie Mae and Freddie Mac were privatized, the mortgage market would return to the bad old days of the 1970s when there were regional disparities in the cost and availability of mortgage credit. Fannie Mae and Freddie Mac were created to resolve these problems. If the GSE link is broken, the flow of capital from international and national investors would slow and mortgages will cost more. As a result, there would be less capital available in weaker underserved markets, resulting in higher housing costs for those least able to pay, NAHB says. And this would mark the return of an era in which individual financial institutions lend on the basis of their own deposits, rather than on the strength of the global capital market. This would be akin to the current situation in financing for housing production. The lack of a secondary AD&C market has resulted in higher financing costs and disparities in the availability of such financing. This is the last thing that builders would want to see in the mortgage market. Building News Coast To CoastNo Longer Storage Areas, Basements Become ChicA growing number of home owners are capitalizing on low interest rates and converting their basements from storage areas to home theaters, saunas, fitness rooms or play areas. Linda Urban of Bloomfield Hills, MI-based Coldwell Banker Schweitzer Real Estate says resale returns of 40% or more are possible with basement remodeling projects; but home owners who install top-quality cabinets, granite countertops and other pricey features will not recoup all of their investments. The trend can be attributed to the post-Sept. 11 nesting instinct and the desire for gathering spaces. According to Southfield, MI-based Fairway Construction President Adam Helfman, home owners can shave 30%-40% off the project's cost by hiring a professional to handle the design, plumbing, electricity and floors while tackling the carpeting, tiling, painting and other basic jobs themselves. Projects that involve high-end materials and full baths, among other design elements, could easily top $100,000. Back at the Ranch HouseRanch homes, or ramblers, emerged in Southern California and expanded throughout the country following World War II. These one-story dwellings feature V-, L- or U-shaped floor plans with courtyards instead of front porches, pitched roofs, extended eaves, half-walls and few doorways. The homes were once popular for their privacy, spaciousness and connection to the outdoors — the latter of which was accomplished with walls and doors made of glass. "Ranches: Design Ideas for Renovating, Remodeling and Building New" authors and architects M. Caren Connolly and Louis Wasserman believe ranches are once again gaining popularity. "Home buyers have come to appreciate both the subtle appeal of these straightforward homes and the settled suburban neighborhoods in which they tend to be found," they explain. Tuned In to Home RemodelingOf the two-thirds of home owners who watch home-related television shows, close to 75% use what they see to tackle projects in their own homes, reveals a recent survey by the home-improvement retailer Lowe's. Harvard University's Joint Center for Housing Studies reports that home owners are on pace to spend over $125 billion on remodeling this year; and chairman of the NAHN Remodelors™ Council, Mike Weiss, believes the industry will gain strength as consumer confidence rises and the economy continues to improve. Lowe's also discovered that 55% of home owners prefer rural living, and 41% have a penchant for older properties that must be restored or repaired. The top features demanded by the survey's respondents include such retro amenities as front porches, gunmetal gray appliances, hand-painted murals and separate relaxation quarters for men and women. Rising Costs of Lumber Drive Up Housing PricesPlywood and composite board prices have surged in the past five months due to strong demand for new homes, rebuilding in Iraq and wildfires in Canada. According to publishing firm Random Lengths, the cost of plywood sheets jumped from $240 per thousand square feet in October 2002 to $539 during the same month of this year. Oriented strand board prices, meanwhile, shot up from $155 per thousand sq. ft. to $465 over the same period. Though home builders and contractors are absorbing some of the increases to hang onto their customers, they have been forced to pass some of the costs onto consumers in the form of higher home and renovation prices. In fact, the jump in wood prices has boosted new-home prices by upwards of $4,000 and added 20% to the cost of improvements. Acuff Homes Inc. President Collin Acuff says first-time home buyers are hurt the most by the price hikes, especially since many have struggled to accumulate downpayments that are no longer sufficient. Lumber prices could decline in the coming months, but experts believe low interest rates will keep consumers' wallets open. Lap of LuxuryHome theater systems complete with surround sound and 106-inch video screens are popular in upscale residences, according to Mike Frye of Automated Home Technologies. Frye, the company's president, says the systems range in price from $2,000 to $50,000 — although most home buyers spend between $3,000 and $10,000. Dimmer switches once were located only in dining rooms, but Frye notes that home buyers now are requesting lighting controls in other rooms. Vertical spas also are gaining popularity among buyers of $300,000-plus homes. The shower units — priced between $2,500 and $5,000 — use six or more nozzles to spray water on the entire body. Warming drawers under the stove or oven; stainless steel appliances; six-burner stoves; central vacuums; and power-assisted toilets are popping up in luxury homes as well. Prefab-ulousAn increasing number of architects are designing prefabricated homes, or factory-made dwellings that are assembled on site, in an attempt to give home buyers an alternative to high-cost, cookie-cutter developments. These new offerings are different from other mobile, modular and prefabricated homes in that they incorporate modernized gables, sloped roofs, dormers, four-quadrant windows and other traditional features. Moreover, many of the designs are flexible and can be fitted together to create different floor plans. The architects involved in this new wave of prefabricated housing plan to target the $200,000-$300,000 price range, although costs will vary depending on region. Buyers will still need a conventional local builder for permits, foundations, plumbing and other necessities. If the concept catches on with buyers, however, stylish prefabricated homes could eventually evolve into the very mass-produced housing that architects are hoping to avoid. More People Calling the Mall HomeIn a growing number of cities across the country, developers are combining residential and retail components to create pedestrian-friendly enclaves with top-notch amenities such as fitness centers, private parking and swimming pools. In Aventura, FL, developers are transforming the Loehmann's Fashion Island mall into Aventura Town Center, which will feature 655 condominiums priced between $139,000 and $279,900, offices, shops and restaurants. Such mixed-use projects generate property taxes; boost business for struggling mall operators; make it easy for home owners to run errands without having to drive; and efficiently use the last urban parcels. "Greyfields Into Goldfields" author Lee Sobel notes that "in certain communities that want to achieve an identity and may not have one, these properties can make that happen and serve as a catalyst for redevelopment." Similar projects are popping up in other parts of South Florida, including 159 apartments above a Publix supermarket in Coral Gables and 360 units on top of a Publix in Miami's Brickell Village. In order to facilitate such development, most municipalities need to throw out zoning laws that keep residential and commercial areas separate and encourage commercial developers to include housing. Study Proves Growth Pays Its WayAccording to research by University of Florida economist Dr. James Dewey, the average new home in Manatee County, FL, generates about $14,782 in taxes. Dewey's study shows that new dwellings contribute $1,439 more in taxes than they cost in terms of public services. Gulf Coast Builders Exchange Executive Director Jay Brady believes this research proves that impact fees are not necessary to pay for new development. Brady says municipalities should use the surpluses to pay for infrastructure. Rather, he notes, local governments are forced to boost property taxes because they spend the funds in other areas and cannot make new residents pay existing deficiencies in the infrastructure system. California a Niche for New Home MaterialsAccording to the Structural Insulated Panel (SIP) Association, homes built with insulated steel or oriented strand board panels are more airtight and energy-efficient than conventional stick-built dwellings. Home buyers also benefit from lower property prices, which is especially important in high-cost states like California. In fact, the 108 dwellings being built by Grand Terrace-based Victoria Homes in Beaumont will fetch between $170,000 and $210,000. Despite the benefits of SIP construction, the NAHB Research Center reveals that fewer than 1% of the nation's homes have insulated panels. Industry insiders believe builders either know nothing about SIP or simply do not want to change their building practices. Structural Insulation Panel Association Executive Director Bill Wachtler says the technology makes it difficult to add skylights or change the placement of doors, windows and wiring, for instance, because the panels are pre-cut. My Other Front Door Is for My CustomersLadera Ranch, a master-planned development in Orange County, CA, features 22 homes that combine residential and business components. Such innovative development — which allows home owners to live in one section of the dwelling and work in another — is expected to catch on as local governments look to expand telecommuting as a means of minimizing traffic and air pollution. Orange County officials established a special zoning designation, "home-based business enclave" (HBBE), so the project could proceed. According to county building guidelines, a fire-resistant wall is necessary to separate the homes from the businesses. In addition, the dwellings must have public restrooms, customer parking and handicap access. Though the county did not place any restrictions on the types of businesses allowed, the Front Street home owners association will be responsible for such decisions. Critics are concerned about aesthetics and business-related noises and odors, but the concept proved to be popular among home buyers. In fact, the $600,000-plus residences attracted nearly 140 prospective buyers. A High-Tech LoadA growing number of home owners are transforming their laundry rooms into so-called "laundry centers" or "family studios" complete with upscale appliances. These areas today might feature $3,000-plus washers and dryers, sink spas, ironing stations, sorting areas, drying cabinets, valets, custom cabinetry and granite countertops as well as pricey aromatherapy detergents, fabric softeners and linen sprays. They are no longer relegated to the basement but are now located in dressing rooms or near the family's bedrooms or fitness areas. New York-based architect William Hellow says many home owners design their laundry rooms around high-tech washers and dryers, which are now available in assorted colors with touch screens, front-loading options and moisture sensors, among other features. According to Yale Appliance and Lighting Sales Director Steve Sheinkopf, laundry rooms have made their way out of the basement because home owners no longer want to climb stairs. In fact, some families have gone as far as building multiple laundry rooms in different areas of the home. Shipping Containers Show Promise for Living SpaceFox & Fowle Architects PC has thought of a use for the many empty shipping containers stored at seaports, and is discussing the idea with developers. The concept of converting the metal boxes into low-cost housing and commercial space was sparked by a Boston Society of Architects (BSA) national design competition to find mixed-use alternatives to deal with sprawl. "Fox & Fowle developed an innovative solution allowing them to leverage the design flexibility inherent with density," enthuses BSA President David D. Dixon. The team chose an 18.6 acre site that had woodlands, abandoned industrial property, open space and a nearby commuter rail station, and removed the sheathing on the shipping containers to use them as structural components for duplex loft-housing units made up of four containers each. The project also included commercial and civic/cultural space and parking. The plan stacked some 3,000 containers eight high. Textainer Group Senior Vice President Philip K. Brewer says that there are major savings in using the containers, rather than shipping them empty. Mobile Technology Helps Small Company Keep Big One at BayHand-held wireless technology is helping a small home improvement chain in New York stay a step ahead of its larger competition. Chase-Pitkin sales representatives are equipped with personal digital assistants (PDAs), which give them access to the company's database when they are in the field. The company's reps can easily look up products and prices, allowing them to spend more time building relationships with clients. Chase-Pitkin has achieved productivity gains from the technology, with the amount of time spent with customers up 50%. In addition, reps can now spend three-quarters of their day on the road. The technology has made it difficult for big competitors like Home Depot and Lowe's to encroach on Chase-Pitkin's territory. "One potential customer told us we wouldn't have been welcomed in if we didn't have this technology because clearly it's far ahead of the competition," remarks Chase-Pitkin Chief Information Officer Chris Dorsey. Small Business Embraces the Tablet PCThe Tablet PC did not catch on with large corporations as Microsoft and its partners had hoped, but a growing number of small businesses are adopting the technology. Austin, TX-based Gram Traffic Counting, which conducts roadside travel surveys for highway departments, began using Tablet PCs earlier this year and saw an instant increase in productivity and efficiency. According to company president Patricia Nassour, the greater efficiency has allowed Gram to reduce personnel, offer more competitive bids and cut delivery time for reports. In addition, the shift from paper to the Tablet PCs has eliminated the need to re-key information from paper forms, therefore eliminating transcribing errors. Burnaby, British Columbia-based Bartec Fire Safety Systems eliminated field technicians paperwork with the Tablet PC, which allows customers to write directly on the Tablet screen; in fact, the system also sends Bartec work orders via a wireless network. In addition, dispatchers can more easily redistribute work orders and rearrange schedules to respond to an emergency. According to company president Rob Barrett, use of the Tablets and wireless network has allowed Bartec to produce a report in one hour, instead of the three weeks that competitors take. Barrett says the greater efficiency has won the company new business from competitors. Powering UpThe Lindows.com-based BusinessStation computer, which costs $169, demonstrates that Linux can be made to work on the desktop, but only for certain types of workers doing certain types of work. The BusinessStation is similar to a network PC or thin client that uses a CD-ROM or network server rather than local storage, and it runs applications designed to work like Microsoft Office. This sort of setup can be workable for what the research firm Gartner refers to as "structured task workers," who use a few applications for repeated tasks, and it can be useful for employees such as call-center or retail employees, or those working in cubicles, who need something that does not take up much space and can be handled remotely by IT staff. However, it is less of an ideal solution for what Gartner calls knowledge workers, who use a broad variety of applications, some homegrown or full of special formatting or macros, because of the training and porting costs that these entail. Some Linux suites can still work for smaller enterprises or those that stick to off-the-shelf software, however, such as the StarOffice suite from Sun Microsystems or the OpenOffice.org software. Senate Passage of 'American Dream Downpayment Act' ApplaudedThe nation’s home builders applauded Senate passage last month of S. 811, the “American Dream Downpayment Act,” which would increase the supply of affordably priced housing in urban markets across the country and help tens of thousands of working families to become new home owners. Noting that the legislation contains several provisions designed to increase rental and homeownership opportunities, Jerry Howard, executive vice president and CEO of NAHB, said that the House should follow suit and approve “this vital housing bill.” The House could vote on the bill as early as this week. The legislation would raise the Federal Housing Administration’s multifamily mortgage insurance loan limits in high-cost markets — such as New York, Boston, San Francisco, Chicago and Los Angeles — enabling multifamily builders there to use the program to finance affordable rental housing. The measure would boost limits for FHA-insured loans in high-cost areas to 140% above the program’s base limit. The current limit is 110%. For special projects in high-cost areas, the HUD secretary would have the discretion to raise the maximum loan limit to 170% above the base. The bill would also authorize $200 million annually to assist low- and moderate-income home buyers with downpayment and closing costs, providing grants of roughly $5,000 to an estimated 40,000 home buyers annually. The legislation also contains a provision that could increase the use of the FHA’s hybrid adjustable rate mortgages. These loans have a fixed interest rate for an initial period that is typically three, five, seven or 10 years and then switch over to an adjustable rate, and they enable more families to qualify for a home loan because the initial interest rate is lower than the rate on a conventional 30-year, fixed-rate mortgage. To read the legislation, click here, and enter S. 811 in the box at the upper left.
Make Your Connection With www.nahb.org
Make your connection to the latest housing industry news and information with www.nahb.org — the official public and members-only Web site of NAHB. Log in today to register for educational seminars, meetings and networking events; find important economic and housing data; and learn the latest developments in NAHB’s efforts to promote housing. It’s all available to you 24 hours a day at www.nahb.org. Just click the "Member Log In" button to get started. If you are a member and need information about NAHB products and services, use the NAHB Staff Contact Directory to look up the direct telephone extensions for NAHB staff experts. Housing SnapshotMortgage rates rose slightly last week amidst speculation in the financial markets that the Federal Reserve at its Dec. 9 meeting would hint at the possibility that it would increase its Federal Funds interest rate sooner rather than later. News from the jobs front in November was encouraging, if not spectacular, with a decline in the unemployment rate to 5.9%. This represented the creation of 57,000 new jobs. On lumber prices, the markets have begun to provide convincing evidence that plywood and oriented strand board costs are in decline. According to Random Lengths, 15/32-inch 3-ply CDX Southern Westside plywood last week fell from $430 to $360 per 1,000 square feet. OSB declined even more sharply, from $425 to $325. Framing lumber nudged down from $346 to $342 per 1,000 board feet. Mortgage Interest Rates30 Year Fixed Rate: 6.02\% Housing Starts: Oct. 2003Total: 1.96 million\% New Home Sales: Oct. 2003 *1.105 million Existing Home Sales: Oct. 2003 *6.35 million * Seasonally Adjusted Annual Rate 2003 – A Year to RememberWhen we work together, there’s no end to what we can achieve on behalf of NAHB’s grassroots members and the families across this country who regard the opportunity to rent or own a decent home as one of their top priorities. As we approach the end of an amazingly successful year for America’s housing industry and this association, I want to briefly review our efforts and our accomplishments in 2003 so that we can celebrate our victories, mark our progress on ongoing housing priorities and redouble our efforts in the year ahead to meeting challenges that remain unresolved. Once again NAHB responded and refuted naysayers in the media and academic circles who were predicting a collapse in real estate values and a subsequent decline in housing production. Not only did housing values hold their own but home builders for the third consecutive year led the economy forward to higher ground in 2003. Mortgage interest rates declined to their lowest level in almost half a century in early summer, and by year’s end annual new home sales are expected to top the one million threshold for the first time ever and single-family housing starts will exceed 1.45 million units — also an all-time record. Other major highlights included leading the debate against a misbegotten regulatory effort for Fannie Mae and Freddie Mac that would undermine the effectiveness of the best housing finance system in the world; passage of a landmark tax stimulus bill; passage of a major housing bill in the Senate that is expected to be approved by the House; smashing all records (for attendance and exhibit sales) at the 2003 International Builders’ Show in Las Vegas; setting an all-time membership record of 215,000; and adopting the association’s first program-based budgeting system. Here is a recap highlighting NAHB’s activities over the past year:
At the end of 2003, economists at NAHB are predicting that the nation’s home builders can look forward to another good year in 2004, with mortgage rates remaining on the low side and a resurgent economy creating new jobs and prosperity. I am confident that our association is stronger, more resourceful and more responsive to the needs of its members than ever before, and that we stand ready to build on the many outstanding achievements of the year gone by and tackle the challenges that lie ahead as “Together We Build the American Dream.” Congress Delays Decision on Flood InsuranceBefore adjourning for Thanksgiving, the House and Senate agreed on a compromise regarding the National Flood Insurance Program (NFIP), and reauthorized it for an additional 90 days through March 31, 2004. Weeks ago, the Senate passed a one-year extension of the NFIP. However, the House insisted on programmatic reforms, which the Senate was unwilling to consider. Before the compromise was reached, the House approved a modified version of H.R. 253, the “Flood Insurance Reform Act of 2003,” sponsored by Rep. Doug Bereuter (R-NE). Changes to the bill, negotiated with Rep. Richard Baker (R-LA), included provisions addressing properties that have filed claims payments on numerous occasions. House passage of H.R. 253 sets the stage for House-Senate negotiations next year on legislation to reform the NFIP and allow for a long-term reauthorization of the program. In the interim, there will be no disruptions to the program through March. To read the House legislation, click here, and enter H.R. 253 in the box at the upper left.
Make Your Connection With www.nahb.org
Make your connection to the latest housing industry news and information with www.nahb.org — the official public and members-only Web site of NAHB. Log in today to register for educational seminars, meetings and networking events; find important economic and housing data; and learn the latest developments in NAHB’s efforts to promote housing. It’s all available to you 24 hours a day at www.nahb.org. Just click the "Member Log In" button to get started. If you are a member and need information about NAHB products and services, use the NAHB Staff Contact Directory to look up the direct telephone extensions for NAHB staff experts. New-Home Sales to Top One Million This Year Despite Small October DipSales of new single-family homes, bolstered by favorable mortgage rates and solid house-price gains, are expected to top one million units this year even though the seasonally adjusted sales rate dipped slightly in October, according to NAHB. New home sales slipped 3.5% to a seasonally adjusted annual rate of 1.105 million units, the Commerce Department reported. "New-home sales are continuing well in excess of last year’s previous record pace," said NAHB President Kent Conine. "While we experienced a slight slowdown last month, financing conditions remain extremely favorable across all segments of the market and we remain on course to establish a new sales record for single-family homes for 2003." NAHB Chief Economist David Seiders noted that the “frenetic” sales pace established during this year’s third quarter was unsustainable. "Some slowdown was expected in October,” Seiders said, “but we’re projecting 1.08 million home sales for the year as a whole, up by nearly 11% from 2002.” With consumer sentiment and confidence both increasing this fall and the job market finally appearing to show systematic improvement, Seiders noted that the environment for housing would remain “very good” for the balance of this year. Sales in October were down 0.5% in the Midwest, 1.0% in the South, 3.3% in the Northeast and 9.4% in the West, where activity nevertheless was 1.4% ahead of a year earlier. The inventory of new homes for sale in October increased slightly to 360,000 units, representing a thin four-months supply at the current sales pace and exceptionally low by historical standards. "Inventory has increased slightly, but there is a negligible increase in the actual number of units that have been completed and are for sale," Seiders said. "Most of the inventory increase represents units permitted but not yet started, as well as units still under construction." Existing-Home Sales Soften in October, But Still Near RecordSales of existing single-family homes appear to have reached their peak, with a 4.9% decline in October to a seasonally adjusted annual rate of 6.35 million units, which was the third highest pace on record following a record high in September. “We think this marks the beginning of a soft landing for sky-high home sales,” said David Lereah, chief economist for the National Association of Realtors®. “The last four months are the only months on record when the existing-home sales pace exceeded the 6-million mark,” he said “We expect the pace to ease gradually but to remain at historically high levels over the next year.” NAR President Walt McDonald, broker-owner of Walt McDonald Real Estate in Riverside, CA, said that housing demand is continuing to outstrip supply. “Although the supply of homes on the market saw some improvement at the end of October, inventories are still quite lean,” he said. “With low interest rates continuing to fuel demand, the housing market generally favors sellers in most of the country and home prices continue to rise faster than historic averages.” The national median existing-home price was $172,400 in October, up 8.2% from the same month a year earlier. Sales slipped 2.7% in the Northeast and South, 4.9% in the Midwest and 9.2% in the West. Eye on the EconomyDavid F. Seiders, NAHB Chief Economist Growth of real gross domestic product (GDP) surged to an 8.2% annual rate in the third quarter, the fastest pace in nearly 20 years. The strength in spending was broad-based, as most major sectors of the economy (other than the federal government) made positive contributions to growth. Even the trade sector pitched in, as growth in exports far exceeded a modest rise in imports — reflecting a falling dollar on the foreign exchange markets. The housing production component of GDP — residential fixed investment — grew at an annual rate of nearly 23% in the third quarter and contributed a full percentage point to the GDP growth rate. Sales, new production and remodeling of single-family homes led the charge, although multifamily production expanded at a 10% pace — largely reflecting strong performance of the condo market. Surging economic output finally pulls the job market into the recovery process … The third-quarter surge in GDP growth was powered by an even greater surge in productivity growth (output per hour) as payroll employment eroded a bit further. Thus, the third quarter extended the job-losing economic recovery pattern that began in late 2001 when the recession officially ended. It appears, however, that the surge in demand for economic output compelled the business sector to step up hiring during the latter part of the third quarter and into the final quarter of 2003. The Labor Department now reports that payroll employment grew by about 250,000 during the September-October period, and job growth continued in November. The big question, of course, regards the future paths of output and productivity growth and the implications for the labor market. NAHB’s forecast shows slowdowns in both output and productivity growth from their robust third-quarter performances, with the balance of forces favoring moderate but systematic job growth over the rest of this year and in 2004. This pattern, if it materializes, certainly will be great news for the Bush Administration. The improving job market, in turn, provokes increases in consumer confidence/sentiment … The recent improvements in the labor market provoked sizeable recoveries in both consumer confidence (Conference Board) and consumer sentiment (University of Michigan) in November. Furthermore, both sources reported improvements in consumer assessments of both the current economic situation and the economic outlook, the first time that’s happened in quite a while. Thus, a majority of consumers may now believe the economic recession is truly over — two full years after economists declared an end to the 2001 recession. Economic growth is subsiding in the fourth quarter, but forward momentum remains substantial … Some of the key components of the third-quarter surge in GDP growth are bound to slow down. But it’s not true that the U.S. economy somehow used up all its capacity and is now slipping back into a sub-par growth pattern — as suggested by some pundits in the media as well as some practitioners of the dismal science of economics. There’s no question that consumer spending was spurred in the third quarter by a jolt of stimulus from the new tax-cut bill that was implemented on July 1, and housing apparently received special stimulus as mortgage rates bounced off their cyclical lows and drew many “fence sitters” into the market. But spending by households is hardly going to fall apart, and we can look forward to positive performance by the nonresidential business sector, the government sector and the trade sector as special stimulus from tax cuts and interest rate shifts moves behind us. Everything considered, GDP growth should be about 4% in the current quarter and hang around that pace in 2004. This kind of output growth, along with a slowdown in productivity growth (to about 2.5%), should generate average increases in payroll employment of nearly 200,000 per month over the next five quarters — leaving the job-losing phase of the recovery in its wake. The nonresidential business sector remains the key to sustained economic expansion … Spending by nonresidential businesses on inventories, capital equipment and structures fell substantially in the recession of 2001, and persistent weakness of these components has held back the recovery process — at least until quite recently. But some batons now are being passed, as spending by households is slowing to a more sustainable pace, imbalances in the business sector are being corrected and corporate profits are surging. The third-quarter GDP report revealed strong growth (18.4%) in businesses spending on capital equipment and software, and it’s clear that this key component of the economy is on a real upswing — aided by the more favorable rules on depreciation and business expensing in this year’s tax bill. On the inventory front, businesses slowed the rate of liquidation in the third quarter. Sales ratios are now so low that an upswing in inventory investment is bound to begin in the fourth quarter and gain momentum next year. Spending by businesses on nonresidential structures contracted sharply in 2001 and 2002 but has been essentially flat during the past year. The flattening process has removed a major drag on GDP growth, and meaningful recovery is likely to commence around mid-2004. The incredible process of cost-cutting and productivity growth seen in the U.S. business sector in recent years now is returning huge benefits in terms of profitability, stimulating the stock market and providing firms with expanding cash flows to fund spending. Indeed, economic profits (with inventory valuation and capital consumption adjustments) grew at an annual rate of 50% in the third quarter and were up by 30% on a year-over-year basis. This surge raised profits levels above the peaks of the late 1990s. The deflationary threat may be receding as 'core' inflation rates stabilize … The surge in productivity growth definitely has put further downward pressure on unit labor costs and inflation, while the surge in spending that has propelled real GDP growth presumably provided some support to prices of goods and services despite limited pricing power by U.S. businesses. As a result, core inflation measures (excluding food and energy) may now be stabilizing after major erosion that raised concerns about a destructive Japanese-style deflationary process in the U.S. The core GDP price index posted a 1.3% annualized advance in the third quarter, following slippage to 0.6% in the second quarter, and the change in the core personal consumer expenditures (PCE) price index — a favorite of the Fed — rose from 1.1% to 1.7% over the same period. The monthly core PCE price index held at an annual rate of 1.3% in October, the same as the readings for August and September, and was up by 1.2% on a year-over-year basis. An alternative measure of core inflation, from the consumer price index (CPI), showed an annualized advance of 2.5% in October that translates to a 1.3% year-over-year advance, up a bit from the September pace. It’s obviously hard to draw firm conclusions from the various measures of core inflation. Furthermore, the recent sharp declines in unit labor costs will be a price depressant going ahead, and well-known upward biases in the inflation measures mean that we’re actually closer to zero inflation than we may think. Thus, while the deflation scare seems to be receding in financial markets, the Fed certainly will continue to worry about it for some time. The Federal Reserve is holding down the entire interest rate structure … The Fed now is in a holding pattern, keeping the federal funds rate at 1% while enjoying the pickup in economic growth and waiting patiently for major improvement in the labor market and firming up of core inflation. The recent surge in GDP growth prompted some speculation in financial markets about a hike in the funds rate by early next year, but Chairman Alan Greenspan and other Fed spokespersons quickly threw cold water on that theory. As a result, long-term interest rates have been remarkably steady despite obvious improvements in the economy. The Fed has plenty of time on its hands, and the central bank’s commitment to maintain the current “accommodative” monetary policy stance for a “considerable period” should not be taken lightly. Indeed, it will take quite some time to get core inflation up in the midst of a productivity wave, and productivity growth will continue to hold down hiring to some degree as well. Furthermore, the unemployment rate will be slow to fall since both the average length of the workweek and the labor-force participation rate will be moving up as the economic expansion proceeds. The Fed certainly will not raise the funds rate until the deflation threat is behind us and the unemployment rate is well off its cyclical highs. NAHB’s current forecast shows the first rate increase at the Federal Open Market Committee (FOMC) meeting on Nov. 10, 2004 (right after the elections). The Fed will be sending messages regarding shifting risks well in advance of the first rate hike, of course, and the resultant shift in market expectations will put some upward pressure on long-term rates prior to the November FOMC. We expect long-term rates to gravitate upward by about 75 basis points over the next 12 months, mostly after the first quarter of 2004. It’s noteworthy that Greenspan’s term as Fed chairman runs out on June 20 of next year, and his departure certainly would be unsettling to financial markets — right in the middle of a presidential election year. We’re assuming that President Bush will ask Greenspan to stay on as chairman until his term as Federal Reserve governor runs out in early 2006 and that Greenspan will accept. It’s also noteworthy that the annual rotation of Federal Reserve Bank presidents as voting members of the FOMC is likely to make the FOMC slightly less “hawkish” on inflation next year. Both of these developments are consistent with our monetary policy assumptions for 2004-2005. Housing continues to make major contributions to GDP growth, 'vigorous' activity in store for 2004 … The full percentage-point contribution of residential fixed investment to the third-quarter GDP growth rate reflected record sales of both new and existing homes, a surge in single-family housing starts to a record level, a pickup in multifamily starts that involved a surge in the condo component and a big increase in residential remodeling. The frenetic third-quarter pace presumably involved a surge in demand provoked by the bounce of mortgage rates off their June lows, and there’s some evidence that the volume of market activity is cooling a bit in the fourth quarter. In this regard, sales of new and existing homes were off by 3.5% and 4.9%, respectively, in October and inventories of new homes for sale moved up modestly in the process. Furthermore, November surveys of both single-family builders and home mortgage lenders tend to confirm that home buying has eased off following the third-quarter surge. The housing sector is sure to make another sizeable contribution to GDP growth in the fourth quarter, largely reflecting upward momentum in construction-put-in-place following the virtual explosion of housing starts during the June-October period. For 2004, we’re looking for “vigorous levels” of housing activity (to borrow a Greenspan phrase) that will keep sales and production close to the records of 2003 but that will not continue to propel GDP growth. For builders and suppliers, that pattern is just fine. House prices keep rising at a healthy pace, countering lingering concerns about price bubbles … Average home prices increased by 6.61% in the third quarter on a year-over-year basis (OFHEO House Price Index), continuing the process of gradual deceleration from the peak rates of increase recorded in the first half of 2001. Furthermore, the rate of price increase picked up on a quarter-to-quarter basis (to 5.56%), suggesting that house price inflation in the U.S. is stabilizing in the 5%-6% range. All nine Census Divisions and all the states recorded house price increases in the third quarter (year-over-year or quarter-to-quarter basis). Furthermore, virtually all major metro areas posted year-over-year gains in excess of 1% (San Jose, CA, and Austin, TX, were the only exceptions). Despite the healthy performance of house prices, theories of house price bubbles continue to appear in the financial media. Now that the economic expansion has shifted into a higher gear, pulling the job market into the recovery process, house price bubble theorists have shifted their attention to prospective impacts of rising interest rates on house values. But these theories hold little water, for two fundamental reasons:
Furthermore, tightening constraints on the supply of land available for residential development will continue to put upward pressure on construction costs and house prices. NAHB Chief Economist David Seiders analyzes the economy from the point of view of the housing market every other week in the free e-newsletter, “Eye on the Economy.” The preceding is a reissue of his Dec. 3 edition. To subcribe to “Eye on the Economy,” click here.
Want more economic information? Find it in our publications. Find more in-depth information in our three economics publications, Home Builders Forecast, Housing Market Statistics and Housing Economics. All are availaible by subscription.
To learn more or to order any of these three NAHB economic publications, visit the Economics Publications Information section of the NAHB Web site or call 800-223-2665. Make Your Connection With www.nahb.org Make your connection to the latest housing industry news and information with www.nahb.org — the official public and members-only Web site of NAHB. Log in today to register for educational seminars, meetings and networking events; find important economic and housing data; and learn the latest developments in NAHB’s efforts to promote housing. It’s all available to you 24 hours a day at www.nahb.org. Just click the "Member Log In" button to get started. If you are a member and need information about NAHB products and services, use the NAHB Staff Contact Directory to look up the direct telephone extensions for NAHB staff experts.
Condominium Sales Are Hotter Than EverSales of new and existing condominiums jumped almost 13% during the first nine months of this year and according to a recent NAHB report, that upward trend is likely to continue through the new year. Existing condo and co-op sales rose an unprecedented 12.9% in the third quarter to a seasonally adjusted annual rate of 971,000 units, up from the previous record of 860,000 in the second quarter. According to the Census Bureau, 33,000 multifamily condos and coops were started during the first half of this year, but the pace of condo construction activity picked up in the third quarter, with 31,000 starts. NAHB Chief Economist David Seiders said that the condominium sales trend may continue, at least for the near term, thanks to strong price appreciation in the market. “The benefits of low mortgage rates have encouraged buyers for condos in the same way as for single-family homes,” Seiders said, “but condo supply hasn’t kept pace with demand. This lag has continued to add upward pressure to condo prices in many markets.” Median condo resale prices rose 10% in 2001, to $123,200, and 15% in 2002 to $142,200, and have been climbing all this year to an average of $161,000 for the first three quarters. “That represents an increase of 15.2% over the same period of last year, and the year’s not over yet,” said Seiders. By comparison, year-to-date resale prices for single-family homes increased by only 8%.
2004 NAHB Multifamily Pillars of the Industry Conference & Awards Gala Plan to attend the Multifamily Pillars of the Industry Conference and Awards Gala, the premier educational and networking event of the year for the multifamily industry, in Palm Springs, CA, March 28-30. Explore both the current and future state of the multifamily industry. Click here for more information. NAHB Multifamily Offers Three Multifamily Designations NAHB Multifamily offers two designations for property management professionals. The Registered in Apartment Management (RAM) designation and the Advanced RAM designation provide superior training in the field. NAHB Multifamily also offers the Certified Leasing Professional (CLP) designation for those interested in sharpening their multifamily leasing and sales skills. Click here for more information. Make Your Connection With www.nahb.org Make your connection to the latest housing industry news and information with www.nahb.org — the official public and members-only Web site of NAHB. Log in today to register for educational seminars, meetings and networking events; find important economic and housing data; and learn the latest developments in NAHB’s efforts to promote housing. It’s all available to you 24 hours a day at www.nahb.org. Just click the "Member Log In" button to get started. If you are a member and need information about NAHB products and services, use the NAHB Staff Contact Directory to look up the direct telephone extensions for NAHB staff experts. Fannie-Freddie Conforming Loan Limit Increases Announced for 2004Fannie Mae and Freddie Mac announced recently that their single-family mortgage purchase limit for 2004 will increase to $333,700, from the current limit of $322,700, effective Jan. 1. This represents a 3.41% increase, which is consistent with the October-to-October percentage increase in the Federal Housing Finance Board’s (FHFB) home price index, the statutory basis for annual adjustments in the conforming loan limit. The FHFB announced that the average home purchase price rose in October to $243,756 from $235,717 a year earlier. Limits for FHA-insured single-family loans will increase in some areas as a result of the increase in the Freddie Mac conforming loan limit. Local limits are based on 95% of area median home prices. However, in most cases the limit cannot exceed the ceiling for high-cost areas, which is 87% of the Freddie Mac limit, or be less than the lowest FHA loan limit, or floor, which is 48% of the Freddie Mac limit. Based on the Freddie Mac 2004 limit, the FHA ceiling and floor in 2004 are expected to be approximately $290,319, and $160,176, respectively. Areas with loan limits between the FHA ceiling and floor will not automatically increase, but will be subject to review by HUD. HUD is expected to announce the new FHA loan limits by the end of the year. A special provision in the law allows the conforming loan limit to be increased by up to 50% for Alaska, Guam, Hawaii and the Virgin Islands, which would mean that the Fannie/Freddie limit for these areas would become $500,550. The FHA ceiling for these areas would become approximately $435,478. Appointment of New Freddie Mac Chairman ApplaudedThe appointment of Richard F. Syron as the new chairman and chief executive officer of Freddie Mac was applauded by NAHB. “Richard Syron is well qualified for the top job at Freddie Mac,” said NAHB President Kent Conine. “He has the experience, credentials and confidence of his peers in the financial marketplace to handle the management, financial and public policy issues currently confronting Freddie Mac. We look forward to working with him.” Conine added that “as the debate over the regulatory oversight of the GSEs moves into the second session of the 108th Congress, it is important to have someone of Richard Syron’s stature at the helm of Freddie Mac during this critical period.” Syron moves over from his position as the executive chairman of Thermo Electron Corporation to succeed Gregory J. Parseghian as CEO of Freddie Mac. He is expected to assume his new responsibilities before the end of the year. Before joining Thermo Electron in 1994, Syron served as chairman and CEO of the American Stock Exchange for five years. He was president of the Federal Reserve Bank of Boston from 1989 to 1994 and president of the Federal Home Loan Bank of Boston from 1986 to 1988. Before that, he served as an assistant to then-Federal Reserve Chairman Paul Volcker and as a deputy assistant secretary at Treasury. He is a graduate of Boston College and earned his doctorate in economics at Tufts University. Beware Software Consultants Who Are Salespeople in DisguiseThe tenth in a series of tech talks for builders. It’s almost convention time and with the International Builders’ Show comes the rollout of all that’s new and wonderful in the technology industry. Many builders I speak with put off their software purchases until January when they can see everything and then make a decision. Beyond all the hype and glitz there’s another initiative that’s nearly as active as the show itself. Software vendors and consultants (I confess I’m one) renew their relationships in the hallways of the seminar areas and in vendors’ private suites. The outcome can range from an update on a vendor’s capabilities and limitations to a contractual commitment for a partnership. Those relationships can affect the way home builders buy software for their businesses. For example, after carefully evaluating what’s available in stand-alone products like prospect management, service order, CAD and financial modeling software, most builders decide what to buy fairly quickly. But trying to decide whether or not to buy an integrated system — and then which one to buy — is another story. After all, an integrated system affects your entire business and all operations. In Search of…the Impartial Consultant For a builder, the decision-making process starts with a well-documented set of goals and requirements for an information system. So far, so good. As you get further into it, you realize that most vendors fulfill “all your needs.” The further you go, the more confusing and murky the information becomes. At this point, many builders seek the advice of an “impartial source” to separate the wheat from the chaff. Enter the information technology consultant whose job typically ranges from recommending technology solutions to implementing them. “This person will steer us down the right road, right?” asks the builder. The answer is, “It depends.” Today’s world is threaded with alliances of one sort or another and there are plenty in the home building business. Put plainly, some consultants out there are really software salespeople in disguise. They take commissions and curry favors from the vendors they’ve cut deals with. In my opinion, that’s where the line is crossed. Ask Potential Consultants How They Are Compensated As a prospective software user, it’s important to know where to get straight answers. Many IT consultants are dedicated professionals who are very knowledgeable about the home building industry, its trends and what to avoid. In some cases their software recommendations come from relatively impartial perspectives. However, it’s vital to ask them what compensation, if any, they receive from the vendors they recommend. All consultants, even those that aren’t motivated by money, have biases. And it’s simply impossible to be on top of all the existing technology options and still be skillful enough to know how to apply them to a specific user. In professional circles it’s not unusual for a consultant to accept a modest finder’s fee from a vendor for providing a lead on a prospective user. This saves the vendor time and money on marketing and selling to the prospect. However, it isn’t ethical when the “consultant” receives a significant commission and the customer pays a bloated price for software of questionable value. That can happen when both a sales force and “partners” are involved. How to Avoid the Technology Evaluation Trap To stop yourself from falling into that trap, here are some tips for evaluating technology at the International Builders’ Show:
Earlier Articles in This Series
Note: Various software products are mentioned throughout the tech talk series. The intent is not to recommend these products as being right for you, but to identify some fairly well-known players and to note a few new ones. My apologies to vendors who are not mentioned — the omission was not intentional. Bill Allen is president of W.A. Allen Consulting and a member of NAHB’s Business Management & Information Technology Committee. His company, headquartered in Redmond, WA, provides information technology consulting services and process management assistance to the home building industry. Allen can be reached at 425-885-4489 or via e-mail. Or visit the W.A. Allen Consulting Web site.
Want more information about using technology in your business? NAHB’s Business Management Department offers a variety of online resources to help you run your business better and more profitably. Click Business Management Tools for articles about human resources, financial management, sales, production, technology, customer service and other business-related topics. In addition, visit the NAHB Software Users Network Discussion Forum (SUN) to ask technology consultants and other builders what they think of various software packages and applications. BuilderBooks.com also offers a variety of publications about computer technology. To view or purchase these publications online, click here. Subscribe to NAHB’s Business of Building e/Source NAHB’s Business of Building e/Source is your monthly electronic guide to the hot issues and emerging trends in home building business management. You’ll find practical advice, tricks of the trade and sound business guidance — all delivered monthly, straight to your desktop, in a quick and easy-to-read format. Business of Building e/Source is available free to NAHB members and their employees. To subscribe, click here on the members only side of www.nahb.org. Be Part of the Technology Solution Do you:
Join the Information Technology Work Group — a sub group of the Standing Committee on Business Management and Information Technology — to brainstorm articles, booklets, Web content and other tech-related business management resources for NAHB’s members from 3:30-5:00 p.m. Saturday, Jan. 17, in the Las Vegas Convention Center (location details to come later). E-mail Marcia Childs or Jill Tunick for information. End the Mystery of Poor Sales With Mystery ShoppingYour property looks fantastic. Inquiries are high. Walk-in traffic is brisk. Your sales staff is warm and friendly and properly trained to present your homes or condos. But you’re not closing sales. What possibly could be wrong? The problems — and solutions — can be found through mystery shopping your sales staff and the competition. No, mystery shopping is not snooping or “Big Brother” watching your staff. Actually, it is a constructive tool more akin to quality control. A highly qualified mystery shopping company can identify sales process problems and set the stage for improvement. The information mystery shoppers gather can be incorporated into coaching or more formalized training that teaches staff how to deal with challenging buyers, such as seniors. Some forward-thinking builders and developers even take the data gathered through mystery shopping to create sales performance benchmarks or standards of excellence they can use to evaluate their sites and on-site staff. A Sales Breakdown Uncovered We recently mystery shopped more than 30 different seniors housing communities that are under development or management by a top-ranked company. In nearly every case, the staff was courteous, amenable and helpful. They were knowledgeable and communicative about their project, community benefits, available services and amenities and price structure. The staffs gave interesting, informative tours of common areas. They guided prospects into the appropriate lifestyle choice. And they asked good qualifying questions about housing preferences and adequately assessed the prospects’ social needs and desires. But they couldn't close the sales. So where was the breakdown? What we discovered was that in most cases, the sticking point centered on determining the prospects’ financial qualifications. Many senior buyers are either on, or about to go on, fixed incomes. When buying their “last home,” these retirees are more focused than most home buyers on the costs involved in the purchase price, transitional financing options and home owners association fees. Sales staff must be comfortable probing these issues and should be well informed about available options. That was not the case among many of the sales staff of the top-ranked company. If salespeople don’t discuss these subjects face-to-face with prospects, they lose a vital opportunity to listen to objections, answer questions, provide reassurance and move another step closer to closing the sale. Be Sure to Shop Your Competitors Don’t just shop your staff. Mystery shop your competitors, too. You can be sure your prospects are checking out the competition. You need to find out what they are offering and how effective their sales staff is. Each seniors community seems to present its homes and lifestyle options differently. Knowing how your competition sells itself and its projects allows you to revise your options packages or match incentives offered by competing communities. Mystery shopping the competition also helps you to define and properly showcase your community’s strengths and unique characteristics. Choosing the Right Mystery Shopping Company The following are key questions to ask before selecting a research company to mystery shop your community, its sales staff and the competition:
Mystery shopping can help builders and developers design housing communities that gain wider market acceptance and create top-level sales forces. It can also help reduce marketing costs and bring an end to slow sales. I can live with that. How about you? This is an excerpt from a longer article that appeared in the Fall 2003 issue of Seniors’ Housing News. Tracy Lux is president of Sarasota, FL-based Trace Marketing, Inc., a firm that specializes in housing targeted for mature buyers. Trace Marketing offers an array of marketing services, as well as sales training and executive search services. Lux is a frequent speaker at various industry conferences, including Building for Boomers & Beyond: Seniors Housing Symposium, and is an active member of the NAHB Seniors Housing Council. Lux can be reached at 941-377-3700 or tracylux@tracemarketing.com.
Learn More About Seniors Housing Through the Seniors Housing Council To learn more about seniors housing or boomers, join the NAHB Seniors Housing Council. The council provides information, education, networking and recognition opportunities for its members and represents NAHB on seniors housing issues. For more details, e-mail Jeff Jenkins or call him at 800-368-5242 x8292. BuilderBooks.com Has Publications About Seniors Housing BuilderBooks.com offers a variety of publications about the seniors housing market. To view or purchase these publications, click here and type “seniors” in the search engine. 2004 Seniors Housing Symposium To learn more about the seniors housing market, plan to attend the 2004 Seniors Housing Symposium, Building for Boomers & Beyond in Chicago from April 14-16. The symposium will focus on the lifestyle component of 50+ seniors housing. In-house Design Services — Yes or No?As a general contractor, by definition, we want to be able to provide every remodeling service possible to our customers and prospects. If we can do that, we become more competitive and have broader appeal and capabilities across the market. However, as a "smaller" remodeler (Dakota Builders produces about $1 million in sales annually), how can we achieve that in terms of design? Does this mean staffing a full-time designer (architect or otherwise)? Or does it mean establishing relationships with appropriate entities to achieve that? We’ve been dealing with this issue for many years, and while there is no single answer, we feel closer to our solution. At Dakota Builders, we believe it is the best use of our resources when we centralize our selection to a single source. We now deal primarily with one source for our design needs, although we do have many contacts in the field and occasionally find it necessary to go outside of our established relationship. As a smaller remodeler, we know we can’t offer enough work to be any provider’s best customer. But if we put the majority of our projects into one source, we can be that one provider’s very significant customer and receive a measure of service commensurate with our ‘purchases.’ We’ve been working under this scenario and its variations for years. We’ve gone from providing a couple options to a prospect and letting them choose to now offering them the design through our company, with the designer as a "tool." This is no different than integrating the services of your most valued electrician, plumber, mason or any other trade contractor into your team. We think we’ve found this solution to be best of both worlds — providing the services that satisfy our customers without incurring the expense or investment necessary to establish a design department. Establish Guidelines and Procedures Our business is remodeling, plain and simple. However, we find it appropriate to establish guidelines in offering design services similar to those of our trade contactors for other services. It is no more foreign to a prospective customer than getting that person to understand that we don’t perform every trade and task "in house" during the project. It is key, however, to establish the rules/procedures up front, and to invest the time needed to properly set the expectations of all concerned. Here’s how we do it:
We’ve been through several different variations of this approach, and when it hasn’t worked we examined what we should have done differently to preempt failure. In most cases, it was because we simply lost (or didn’t have) control. Some architects just couldn’t subjugate themselves to our processes and had to have our client as their client, sans our input, influence and, of course, control over the process. To counter this, we have found it important to stay involved with the architect or designer during every stage of the process, not just to meet when the final design is completed. To do this, we write the design agreements so our designer is bound to us. While there are probably just as many valid arguments for in-house designers or design departments, we’ve decided that we’ll do what we do best: produce quality projects to our customers and let designers do what they do best — design, delineate or produce the drawings and other documents needed. We’ve become satisfied — even convinced — that this is the approach we want. But, like every other process, it will need monitoring, updating, improving and managing. Gregory Miedema, CGR, CGB, CAPS, is president of Dakota Builders in Tucson and chairs the Southern Arizona Home Builders Association's local Remodelors™ Council, which he founded. He is also a member of the NAHB Remodelors™ Council Board of Trustees and currently serves as the vice chair of the Remodelors™ Council Public Affairs Committee. The Southern Arizona Home Builders Association (SAHBA) named Dakota Builders, Inc. Remodelor of the Year in 1998, 1999 and 2000. Miedema can be reached at 520-792-0438 or via e-mail at gam@dakotabuildersinc.com.
University of Housing Offers Courses and Designation Programs The NAHB University of Housing offers a variety of business management courses and professional designation programs that set builders and remodelers apart from the competition. For a complete list of current offerings, click here. 'PREP: Your First Step to CGR' Offered at IBS PREP is your first step to becoming a Certified Graduate Remodelor™ (CGR). For more information on PREP offerings at the International Builders' Show in Las Vegas, Jan. 18 and 22, click here. Make Your Connection With www.nahb.org Make your connection to the latest housing industry news and information with www.nahb.org — the official public and members-only Web site of NAHB. Log in today to register for educational seminars, meetings and networking events; find important economic and housing data; and learn the latest developments in NAHB’s efforts to promote housing. It’s all available to you 24 hours a day at www.nahb.org. Just click the "Member Log In" button to get started. If you are a member and need information about NAHB products and services, use the NAHB Staff Contact Directory to look up the direct telephone extensions for NAHB staff experts. The Marketing Plan: What It Is, How It Works and Why You’ll Love ItSome encouraging news: By adhering to a set, integrated marketing plan, you have already placed your organization above scores of competitors. While most developers and communities would agree that a "marketing plan" is important, many don’t truly understand how to formulate, stick to and reap the benefits of one. First, a "marketing program" should be a welcome term. For developers and investors, a marketing program must be thought of not in terms of initial cost but in terms of maximizing return on investment. It is, in fact, an investment that, when conducted and maintained properly, will achieve or exceed sales goals and result in a faster sell out. For in-house marketing managers, the plan should be welcomed as a safety blanket that ensures accountability, goal achievement and a road map for future success. For sales agents, it should be embraced as a super-advocate, a sales partner whose methods and efforts will greatly increase their leads and make selling the product easier. There are many far-reaching advantages of implementing and following a professional marketing plan. Below are a few of the greatest: Consistency Experts agree that it takes anywhere from seven to 10 impressions or "connections" with prospects before they begin to process your message. If your community isn’t projecting a consistent message or visual with each impression, it may take many more connections to get your message across. Each element that reaches the hands, eyes and ears of your potential buyer has to sing the same song on time and in tune. Day-to-day consistency means this: all brochures, handouts and collateral material should look the same and portray the same image. Every advertisement, whether it’s a full page ad in a national magazine or a three-inch black and white ad in a local newspaper should employ the same organizational elements, image style and theme. Billboards, tradeshow booths and displays and graphics in the sales center should follow suit. The simplest way to ensure consistency of message and professional quality is to use one source for your materials creation. One "bad ad" that slips out from an uninformed team member who doesn’t follow the carefully established creative guidelines or employ professional layout or copywriting can spoil months of marketing efforts in the mind of a potential buyer. Your community is asking buyers to spend a great deal of money. Make sure your materials reflect their investment. Cost Effectiveness Everyone wants to achieve the greatest possible result for the least cost. To do this, everyone in your organization must understand the importance of the roles and the different perspectives they bring to your projects. Sales agents on the front lines of one-on-one contact can hear specific objections and problems from potential buyers. Developers notice lackluster sales or waning interest from the perspective of incoming versus outgoing funds. Managers feel pressure to search for avenues to increase morale and sales. So many different perspectives can sometimes result in a "shotgun approach" to marketing — throwing mud on the wall and hoping something sticks. Not very cost-efficient. It’s vitally important to have one informed group serve as the disseminator of all marketing efforts and opportunities. If you employ an agency to implement a plan, it’s the agency’s duty to stay abreast of all advertising opportunities available to you and judge their effectiveness. Marketing recommendations should be presented to you in terms of track record, estimated success rate and how they will fuel sales and fit into the big picture. Once you have a "road map" of your marketing media (direct mail, ads, etc.), you’ll be able to see the value of each element and discover which is most effective. With recommendations, design and positioning left to a marketing team, other members of your staff can do what they do best — your sales force can concentrate on selling and your managers can manage. You’ll be cost-efficient and knowledge-based with your efforts and each medium will be targeted to the right audience at the right time. Tracking and Accountability One of the greatest advantages of implementing a marketing plan is that you can carefully track your results and know what’s bringing in leads and producing sales. You can enjoy the luxury of knowing that all marketing efforts are producing for you and that those that aren’t will be reassessed or eliminated. You’ll know where and when each advertisement ran and why. You’ll learn which areas of the country and what messages produce best results for you with direct mail. You can review qualitative and quantitative results for each effort. Best of all, every single move will be accounted for. And when it’s time to implement next year’s plan, you’ll have a clear understanding of what happened last year and who is responsible. A Good Marketing Plan Can:
So think of "marketing program" as a way to achieve a definite goal, a safety net and an investment in success. With an integrated plan, you’ll reap the benefits of a program whose overall impact is far greater than the sum of its parts. Amy Tharrington is president of Maximum Design & Advertising, Inc., an award-winning, advertising and design agency that specializes in real estate marketing. Headquartered in Wilmington, NC, Maximum provides successful sales and marketing solutions for projects nationally. Tharrington can be reached at 800-609-0930.
Subscribe to NAHB's Sales & Marketing Ideas Magazine For additional cutting-edge sales and marketing information, subscribe to NAHB’s Sales & Marketing Ideas magazine. Call 800-368-5242 x8192 to subscribe or order a copy. Visit www.nahb.org, keyword: NSMC, to learn about membership benefits of the Nationals Sales and Marketing Council and the Institute of Residential Marketing. BuilderBooks.com Has Sales and Marketing Publications BuilderBooks.com offers a variety of sales and marketing publications online. To view or purchase these publications, click here. University of Housing Offers Sales and Marketing Designations The NAHB University of Housing offers designation programs specifically for sales and marketing professionals. For more information on these programs, click here, or call 800-368-5242 x8EDU. Long Island Builders Successfully Oppose Real Estate Transfer TaxWhen builders in Brookhaven, NY, in eastern Long Island recently faced the prospect of a taxpayer-supported open space trust fund that would have given local government the ability to outbid local builders for small parcels of land, they mobilized to oppose the measure and elicited help from NAHB in supporting their cause. The town of Brookhaven placed on the November ballot a 2% real estate transfer tax on the sale of homes over $250,000 and lots over $150,000. Revenue from the measure, which was expected to exceed $25 million annually, would have "made Brookhaven an eight hundred pound gorilla in the local real estate market," said Robert Wieboldt, executive director of the Long Island Builders Institute. Wieboldt's association predicted that the tax would take a devastating toll on the economy of eastern Long Island and formed a coalition with business and community groups to defeat the proposition. The group, Brookhaven Citizens Against Higher Taxes, led a two-part effort against the ballot measure. First, the coalition launched a $300,000 public awareness campaign to alert the community of the danger of passing the ballot measure, and it obtained more than 3,000 voter signatures opposing the tax. Secondly, the group challenged the validity of the proposition in court because language on the ballot omitted critical information about who would be liable for the tax. This opened the possibility of having the measure taken off the ballot. Less than a week before the election, ruling that the proposition was misleading to voters, a state Supreme Court justice ordered the measure to be removed from the ballot, and the Long Island Builders Institute declared victory. The Long Island Builders Institute’s campaign was aided by a $25,000 grant from NAHB’s State & Local Issues Fund, a program that provides financial support for home builders associations facing nationally significant legislative, regulatory or political challenges. To learn more about the Long Island Builders Institute’s success, contact Robert Wieboldt at 631-232-2345 or e-mail NAHB’s Dan Quinonez or call him at 800-368-5242 x8585. For more information on NAHB’s State & Local Issues Fund, e-mail Sam Leyvas or call him at 800-368-5242 x8326. Get 15% Savings at NEBS on First Time Purchases and Future Orders NEBS offers thousands of personalized products, including checks, forms, labels and more to make the business of doing business easier. To receive your special discount, be sure to use MailCode 33390 online or call 800-225-6380 and mention MailCode 33390. This offer excludes merchant card services, payroll processing, work clothing, promotional products and 401(k) plans. To order online and for details on more than a dozen other money-saving Member Advantage discount programs click here, or go to http://memberadvantage.nahb.org/. Go to www.nahb.org to explore the numerous advantages associated with membership in your local, state and national home builders association. Make Your Connection With www.nahb.org Make your connection to the latest housing industry news and information with www.nahb.org — the official public and members-only Web site of NAHB. Log in today to register for educational seminars, meetings and networking events; find important economic and housing data; and learn the latest developments in NAHB’s efforts to promote housing. It’s all available to you 24 hours a day at www.nahb.org. Just click the "Member Log In" button to get started. If you are a member and need information about NAHB products and services, use the NAHB Staff Contact Directory to look up the direct telephone extensions for NAHB staff experts. Project CRAFT Receives Praise for Habitat EffortsThe work and community spirit of the students and staff of the Home Builders Institute’s (HBI) Project CRAFT in Nashville, TN, was recognized during dedication ceremonies on Nov. 23 for nine new Habitat for Humanity homes. Nashville Mayor Bill Purcell was among the more than 200 community leaders, volunteers and sponsoring organizations, including Centex Homes, attending the dedication. During the ceremony, Chris McCarthy, executive director of the Nashville Area Habitat for Humanity, singled out Project CRAFT from among numerous volunteer groups, identifying the program “as a long-standing community volunteer.” Since March, the Nashville Habitat chapter and Project CRAFT have been partners on a number of projects, including the construction of 11 new homes for needy families in the area. McCarthy is not alone in her praise of Project CRAFT in Nashville. In a recent letter, Rep. Jim Cooper (D-TN) said that he has been “a fan of Project CRAFT since its inception.” “Programs such as yours are truly inspiring examples of what can be achieved when the public and private sectors work together,” wrote Cooper. “I feel privileged that the NAHB has chosen my district as one of the sites for Project CRAFT and am grateful for the difference that this program is making in the lives of young men who otherwise have few alternatives.” Habitat for Humanity construction sites provide Project CRAFT students with hands-on training that is often difficult to replicate in the classroom. Working alongside experienced Habitat volunteers, students have the opportunity to practice construction, teamwork and workplace skills. In July of 2002, HBI, the workforce development arm of NAHB, was awarded a $1.5 million grant by the U.S. Department of Labor’s Youth Offender Demonstration Initiative to bring Project CRAFT (Community Restitution Appren |