Print-All Page: August 29, 2005

If a recent appeals court decision is allowed to stand, builders in the West could find themselves having to contend with an onerous layer of Endangered Species Act requirements in order to receive Clean Water Act (CWA) permits.

An Aug. 22 decision by the U.S. Ninth Circuit Court of Appeals affects a section of the CWA that allows states to assume responsibility for issuing storm water discharge permits if they meet nine specific criteria. The ruling also pertains to a section of the Endangered Species Act that requires federal agencies to consult with the Fish and Wildlife Service to ensure that their actions don’t have a negative impact on endangered species or their habitat.

In a two-to-one decision, the court vacated the Environmental Protection Agency's approval of Arizona’s CWA permitting program. As a result, builders in Arizona who need clean water permits will apparently have to obtain them from the EPA, and in many cases they may be required to go through the Fish and Wildlife Service's endangered species consultation process.

“As a result of this ruling, builders in Western states may face very different regulatory conditions from builders in the south central United States,” said NAHB President David Wilson. “The Ninth Circuit had an opportunity to clarify the law. Instead, it disagreed with its sister circuit court and created confusion and muddled law.”

The ruling conflicts with a 1998 decision by the Fifth Circuit Court of Appeals that didn’t allow the EPA to transfer its CWA permitting program to the State of Louisiana because it included ESA consultation requirements that were not among the nine criteria set forth in the law.

“This decision means that home builders in Arizona may face additional regulatory hurdles that are very costly,” said Wilson. “It’s frustrating, because these burdensome regulations add significantly to the cost of each new home but provide no meaningful environmental benefit.”

In a dissent, Justice David R. Thompson wrote: “Here, the EPA did not have discretion to deny transfer of the pollution permitting program to the State of Arizona; therefore its decision was not ‘agency action’ within the meaning of Section 7 of the Endangered Species Act. The Clean Water Act, by its very terms, permits the EPA to consider only the nine specified factors. If a state’s proposed permitting program meets the nine enumerated requirements, the EPA administrator ‘shall approve’ the program.”

EPA officials have not indicated whether the agency will seek a re-hearing of this decision before a full panel of the Ninth Circuit Court of Appeals or request a review by the Supreme Court.

NAHB is working aggressively to shape the government’s response to this decision, Wilson said. “It is simply inappropriate that under a federal program different states would be operating under completely different regulatory frameworks.”

For more information, e-mail Tom Ward at NAHB, or call him at 800-368-5242 x8230.

Transportation Bill Gives a Boost to Growth

The six-year, $286 billion highway transportation bill signed into law earlier this month by President Bush will help to create jobs and boost the economy, and contains key provisions that will benefit the nation’s home builders.

“Transportation and land use must complement each other,” said NAHB President David Wilson. “We are pleased that this legislation preserves the prerogatives and flexibility of local governments to plan for the transportation and growth needs of their local communities while encouraging private sector involvement in the planning process.”

The new law — the “Safe, Accountable, Efficient Transportation Equity Act: A Legacy for Users," or "SAFETEA-LU" — will fund vital new highway projects over the next six years and is designed to upgrade the nation’s transportation infrastructure.

NAHB was successful in working with lawmakers to enact statutory changes within the bill (H.R. 3) to address the regulatory burdens of the transportation conformity process.

Transportation conformity is a stipulation under the Clean Air Act and TEA-LU that requires states with poor air quality to conduct air quality assessments before they can receive federal funds to construct major transportation projects.

The newly enacted conformity provisions will allow greater flexibility for air quality planners, which translates into fewer delays for transportation construction activities. Fewer delays in transportation construction creates greater planning predictability for home builders and reduced congestion for home buyers.

Also, NAHB offered a legislative solution to strengthen the Congestion Mitigation and Air Quality Improvement Program, which provides a flexible funding source for state and local transportation projects and programs that improve air quality and help alleviate congestion in areas of the country with the most severe air quality problems.

In addition, NAHB worked to eliminate an onerous provision in the legislation sponsored by Rep. Earl Blumenauer (D-Ore.) that would have created a pilot program linking federal transportation funding to local land use planning decisions.

To read the legislation, click here and enter H.R. 3 in the box at the upper left.

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Crime Ring Linked to Construction Site Thefts in Southwest

Authorities in Ventura County, Calif. report that deputies have arrested 28 people in connection with a crime ring that has been operating out of the Los Angeles area for more than three years and has stolen millions of dollars in equipment from construction sites and businesses in nine Western states. About 215 victims were identified in 67 cities. Thefts ranged from hand tools to $20,000 concrete cutters and buyers for the stolen property were found at swap meets and pawn shops. Coinciding with today’s home building boom, 963 pieces of construction equipment were reported stolen in California last year, up from 472 pieces in 2000, according to the Crime Prevention Program of Southern California. In the first three months of this year, the group says that 293 pieces of equipment worth about $5 million were stolen; 116 of those were recovered. (www.chicoer.com)
ChicoER.com (8/23/05); Alex Veiga, AP

Rents Head Up as Home Prices Put Off Buyers

Rents are rising again across the country, fueled in part by some people in expensive metropolitan areas where home prices have soared deciding to rent instead of buy. Rents in about 85% of large metro areas have climbed in the last year, according to San Francisco research group Global Real Analytics; in late 2003, rents were falling in 85% of those locations. Average rents nationwide rose 2.5% this spring from the spring of 2004, the group said, after falling 4.5% from 2001 to 2003. Nationwide, the vacancy rate for rentals fell to 9.8% in this year’s second quarter; the rate climbed to 10.4% in early 2004, its highest level since the Census Bureau began tracking vacancies in 1956. Over the past year, rents have continued to decline in the San Francisco Bay Area, Dallas, Denver and Memphis, but they have been rising in Seattle, Las Vegas, Phoenix, Kansas City, Cleveland, Philadelphia and Washington, D.C. Average rents had been rising only in the hottest markets like New York, Southern California and South Florida. (www.nytimes.com)
New York Times (8/25/05); David Leonhardt, Carolyn Marshall and Vikas Bajaj

Nation Faces Cement Shortage

Prices for cement in Pittsburgh have been rising in a way never seen in the region before, climbing from $75 a ton three years ago to $100 a ton today, with expectations that they will continue rising at least for the next year. Jim Guy, president of Tresco Concrete Products in Export, Pa. said he has been hit with his three biggest cement price increases ever this year and expects more. As a result, he said, concrete prices are up 8%-10% and with the addition of higher fuel costs every construction project is going to be more expensive. “That $3,000 driveway you got a couple years ago is now going to cost you five grand,” he said. Because Pittsburgh hasn’t been growing that aggressively, its supply of cement is okay, unlike places like Florida, where the building material is being rationed by suppliers. A spokesman for Nazareth, Pa.-based ESSROC Cement Corp., which is a division of Italcementi Group, the fifth-largest cement producer in the world, predicts that the tight market for cement should ease in a couple of years. His company is spending hundreds of millions of dollars on a new plant next to its existing one in Martinsburg, W.Va. (www.pittsburgh.bizjournals.com)
Pittsburgh Business Times (8/19/05); Dan Reynolds

Charter School Decision Delayed; School Board Wary About Home Builder’s Financing for Project

A proposal that could result in the first charter school in Illinois has been sent back to the developer to revise some financial details. Cambridge Homes set up a non-profit corporation to oversee the $18 million construction of the school and to be responsible for its finances. The current plan calls for the school district to dip into education funds to repay bonds that could be issued to finance construction of the facility, which would have about 1,000 pupils in kindergarten through eighth grade. Keyvan Izadi, a land-use planner at NAHB, said building charter schools is a growing trend that allows schools to be built in less time and at a lower cost. “That’s why developers are teaming up with educational management organizations,” he said. “They’re working in a collaborative fashion with municipalities as opposed to being adversarial. This is truly the future solution.” (www.chicagotribune.com)
Chicago Tribune (8/23/05); Jamie Francisco

Eminent Domain Ruling Paves Way for $120M Redevelopment

A state court judge has ruled that Daytona Beach, Fla. may take title to three beachfront properties so that the city of 68,000 permanent residents can pursue a $120 million plan to redevelop its 73-year-old decaying boardwalk area. The judge is requiring the city to make an $8.85 million downpayment and will then require it to pay three businesses what a 12-person jury decides later this year is the final price. He said he based his decision on the recent Supreme Court ruling allowing municipalities to seize and pay fair market value for businesses or homes that are hindering economic development. Under the city’s proposal, Los Angeles developer Bill Geary and his Carlsberg Management Co. would build twin 23-story hotel-condominium towers and develop 50,000 square feet of retail and restaurant space on a five-acre site. Taxpayers have voted to allow Daytona Beach to use about $12 million of public funds to help finance the redevelopment. Lawyers for the affected business say they will appeal the ruling. (www.globest.com)
GlobeSt.com (8/22/05); Alex Finkelstein

Three Doors Down; Bigger Garages Gain in Popularity as Number of Cars, Belongings Grow

More and more people around the country are opting for three-car garages, especially in high-end homes, according to NAHB analysts who calculate that nearly two-thirds of new homes have a two-car garage and 19% a garage that can accommodate three cars or more. Stan Custer Jr., president of Custer Homes Inc., a builder in Susquehanna Township, Pa., estimates that the extra garage space costs between $8,000 and $12,000. Between 65% and 75% of the builder’s $450,000-and-up homes have a three-car garage. “One of the big concerns when you go to a three-plus-car garage is trying to design it in such a way that it’s architecturally pleasing,” he said. To add interest to the area in front of the garage, designers are setting one door back from the other two, or staggering all three, according to Custer, and also might vary the height of the doors and the bay. Also, “we’re doing a lot more with wooden carriage-style doors with interesting arched windows,” he said. “There are a lot more options with doors than there were 15 years ago.” (www.patriot-news.com)
Patriot News (8/21/05); Joel Berg

Private Elevators on the Rise in North Texas

Previously found primarily in the homes of millionaires, residential elevators are now being installed in homes in the 4,500- to 6,000-square-foot range. Although exact numbers are difficult to find because residential elevators aren’t regulated, a 2003 NAHB study of home buyer preferences found that 7% of all new buyers nationwide characterized elevators as a “must.” James Quinly, national residential-elevator sales manager for ThyssenKrupp Access, said that his company in just the first three months of this year has already sold 85% of what it sold in all of 2004, which was a record year. Most of the elevators are 3- by 4-feet and hidden behind what appears to be a closet door. They move 30 to 40 feet a minute. The cost to install an elevator starts at about $12,000, and they are relatively inexpensive to operate, requiring 220-volt service similar to an electric range or clothes dryer. (www.dallasnews.com)
Dallas Morning News (8/25/05); Kristen Holland

Political Pressure Mounts to End Mexican Cement Duty

As spot shortages of cement continue to threaten the disruption of building projects in many states across the country, NAHB and several state home builders associations are working with Administration officials, members of Congress and state governors to address the problem by rescinding costly anti-dumping duties on Mexican imports.

At the urging of the nation’s home builders, four western governors earlier this month sent a joint letter to Commerce Secretary Carlos Gutierrez seeking prompt action on this issue.

“We are importing cement from as far as Asia when there is a significant supply right across our southern border,” the governors said.

“As governors, we are working hard to create jobs for our citizens and grow our economies, and the construction industry is key to our continued success,” they stated. “Therefore, we respectfully request that you take the appropriate steps to resolve U.S.-Mexico cement trade issues in order to provide immediate access to this critical supply of cement.”

Builders in Florida and Texas, two states that rely heavily on imports and that have been hit particularly hard by cement shortages, prompted Florida Gov. Jeb Bush and Texas Gov. Rick Perry to urge Gutierrez to seek assistance on Mexican cement tariffs.

In a July 8 letter, Bush wrote: “As we head into another hurricane season, I urge you to reach a settlement that assuages the current cement shortage while maintaining the profitability and welfare of the domestic producers.”

A week later, Perry called on Gutierrez to “swiftly implement an equitable solution to the continuing U.S.-Mexico cement dispute. Simply stated, Texas and the Southern Tier need imported cement.”

Gov. Dirk Kempthorne of Idaho has also written to the commerce secretary appealing for help on this matter.

Over the past several months, NAHB has held several talks with Commerce Department officials — including a brief meeting with Gutierrez this spring — outlining how the shortages have led to construction delays and harmed housing affordability by increasing the cost of building projects.

Data was also provided on states and geographic areas that have been most affected by the shortages.

Throughout the course of the talks, NAHB has repeatedly been urging Commerce officials to address the supply problems by working to lift the steep anti-dumping duties on Mexican cement.

With several governors now expressing concern, NAHB has sent a follow-up letter to the secretary seeking a meeting to discuss the ongoing problem and how to bring it to a favorable resolution.

Recently, Jack Milarch, executive vice president and CEO of the New Mexico Home Builders Association, contacted Rep. Heather Wilson (R-N.M.) to convey to her the deep concern of the state’s home builders over growing cement shortages and the damaging effect it is having on jobs and economic development.

Wilson responded by writing Gutierrez to urge the Administration to suspend tariffs on imported Mexican cement.

“I have become increasingly concerned that the nationwide cement shortage could undermine the health of New Mexico’s construction and housing sectors and the nation’s economy as a whole,” Wilson said. “Removing the cement tariffs on Mexican imports could be part of the solution.”

The Commerce Department imposed the duties in 1990, after the Southern Tier Cement Committee, a group of domestic producers, complained that Mexico was selling cement in the U.S. at below-market prices.

Technically, the Commerce Department cannot take unilateral action to overturn the tariffs unless the domestic industry agrees to it, though the Administration can still wield significant influence if it so chooses.

Responding to a recent letter from Rep. Pete Sessions (R-Texas), Gutierrez indicated that the U.S. would work with domestic producers and Mexican authorities in a bid to drop restrictions on imports from Mexico.

“The Department of Commerce will continue to pursue discussions with both the U.S. and Mexican industries, as well as with the Mexican government, about the possibility of settling this dispute,” Gutierrez said. “We plan to continue our discussions with all of the stakeholders as we work toward identifying an appropriate solution to the dispute.”

Several factors have contributed to the current supply shortage, including record levels of housing activity, an expanding U.S. economy and global transportation problems that have been constraining cement imports from Asia and Europe.

It takes about 40 days to import cement from overseas compared to only four days from Mexico. While the country has excess capacity to meet U.S. demand, high anti-dumping tariffs make Mexican cement imports an unreasonably expensive option.

A nationwide survey conducted by NAHB last month found that 29% of builders were experiencing cement shortages, up from 27% in a similar survey in January.

The latest industry reports have found cement in short supply in parts of 30 states and the District of Columbia. Some contractors and concrete suppliers in the affected areas have reported that concrete deliveries have been cut back to four days a week from five or six.

With demand expected to remain strong for the foreseeable future, NAHB is urging builders to work with their suppliers to post a firm commitment to obtain the cement that they need for their jobs.

For more information, e-mail Michael Strauss at NAHB, or call him at 800-368-5242 x8252.

Housing Most Affordable in Buffalo, N.Y. and Ohio

The metropolitan statistical area comprising Buffalo and Niagara Falls, N.Y. was the nation’s most affordable housing market among major metros with populations of more than 500,000, according to the NAHB/Wells Fargo Housing Opportunity Index (HOI) for this year’s second quarter.

Also near the top of the list were Indianapolis, Ind.; Dayton, Ohio; and the area encompassing Youngstown, Warren and Boardman, Ohio-Pa., in that order.

Ohio scored the greatest number of major metros on the top-10 list, with a total of four — Dayton, Youngstown, Toledo and Akron. The state also had three of the 10 most affordable metro areas with populations under 500,000, including Mansfield, Lima and the area comprising Canton and Massillon.

Overall housing affordability across the U.S. fell for the second consecutive quarter, dipping 4.2 points to 45.9 on the HOI, indicating that approximately 46% of new and existing homes sold from April through June were affordable to median-income families. This decline was mostly attributable to a 7% increase in the average price of the homes sold during that period.

“One very positive factor was favorable interest rates, which continued to fuel prospects for homeownership in the second quarter,” noted NAHB President Dave Wilson. “That said, housing affordability is increasingly an issue in markets nationwide, and local governments should do all they can to keep fees and regulations from adding too much to the cost of homes.”

In Buffalo-Niagara Falls, nearly 90% of new and existing homes sold during the second quarter were affordable to families making the area’s median income of $57,000. The median price of homes that sold in Buffalo during the second quarter was just $75,000.

Meanwhile, in Los Angeles-Long Beach-Glendale, Calif. — the least affordable major metro area — only 3.6% of all homes sold were affordable to those making the median income of $54,500. The median sales price was $461,000.

California continues to be the least affordable state overall, with eight out of 10 metros on the least affordable list among markets with populations of more than 500,000 and nine out of 10 on the list for markets under 500,000.

See what's on the horizon for the housing industry at the semi-annual gathering of the country's premier economists and finance experts. Get the latest forecasts on housing starts, project budgets and other economic bellwethers at the Fall Construction Forecast Conference on Oct. 19 at the National Housing Center in Washington, D.C. Visit www.nahb.org/conference for more information.

HousingEconomics Online, the online publication from the NAHB Economics Group, is your single source for market analysis, forecasts, housing statistics and more. In-depth analysis and detailed Excel tables and overviews are available for all the state forecasts. To learn more or subscribe to HousingEconomics Online, visit www.housingeconomics.com.

California’s Housing Affordability in Free-Fall

Housing affordability is in a continued free-fall in California, and state legislators appear to be doing their utmost to make things even worse, according to the California Building Industry Association in a plea last week for housing policy reform.

The association was responding to the NAHB/Wells Fargo Housing Opportunity Index for this year’s second quarter, which showed a decline in affordability in all of the state’s metro areas but one, including a plunge in several markets where home prices were reasonably in line with family incomes.

The downward spiral in housing affordability is getting worse, the association said, because the new housing supply is not keeping up with population growth, which is proceeding at an annual pace of 500,000-600,000, about the population of Boston or Milwaukee.

“Even with housing production at its highest level in 15 years, our industry should be building another 30,000-40,000 homes and apartments a year to keep pace with population growth,” said Robert Rivinius, the association’s chief executive officer.

“During the 1990s, affordability was not great by national standards, but it still stood at 50% or 60% in many parts of the state,” Rivinius said. “Even in San Francisco, it was in the 20% range. But today, affordability can be measured in single digits in half our metro areas, and less than 30% in our most affordable region. The national average, meanwhile, is 45.9%.”

“Every quarter, the picture gets bleaker for California families to achieve the American dream of homeownership,” he said. “How much worse do things have to get before state and local policymakers understand why we have such unaffordable housing costs and do something to fix the problem?”

The second quarter report from NAHB and Wells Fargo, which calculates the percentage of new and existing homes sold in a metro area that the median-income family there could afford to buy, showed declines in affordability of nine percentage points or more in Bakersfield, Chico and Redding.

In California’s most affordable area, Tulare County, the affordability rating was just 29.3, down from 35.0 three months earlier.

“Far from making needed reforms to allow production to keep up with demand,” Rivinius said, “lawmakers keep coming up with new proposals designed to make building homes and apartments for California’s families more difficult and more expensive.”

The latest example is a bill that would require jurisdictions to adopt duplicative and unnecessary new air-quality planning requirements. Rivinius said that the author and sponsors of the bill “have been very vocal about their interest in curtailing suburban housing or making it so expensive that it discourages middle-class home buyers.”

Other bills awaiting consideration near the close of the 2005 legislative session include initiatives to limit development to protect the public from the health risks of certain rocks, to make housing contracts more costly to execute and to empower local growth opponents to block affordable housing development.

California’s state home building association is sponsoring legislation that would increase housing availability and affordability by:

Californians Finding a Way to Buy High-Priced Homes

In the most expensive state for housing in the country, Californians are finding new ways to buy homes, pushing sales to record levels while housing affordability is at or near an all-time low, according to a study released this month by the Public Policy Institute of California.

Low mortgage interest rates and accommodative mortgage lending have been playing a big part in helping Californians afford sky-high prices, but the authors of the study found that there’s a lot more to the story.

Only about one in 10 households is able to afford a median-priced home in San Diego, Orange County, Santa Barbara and the San Francisco Bay area and affordability rates nationwide are three times higher than in California, according to the report, “California’s Newest Home Owners — Affording the Unaffordable.”

The study cites estimates from the California Association of Realtors® showing that only 16% of households in the state could afford to buy the median-priced home this May.

“Californians are resourceful when it comes to finding ways to buy a house,” the report says. “Some have sufficient financial resources, others pool their resources, some use alternative forms of financing, and many are financially extended or even financially stressed. Finally, some Californians move to less expensive areas to find housing that is more affordable.”

The study identifies eight ways that home buyers in the state are dealing with “astounding” housing price increases:

Despite their ability to adapt to difficult circumstances in the housing marketplace, the report also notes that Californians continue to have one of the lowest rates of homeownership in the country. Only 59% of the state’s households own their home, compared to 70% for the nation as a whole. Only New York and Hawaii have lower homeownership rates, at 54% and 57%, respectively.

Record Reported for New Home Sales in July

The sales pace of new single-family homes increased 6.5% in July to a record seasonally adjusted annual rate of 1.410 million units, which was 27.7% above the sales pace of a year earlier, the U.S. Commerce Department reported last week.

“It is clear that the demand for new homes remains strong, but it should be noted that the Commerce Department’s estimates of monthly home sales are subject to a high degree of sampling variability as well as to substantial revision, especially on a regional basis,” said NAHB Chief Economist David Seiders.

Regionally, sales climbed 10.1% in the Northeast and went through the roof with a 36% spurt in the West, it was reported. Sales were down 3.5% in the South and 13.5% in the Midwest.

“Today’s report on new homes sales is stronger than other housing data for July, including the report on sales of existing homes and the NAHB/Wells Fargo Housing Market Index that’s based on our surveys of single-family home builders,” Seiders noted. “Indeed, existing-home sales edged down in July and the component of our builders’ survey that measures current sales activity moved down a bit in both July and early August.

“More data obviously will be required to determine the true direction of the housing market for the remainder of the summer months,” Seiders added.

Existing-Home Sales Inventory Remains Lean

Existing-home sales slipped 2.6% in July to a seasonally adjusted annual rate of 7.16 million, the National Association of Realtors® reported last week, but the supply of homes remained on the lean side, continuing to favor sellers and help keep price appreciation at a faster than normal clip.

At an upwardly revised level of 7.35 million in June, housing resales were at an all-time record. July’s rate was the third highest.

“This is a big number any way you slice it, and housing is continuing to stimulate the overall economy,” said David Lereah, the association’s chief economist.

While the national average commitment rate for a 30-year, fixed-rate mortgage inched up from 5.58% in June to 5.70% in July, according to Freddie Mac, the cost of financing remained below the year-earlier average of 6.06%.

Last month’s decline was more pronounced in sales of existing condominiums and cooperatives, which dipped 5% to an annual rate of 915,000 units after setting records four months in a row. Nevertheless, the sales pace of condos and coops was 8.4% ahead of the same time last year.

Single-family home resales were off 2.3% in July, coming in at an annual rate of 6.24 million, which was 4% ahead of sales in July 2004.

At $218,000, the median existing-home sales price in July was up 14.1% from a year earlier. Single-family homes were sold for a median price of $217,900, up 14.6% in a year, and the median condo price was $219,300, 11.3% higher than 12 months earlier.

“In examining the hottest markets for home-price appreciation, we see a rolling boom moving from one metro area to another over time, as well as a spillover effect into nearby areas with lower home prices,” Lereah said.

“This is spreading the wealth of housing returns, with a natural easing of appreciation in areas following a period of extraordinary price growth,” he said. “Even after slowing in a given area, prices typically have continued to rise faster than historic norms.”

The total inventory of existing homes for sale rose 2.6% at the end of July to 2.75 million, a 4.6-month supply at the current sales pace.

However, inventory levels last month were “still quite lean by historic standards,” said Al Mansell, president of the Realtors® association. “If the supply of homes rises, it should reduce competition between buyers and take some of the pressure off of prices. Even so, we expect home price appreciation to remain above normal over the next year.”

Regionally, existing-home sale in July stayed level in the South and declined 1.8% in the Midwest, 3.3% in the Northeast and 7.5% in the West, the Realtors® said.

Eye on the Economy

By David F. Seiders, NAHB Chief Economist
The economy gains strength despite surging energy costs …

The economic expansion has been quite good for more than two years, and growth in real gross domestic product (GDP) stands at 3.6% for the first half of this year — an above-trend pace with positive implications for the labor market.

It now appears that GDP growth for the second quarter of this year will be revised upward, and the third quarter is shaping up to be truly robust (we’re currently estimating 4.4% growth).

The anticipated third-quarter GDP growth surge largely reflects a temporary rebound in business inventory investment, but there’s enough momentum in real final demand to keep GDP going nicely in the final quarter of 2005 and into 2006. The housing production component of GDP (residential fixed investment) has been a pillar of strength for several years, but housing should pass the growth baton to other sectors of the economy before long.

The strength of spending and economic output has generated systematic growth in payroll employment during the past two years despite historically high rates of growth in labor productivity (output per hour). Employment growth, in turn, has systematically lowered the nation’s unemployment rate despite ongoing growth of the labor force. This rate was 5% in July, compared with the cyclical high of 6.3% at mid-2003.

Strong employment growth and a falling unemployment rate obviously are positive developments in the economy. Tightening labor market conditions also have spawned increases in average hourly earnings — great for workers but a negative for the cost structure of American businesses and an inflationary impulse for our central bank to consider.

Various measures of labor cost have been throwing off mixed signals recently, but it’s obvious that slack in labor markets is being reduced, that growth of labor productivity has been slowing, and that rising labor cost per unit of output is a growing complication on the inflation front.

Core inflation apparently stabilizes despite rising labor costs and surging energy prices …

Recent signals on core inflation (excluding prices of food and energy) have been mixed. Rather alarming messages came from the core component of the Producer Price Index (PPI) which was up by 2.7% in July on a year-over-year basis. But the core component of the Consumer Price Index (CPI) showed an increase of only 2.1%, up a tad from the June pace but below rates recorded earlier in the year. Furthermore, the technically superior chain-core CPI showed a year-over-year advance of only 1.8% in July, the same as in May and June and below the January-April pace.

Everything considered, it’s fair to say that core inflation has stabilized recently at a pace that’s well above the rock-bottom rates of late 2003 but a bit below the troubling rates of early 2004. And while the recent readings on core consumer price inflation are not far below the upper end of the Federal Reserve’s implicit “comfort zone,” there’s no reason for the Fed to tighten monetary policy aggressively at this time. There’s also little reason for the Fed to stop tightening while the economic expansion is eating up slack in the labor market.

The Federal Reserve hiked short-term rates by 25 basis points at the conclusion of the Aug. 9 meeting of the Federal Open Market Committee (FOMC), the 10th consecutive quarter-point adjustment since mid-2004. This process has raised the federal funds rate target to 3.5% and pushed the bank prime rate to 6.5%.

The FOMC continued to describe monetary policy as “accommodative” (even after the Aug. 9 adjustment) and suggested that upward rate adjustments will continue “at a measured pace.” The FOMC’s assessment of recent economic activity, as well as its reading of the risks to the near-term outlook, reinforced the Fed’s concerns about core inflation down the line and highlighted the Fed’s “obligation to maintain price stability.”

The ongoing strength of the overall economic expansion ― including the stubborn strength of the interest-sensitive housing sector ― will encourage the Fed to enact quarter-point increases in the funds rate target at every FOMC meeting until monetary “neutrality” is achieved, and the Fed may even move monetary policy to a restrictive position during 2006.

We’re now assuming that the Fed will raise the federal funds rate to 4.25% by the end of this year and to a high of 4.5% at the conclusion of the Jan. 31-Feb. 1 FOMC meeting — a level that presumably will meet the Fed’s neutrality conditions. Alan Greenspan’s term at the Fed chairman officially ends on Jan. 31, but it’s likely he will still occupy the chair at the conclusion of the FOMC meeting — making the move to 4.5% part of his legacy.

Greenspan’s successor has not yet been nominated by President Bush, but Ben Bernanke appears to be the front runner. Bernanke was on the Federal Reserve board prior to acceptance of a recent appointment as chairman of President Bush’s Council of Economic Advisors. Management of monetary policy presumably would not change dramatically under Bernanke’s chairmanship, and his most recent comments on housing suggests that house prices would not become an explicit target of monetary policy.

The Federal Reserve obviously has been frustrated by the refusal of long-term interest rates to rise during the period of monetary tightening that began at the middle of last year. Indeed, long-term bond and mortgage rates are down, on balance, since then despite the cumulative 2.5 percentage point increase in the federal funds rate.

Greenspan recently told Congress that the Fed now understands the unprecedented behavior of long-term rates (i.e., it’s no longer a “conundrum”), but his explanations hardly provided a forecasting tool.

In any case, we’re still bravely assuming that the further tightening of monetary policy that we’re projecting, along with growing concerns in bond markets about firming inflation fundamentals, will move long rates upward over the balance of this year and in 2006.

We’re currently assuming that Treasury bond yields and long-term mortgage rates will move up by about 25 basis points as of the end of 2005 and by another 50 basis points by mid-2006. These increases, if they materialize, will forestall the much-feared inversion of the Treasury yield curve (short rates above longs) as the Fed marches onward. Stay tuned.

Most measures of housing market activity hit record highs during the second quarter of this year. Highs were struck for sales of single-family homes and condo/co-op units and for issuance of single-family building permits. Starts of single-family homes hovered around a record pace (1.7 million) as did total housing starts (over 2 million units). In the process, residential fixed investment climbed to a new record high in the second-quarter GDP accounts.

Housing market indicators since mid-year are a bit of a mixed bag. Total housing starts for July were right on the second-quarter average as the single-family component edged up and multifamily receded, but issuance of building permits rose in both components of the market and the backlog of unused permits held near a record high. Sales of existing single-family homes and condo/co-op units (based on closings) were down modestly in July from records posted in June, while the Commerce Department reported that sales of new homes (based on contracts signed) hit a new monthly high in July. This report is subject to a high degree of statistical variability as well as to substantial revision, however, particularly on a regional basis.

Cutting-edge surveys of home builders and mortgage lenders, conducted in August, are consistent with the perception of historically high but flattening single-family housing market activity. NAHB’s Housing Market Index (HMI) for August was down by five points from the cyclical high in June as modest deterioration occurred in all three components of the HMI — buyer traffic, current sales and expected sales. The index of applications for mortgages to buy homes (Mortgage Bankers Association series) essentially rattled sideways around a record level during July and the first three weeks of August (four-week moving average basis).

The rate of appreciation in home prices was quite strong in the second quarter as sales of single-family homes and condo/co-op units surged to record levels. Indeed, Fannie Mae’s analysis of its own portfolio data suggests that OFHEO’s benchmark House Price Index for home purchases (excluding refinancings) is likely to accelerate to about a 14% year-over-year gain in the second quarter (OFHEO data will be released on September 1). Furthermore, the median prices of existing single-family homes and condo/co-op units sold in June were up by 14.5% and 14.8%, respectively, on a year-over-year basis.

House price increases still are quite strong but the rates of acceleration may be topping out. The median prices of existing single-family and condo co-op units sold in July were up by 14.6% and 11.3%, respectively, on a year-over-year basis, and a buildup in the inventories of units for sale may hold down price appreciation in coming months — particularly in the condo market.

In our view, a number of factors are conspiring to produce a modest reduction in housing market activity and a moderate slowdown in house price appreciation during the balance of 2005 and in 2006. These factors include the projected rise in the interest rate structure (spurred by the Fed), less usage of “exotic” adjustable-rate mortgage products (thanks to financial regulators and rating agencies), and a reduced presence of investors/speculators in the single-family and condo markets (thanks to the previous factors). Fortunately, these factors will be at play in the midst of a healthy economic expansion that will be generating increases in employment and personal income that, by their nature, support housing demand.

Our forecast continues to show modest fades in home sales and housing starts over the balance of this year, followed by year-over-year reductions of roughly 6% in 2006. In this forecast, house price appreciation slows to a year-over-year pace of about 6% next year, close to the long-run average.

We expect the near-term housing patterns to include some recovery in the market share of rental housing and a relatively stable pattern for multifamily housing starts. We also expect the residential remodeling market to maintain good forward momentum, with the support of housing equity generated through the price gains of recent years. Shipments of manufactured homes are not likely to pick up significantly from recent depressed levels, remaining a minor part of the U.S. housing market.

Housing production, in total, should decline gradually in coming quarters following the remarkable growth surge of recent years. In the process, residential fixed investment should swing from a powerful engine of economic growth to a modest drag on GDP.

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 Aug. 24 edition. To subcribe to “Eye on the Economy,” click here.

"HousingEconomics Online" is a new online publication from the NAHB Economics Group that provides the latest housing economic data, trends and key events shaping the economy. NAHB’s leading economists analyze and synthesize the housing and economic information to provide in-depth analysis of the niches and nuances of the home building market.

"HousingEconomics Online" combines unique scientific research with practical applications providing insights that are original, useful and written in terms that builders, manufacturers and housing finance professionals can understand and apply to their own businesses. To order, visit the www.housingeconomicsonline.com detail page.

This interactive Web site at the executive level provides critical data and information quickly, easily and frequently and includes the following features:

Builders' Tip: Painting Lots of Doors All at Once

When I paint the interior of a house, I often end up with 30 or more doors that need painting.

I’ve found that the easiest way to do this task is to start by taking all the doors out of their frames and move them into the largest room in the house or into the garage, where they will be painted.

There, I stack the doors atop one another and paint their tops and bottoms with a roller. Then I put down two rows of 1x2 strips and stand the doors up on them in long lines, as shown in the drawing.

BuilderBooks.com Offers More Than 250 Books that Help You Build Your Business

BuilderBooks.com is your source for training and education products for the building industry. The official bookstore for NAHB, BuilderBooks.com offers award-winning publications, software, brochures and more available in both English and Spanish. To view these publications online, click here, or call 800-223-2665.

Subscribe Your Employees to Nation’s Building News — and a Chance to Win Digital Camera

Subscribe your employees to Nation’s Building News Online. It’s free, easy and NAHB members who sign up three or more employees will be entered into the "Make Your Business Click" contest to win a digital camera. To learn more or sign up your employees, click here.

General Contractor Convicted in L.A. Fall Fatality

A jury in Los Angeles deliberated for only three hours last month before finding the owner of a framing company guilty of willfully violating Cal-OSHA safety orders in an incident resulting in the death of an employee in April 2002. The general contractor was also among those who were convicted for the offense.

Brian Larrabure, of Calabasas, Calif. will go back to court for sentencing on Sept. 22. He faces a maximum sentence of one year in jail and a $100,000 fine, and his Encino corporation, BLF Inc., could receive a maximum fine of $1.5 million.

The victim, Jose Jasso, a nailer who was working on the fifth floor of the Palazzo Apartments in Los Angeles, fell 40 feet to his death though an uncovered floor opening. Larrabure had failed to install any worker safety protections such as guardrails or covers, and BLF workers were not provided with personal fall protection such as safety harnesses.

During the trial, the jury heard evidence that BLF had violated identical fall protection safety orders in January 1999 and September 2001.

Pleading no contest immediately prior to the start of the trial, three other defendants — the general contractor, Casden Builders Inc.; its site superintendent, Timothy Lamar; and BLF supervisory employee Eliseo Estrada — were convicted of the same offense.

Casden Builders was ordered by the court to pay $65,000 in restitution, fines and penalties and to institute several measures to ensure worker safety. Lamar and Estrada each received 36 months probation and were required to work for the state’s transportation department for 30 days.

For more information on construction safety and health issues, e-mail Rob Matuga at NAHB, or call him at 800-368-5242 x8507.

First-Ever Job Site Safety Video for Home Builders Available at BuilderBooks

“Jobsite Safety Video,” available through BuilderBooks.com, provides an overview of the key safety issues residential builders and workers need to focus on to reduce accidents and injuries. Based on the “NAHB-OSHA Jobsite Safety Handbook” this DVD is intended to be used as part of an essential residential construction safety-training program and includes two 20-minute videos. To view or purchase this DVD online, click here, or call 800-223-2665.

Northern Ohio Builders Sign OSHA Partnership

OSHA partnerships are part of U.S. Labor Secretary Elaine L. Chao's ongoing efforts to improve health and safety for workers through cooperative programs.

The partnership with OSHA is designed to address the most common workplace injuries and illnesses. A key goal is to reduce and prevent the top causes of fatalities identified by OSHA: falls, electrical hazards, moving equipment or machinery and workers who are caught between equipment.

Association members who join the voluntary program will develop a comprehensive safety and health management process to reduce workplace injuries and illnesses by 3% each year.

“This partnership will help all North Coast BIA members develop safety and health programs to identify and control hazards before they result in injury,” said David Linna, Sr., the association’s president.

The North Coast BIA will help administer the program and OSHA will help to ensure the safety and health of workers by setting and enforcing standards, providing training, outreach and education; verifying the effectiveness of builders' safety and health programs; establishing partnerships and encouraging continual process improvements in workplace safety and health.

First-Ever Job Site Safety Video for Home Builders Available at BuilderBooks

The NAHB University of Housing offers, “Recognizing the Big Four Safety Hazards for the Home Building Industry,” a course designed to teach builders how to recognize the four most common hazards on residential job sites, use safe work practices to reduce the risk of injuries and comply with OSHA regulations that apply to the home building industry. To learn more, or to find out where this course is currently being offered, click here.

You're Fired! How to Properly Dismiss Employees

Dismissing employees is never easy. Here’s how to do it carefully and constructively.

Luckily, most builders and remodelers don’t dismiss their employees with that flippant phrase and hand flick Donald Trump made famous. But sometimes they wait too long to do something about “problem” employees.

Foot-dragging on firing issues costs businesses plenty in diminished productivity, quality, profits and customer satisfaction.

Some builders and remodelers fire employees improperly — and get themselves into trouble. Pat Sargent, president of Sargent Consulting in Claskton, Wash., which offers training and operations consulting services, has encountered several cases of unfair dismissal.

She knows builders who gave their employees regular cost of living raises — and then told them they weren’t performing. She’s also heard of builders who fired employees without any documentation to support their termination decisions. “They didn’t have anything written in their files to protect them in a litigious environment,” she says.

Business owners know when they have employees who aren’t team players. “It’s usually not difficult to identify who should be fired. The challenge is figuring out what the employee is doing and then determining how you can do something about it legally,” says Andrew Remm, executive vice president of operations for The Home Service Store, a home improvement contractor located in Kennesaw, Ga.

Use the following pointers to take action on employee performance or behavioral issues:

Many firing issues can be prevented by testing job candidates and hiring smart. “Determine the necessary skill set for each position and then advertise for and hire someone with those skills,” Sargent says. While you don’t want to hire someone who is curt, rude or disruptive, you shouldn’t consider friendly, outgoing or agreeable candidates until you’ve determined that they have the skills you need. There’s no point in hiring a friendly estimator who can’t do take-offs.

Provide a basic orientation for all new hires that describes exactly what’s expected of them in their job function and as an employee of your company. Consider an employee handbook to outline your policies.

“Job descriptions, including responsibilities and standards, must be in place for employees to do a good job,” says Chris Thompson, president of On the Level in Chaska, Minn. “Disorganization, confusion and lack of direction can lead to unhappy employees and poor performance.”

Be sure to update job descriptions regularly. If the company grows, an employee’s duties and responsibilities will probably grow, too. Don’t forget to periodically review and update your employee handbook, too.

The word “probation” is rarely used these days because staffers are either employed or not — there’s no middle ground.

Spend time at the front end — when a new employee is hired — to coach, counsel and direct his development and ensure that the employee has a good start. In addition, counsel employees when they do something that contradicts company policy and/or their performance negatively deviates from procedures and standards specified in their job descriptions. Dave Stormont, president of Stormont Company in Kitty Hawk, N.C., uses the following counseling techniques:

Small builders often lack effective personnel management procedures. “Many of them fly by the seat of their pants,” says Sargent. “They don’t have consistent forms or orientation processes and they don’t do exit interviews when employees leave.”

It’s very important to treat all employees the same way. Consistency is crucial in human resource (HR) functions — and in every other aspect of your business.

If you counsel an employee for a specific issue, you must counsel all employees with that issue. Remm uses the example of three employees who frequently arrive at work late. One of the tardy employees is a high-producing salesperson. Don’t let the salesperson “slide” just because he makes a lot of money for the company. Counsel him just as you would the other employees with that attendance issue. Otherwise, it could be proven in a lawsuit that an employee received preferential treatment.

“Don’t tell an employee he needs to attend anger management classes and then not follow up on his progress,” says Sargent. “An employer needs to accept some responsibility for an employee’s success.”

Setting goals and milestones in counseling sessions gives the employee something to work toward. It reinforces that you are giving him a chance and that you want him to succeed.

Monitoring an employee’s progress eliminates the risk of performance or behavior problems snowballing or continuing unchecked. Follow-up also yields additional information to make future decisions.

Once you’ve identified a problem and spoken to the employee about it, begin making notes about the problematic performance or behavior. Document your meetings and counseling sessions with the employee, too. And don’t shy away from letting the employee know that his job is on the line. The employee deserves to know that if the problem is not corrected and the correction sustained, his employment will be terminated.

“If someone presses you about why you made the decision to fire someone, you can pull out your file of documented counseling sessions and demonstrate that there was cause to fire that employee,” says Remm.

Maggie Geoffroy, vice president of sales and marketing for CDCI in Atlanta, uses an employee counseling form. The document states the performance or behavioral issue, the expected way to handle the issue in the future, how the issue affects the entire company and what will happen the next time it occurs. The form includes space for employee comments, the employee’s signature, and the supervisor’s. “This form has made my life so much easier,” says Geoffroy.

“Employment law changes so much it’s hard to keep up with it,” Remm observes. If your company is too small to have an HR department or an employee who handles HR functions (Sargent recommends either of these options for businesses that employ 60 people or more), consider outsourcing HR functions to a third party.

Business owners can hire HR consulting firms for a few hours a week or month. “For what you pay your CPA, you can retain an HR consultant,” says Remm. The firm can do employee counseling and documentation and can dismiss employees, too (with your input and approval, of course).

Remm advocates finding an HR consulting firm through the Society for Human Resource Management Web site: www.shrm.org. SHRM’s site includes a directory of consultants (www.shrm.org/consultants/directory).

Sargent suggests finding an HR consultant by asking your attorney for recommendations or checking your local home builders association’s membership list.

Whether you perform HR functions in-house or outsource them, run all firing concerns past your lawyer first. The lawyer can tell you whether or not you’ve got just cause to terminate an employee.

A decision to terminate an employee — and the corresponding communication it entails — are business functions. If you’ve followed a process for providing sound orientation and if you’ve coached the employee on what is required and how to do it, he should know, maybe before you do, that his work is deficient or his behavior is unacceptable.

If you feel guilty or scared about terminating an employee, or if you fire him in anger or haste, he may try to talk you into letting him stay with the company. Even worse, you may face an angry person who’s demoralized by the way he has been treated.

“If you can’t remove your emotions from the process, that’s even more reason to outsource HR functions,” says Remm.

In small companies, business owners usually make hiring and firing decisions. In larger companies, managers often handle those matters. Remm recommends that an owner or executive require a manager’s justification for firing decisions. The manager must be able to document and articulate the reasons for terminating an employee.

“When you have to terminate someone, you should not be wrestling with the issue any more. If you are, you haven’t made the decision yet,” says Remm. “Don’t bring the employee into the office prematurely.”

Remm and Sargent recommend having at least one other person in the room, in addition to the employee. This is especially important if a woman terminates a man or vice versa.

“Sexual harassment is the number one charge employees try to bring against employers when they are fired,” Remm says. It doesn’t matter what gender the other person is — just as long as there is someone else in the room. Then it’s not one person’s word against another’s. The other person shouldn’t be one of the employee’s peers.

“Unless the employee has done something illegal on the job, I ask for his resignation and explain to him that it is always better for reference purposes to resign than to be fired,” says Stormont.

The employee may become emotional during the termination meeting. No matter how he reacts, be sure to treat him with dignity and respect.

“The most important thing I have found in firing employees is not to lay blame on them,” says Geoffroy. “At this point, they’re gone and there’s no advantage in further embarrassing or confronting them. If they didn’t get it when you tried to counsel them, they certainly aren’t going to get the point now.”

The meeting should be short. Remain calm and confident when speaking. “When I’ve terminated someone, it was rare that I spoke to him for more than five minutes,” Remm says. At the end of the conversation, stand up and tell the employee you are going to walk with him to his workplace to help him collect his possessions.

Have the employee give you all company-issued equipment (cell phone, pager, keys, credit-card, etc.). Sargent recommends using a standard form to list items issued to employees when they are hired. This makes it easy to collect those items if the employee leaves the company.

“Too many people fire employees and then expect them to return company equipment,” says Sargent.

Change the employee’s security code and computer password and disable his e-mail account the same day he is terminated.

This brings closure. It also prevents the employee from sabotaging computer systems or taking client files with him.

If you’re worried about what the terminated employee may do, have another person help you escort him from the building. It can be the other person who was in the termination meeting.

It’s best to dismiss an employee first thing in the morning at the beginning of the week. “That way, it doesn’t seem as though you’re trying to squeeze more work out of the person before letting him go,” Remm says.

Naturally, other employees will want to know about the terminated employee. For legal reasons, you must be very careful about what you say to other employees. Simply let them know that the employee is moving on. Don’t ever tell them he was fired.

To protect a terminated employee’s privacy, don’t announce his dismissal to everyone. Share that information only with department heads, managers and supervisors on a need-to-know basis. Do this right before or after the termination meeting. “Tell them, ‘I want to make sure that everyone still feels good about working here,’ ” says Remm. The key employees will let the rest of the staff know that the employee has moved on.

“If you have to do a lot of work to rebuild other employees’ morale after you fire their co-worker, you may have made the wrong decision to fire that person,” says Remm. “You protect morale by making the right hiring and firing decisions.”

“You and your company will learn and benefit from having to fire an employee,” says Thompson. “The employee you fire will also learn from the experience. It should make you feel better knowing that you’re actually helping the employee improve himself.”

“Managing Your Employees,” available through BuilderBooks.com, will help builders manage the people and paperwork of their businesses easily and productively. “Managing Your Employees” will help you establish, communicate, implement and document effective human resources policies and procedures. To view or purchase this publication online, click here, or call 800-223-2665.

Enter 2006 Seniors Housing Awards — Entries Due Sept. 30

Entries are now open for the 2006 Best of Seniors Housing Awards. The entry deadline is Sept. 23.

The NAHB Seniors Housing Council has announced a call for entries for its 2006 Best of Seniors Housing Awards — the premier design and marketing competition for the 50-plus seniors housing industry. Industry professionals have until Sept. 30 to enter their best community designs, on-the-board plans and advertising and marketing efforts.

The awards program honors the best in more than 50 categories covering all aspects of the seniors housing industry. Active adult categories include overall community, clubhouse design, condominium unit design and model home merchandising.

Other design categories include aging in place, assisted living residences, congregate living community, continuing care retirement communities, mixed-use, multifamily housing, renovated seniors housing and special needs housing.

The marketing categories include logo, community brochure, direct mail piece/campaign, Web site, black-and-white and color print advertisement, radio and television commercial, sales center and special promotion.

“The 50-plus market is extremely diverse and demands a different type of product and marketing approach than the mainstream,” said Richard Rosen, a Silver Spring, Md.-based architect and chairman of Best of Seniors Housing Awards Committee. “The Best of Seniors Housing Awards recognize builders and other industry professionals for their innovation and for raising the bar for the industry.”

Entry forms and contest rules are available online at the NAHB Seniors Housing Council Web site at www.nahb.org/SeniorsHousingAwards. Or call 800-368-5242 x8220 for more information or to have entry forms mailed to you.

Save 15% when you purchase “The Seniors Housing Publication Set” through BuilderBooks.com. Receive one copy of “Boomers on the Horizon: Housing Preferences of the 55+ Market,” “Marketing Seniors Housing” and the “Best of Seniors’ Housing News.” This publication set is a must-have for anyone serving the active adult market. To view or purchase this publication set online, click here, or call 800-223-2665.

Remodelers Report Strong Second-Quarter Activity

The nation’s remodelers remained bullish about business in this year’s second quarter, though somewhat less so than in the opening three months, according to the latest NAHB Remodeling Market Index (RMI), which was released last week.

“The high rates of home sales and home price appreciation are helping fuel strong remodeling activity,” said Remodelors™ Council Chairman Don Novak, CGR, CAPS, CGB, a remodeler from Cedar Rapids, Iowa. “Though we saw little change overall, the RMI still shows above-average activity for the past quarter and this will continue into the third.”

The RMI is derived from a quarterly national survey of more than 500 remodelers and is seasonally adjusted.

The remodelers’ assessment of current market conditions dropped one-half point from 52.9 to 52.4 on the index between the first and second quarters, and their future expectations also moved down — from 53.6 to 52.8. Even so, both scores indicated above-normal levels of activity.

Regionally, strong readings in the Northeast, South and West were partially offset by a sub-par report from the Midwest. Current market conditions climbed from 53.8 to 59.1 in the Northeast and from 53.6 to 58.5 in the West; they dropped from 48.9 to 44.7 in the Midwest and from 58.4 to 55.7 in the South.

“The continuation of positive readings in most parts of the country reflects remodelers’ confidence in their component of the housing sector,” said NAHB Chief Economist Dave Seiders. “In markets where there is strong real estate appreciation, remodeling continues to see near-record growth.”

Remodelers’ confidence centered on the owner-occupied side of their business, where current market activity moved up from 55.8 to 63.3 and future expectations dipped from 56.7 to 55.8. Renter-occupied units fell from a current rating of 47.7 to 45.8, but future expectations rose from 41.0 to 43.0.

In a special section that is a regular feature of the index, remodelers were asked questions relating to the profile of the industry.

Sixty-four percent of those participating in the survey indicated that they had 20 years or more of experience, up from 54% in 2002 and 59% in 2003.

Thirty-two percent said that they had completed an advanced degree program in graduate school, compared to 11% in 2002 and 10% in 2003. However, only 42% said they had a college degree, down from 50% in 2002 and 53% in 2003.

For more information, e-mail Jim Lapides at NAHB, or call him at 800-368-5242 x8451.

Remodelers Lend a Helping Hammer to Military Families

Earlier this month, some 20 volunteers representing 10 member companies of the Remodelors™ Council of the Home and Building Association of Greater Grand Rapids in Michigan helped three families of soldiers deployed overseas make needed repairs and improvements to their homes.

The remodelers participating in the Saturday “Operation Fix-Up” repaired plumbing problems, replaced doors and windows and built a six-foot fence to ensure that one family’s three-year-old daughter and new dog would remain safely in their backyard.

In addition to their time, council members donated many of the materials to complete the projects.

“So many things are sacrificed when a spouse, parent, son or daughter is called up to active duty, and it is the responsibility of the community to support their families and help in any way possible,” said Mike Wierstra, of Nugent Builders, Inc. and the chairperson of the council.

“Although the conflicts in the Middle East may not dominate the media as much as they did two years, ago, these people are still experiencing daily the difficulty and hardships of having loved ones far away,” he said.

Ads That Burst Their Borders Attract Attention

Builders spend billions each year creating ads and sending out mailers to pique buyer interest. Thousands of these marketing messages are in competition each day, hoping to create a sense of excitement ― and urgency — to lure buyers to a particular builder’s homes.

To make an impact, it is essential for your ads and direct mail pieces to stand out in the sea of competition.

One guaranteed way of attracting attention is to design ads and collateral material that break out of the box — literally ― and distinguish themselves from the ho-hum advertising already out there.

A specialized border treatment, distinctively shaped ad or die-cut direct mail piece guarantees the “look at me” effect every builder is after. And it’s now easier than ever to accomplish this through direct mail because current postal regulations allow almost any size and shape of mailer to be delivered. So take advantage

Border treatments can also be used as branding tools. Use the same treatment with different copy for several different communities, and you have a series of ads that highlight individual community features while creating a consistent look that buyers will recognize.

Premier Homes puts a little twist on the "box" approach to draw attention.

Click to enlarge.

The Premier Homes ad is an effective example of how putting a simple twist on the traditional “box” ad can make all the difference.

The twist in this case is the “3” shape that sets the ad apart from everything else on the page. The headline works with the design to call immediate attention ― and urgency ― to phenomenal savings and the limited time offer. The breaking-the-border presentation draws the eyes to the featured homes and their price savings, as well as the small burst that re-emphasizes the maximum savings if the home buyer decides to purchase today. The ad can be updated easily, with new inventory homes featured weekly or monthly.

'Pop-out' cash in Washington's Birthday ad clearly conveys message to buy now and save.

Click to enlarge.

The Washington’s Birthday Sale mailer above is an example of how a strong incentive is illustrated in an innovative way. The pop out of crisp thousand-dollar bills commands attention, makes an instant impact and clearly conveys the intended message — Buy now, get big savings.

Bold fonts, oversized graphics and an emphasis on “green” further accentuate the incentive offer. The foldout copy, “This is our biggest sale of the year,” lets potential buyers know that they won’t see prices like this again.

This “red tag” ad makes quick work of excess inventory — exactly what any red tag sale advertising is meant to do.

The ad shape works in complete harmony with the headline and, because sales are always about savings, the ad highlights the exact dollar savings possible.

The ad copy uses all capital letters in the headline and subhead to emphasize urgency. Finally, the company logo breaks the “tag” border to give it additional prominence.

Legends and fairy tales work in harmony to make this ad effective.

Click to enlarge.

Everything works together to make the Tindall Homes ad above effective and it all builds upon branding the communities name, The Legends at Mansfield.

The ad projects a “fairy tale”-like appearance and invokes a “fairy tale”-like lifestyle. In fact, much of the advertising and marketing material for The Legends at Mansfield look like they were plucked straight from a storybook.

This ad in particular breaks its border in order to visually suggest a castle. The parapets atop the ad and shield-like center presentation visually reinforce the copy and branding as well as complement the community and corporate logos.

Easily identifiable concepts and a die-cut shape make this mailer created to appeal to aging baby boomers a standout.

Click to enlarge.

The direct mail piece above for Morningside at Martin’s Run from Oster Homes was created to target the '60s generation, those baby boomers who have now reached the active adult age. A fun image harking back to their “hippie” days was selected as the primary motif for marketing Morningside, an active adult community in Ohio.

The copy emphasized peace, love and savings ― easily identified concepts for this targeted market. Plus, the distinctive die-cut shape demanded to be noticed when it arrived in the morning mail amidst a pile of rectangle and squares.

In all of these cases, designing “outside the box” meant ads and mailers that immediately broke out of the clutter of other builders’ ads.

Richard Elkman, MIRM, is president of Philadelphia-based Group Two Advertising. He has been a speaker at NAHB conventions and regional and local seminars, including the Lee Evans Group Executive Summit and Builder 100 conferences. His book, “The Small Volume Builder Advertising Manual” and others were published by NAHB. His articles have appeared in major housing publication and newsletter across the country. Elkman has served as president of The Institute of Residential Marketing, is a member of the National Sales and Marketing Council's board of trustees and is the master of ceremonies of the National Sales and Marketing Awards held annually at the International Builders’ Show. .

To see more examples of effective ads, direct mail, billboards, Web sites, sales offices and more, e-mail Elkman for a free subscription to his Sales and Marketing CHALLENGES & SOLUTIONS bi-monthly e-mail publication.

“Building Better Ads,” available through BuilderBooks.com, explains the ins and outs of advertising, including how to write and design effective ads. To view or purchase this publication online, click here, or call 800-223-2665.

For additional cutting-edge sales and marketing information, subscribe to NAHB’s Sales + Marketing Ideas magazine. Call 800-368-5242 x8192 or visit www.smimagazine.com to subscribe or order a copy. Click here to learn about membership benefits of the National Sales and Marketing Council and the Institute of Residential Marketing.

The Insititute of Residential Marketing Offers Courses and Designation Programs for Sales & Marketing Professionals

The Institute of Residential Marketing (IRM) offers four designation programs for sales and marketing professionals:

Education Calendar

Whether you’re new to the industry, hope to make your next career move or want to improve your company’s bottom line, The NAHB University of Housing can assist you in your education pursuits.

Visit www.nahb.org/education for a comprehensive listing of courses throughout the country. Be sure to visit often in order to view the most up-to-date information in your area.

Subscribe Your Employees to Nation’s Building News — and Earn a Chance to Win Digital Camera

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.

Niche for Vacation Home Market Grows in Mexico

Dan Harwood, an Idaho developer, is building condominiums and villas in Puerto Peñasco, Mexico for vacationers and retirees from Arizona.

Sun Development, a small builder/developer based in Idaho, is building affordable luxury condominiums and villas along the beaches of Puerto Peñasco, which, at about three hours from Tucson, is the closest beach resort to Arizona — and growing.

Puerto Peñasco, in northwest Mexico on the Gulf of California, began as a tiny shrimping village more than a century ago. Known as “Rocky Point” to many visiting Americans, it has been quietly attracting Arizonans to camp on its sandy beaches and enjoy the warm, clear waters for 50 years.

But all that changed about five years ago. Now, vacationers stay in condos, and in addition to swimming, sunning and sport fishing, they enjoy snorkling and golf.

Dan Harwood, CEO of Sun Development, began building the Casa Blanca golf villas and condonimiums in Puerto Peñasco in 2003, and he expects to complete his 225-unit project next year.

"It's always been thought of as a 'locals only' recreational area where you 'roughed it' in a tent on the beach," Harwood said. "2000 is when the tide began to turn, in large part due to the cost of similar vacation properties in the states, dwindling inventoiry in the states and modern building and landscping techniques." Harwood is selling his 1,300-square foot condos for $350,000.

NAHB’s International Department caught up with Harwood to see how his project was progressing. Here’s what he had to say:

A: Sun Development’s experience has been that gross margins in Mexico run around 10%-15% better than similar projects here in the United States. That is a substantial increase to the bottom line.

Q: What is Mexico’s lure for a small builder who is only interested in the bottom line?

A: Mexico represents incredible untapped profit potential for anyone who is willing to sort through the multiple opportunities and come up with a project that is well suited to their organization.

Q: Give us a ballpark figure on the cost of building the same unit in Mexico vs. the U.S.? And include your risk factor.

A: We estimate that if an organization identifies solid, competent management for the project, it will realize cost savings of around 10% on inputs, labor and management. You have to be very careful, though, because those saving can easily disappear if you mismanage distance and communication.

I also believe that is why a smaller developer has an advantage in these situations. They are lean and can react readily!”

Harwood's project is part of a growing bearch resort area in Puerto Peñasco, which is less than three hours from Tucson, Ariz.

Q: Did you do a market viability analysis for this project? And if so, what stood out the most?

A: You will need to conduct an in-house viability study. Unfortunately, there is a lack of qualified consultants that conduct this sort of study south of the border.

A critical part of Sun Development’s strategy is to have first-hand knowledge about the target market we’re catering to. In our market analysis, the one thing that stood out the most was the millions of Americans in Phoenix and Tucson. Many already vacation frequently at Rocky Point, the closest beach to Arizona.

Q: You work with a Mexican partner. How did you find your partner and what gave you the confidence to go into business with them?

A: There are a myriad of developers in Mexico who are capable, dynamic, determined to succeed — and who are looking for American investors. Once you find a potential partner, verify his or her credentials and make your decision based on past performance and past projects.

A: Once a builder is established in Mexico, a project can attract the attention of local banks. For our particular development, we used private U.S. financing and in-house funds.

The 3rd International Housing Conference of the Americas will be on Nov. 3-5 at the Four Seasons in Mexico City and feature educational panels, housing tours of middle to high-end housing, table top exhibits, networking events and valuable insight from key industry leaders and government officials.

Training Series in Primary Trades Increasingly Popular

The Home Builders Institute's (HBI) Residential Construction Academy (RCA) Series of instructional materials is becoming an increasingly popular learning resource among enrollees in vocational training schools and students who are taking classes in construction technology.

Prepared in collaboration with publisher Thomson Delmar Learning, HBI’s modern, accessible teaching system in the primary trades now runs to five volumes, with more in the works.

The series currently includes four-color, fully illustrated textbooks on carpentry, electrical principles, house wiring, HVAC and plumbing.

A modular reference book on facilities maintenance will debut in 2006, and it will be followed by a text on concrete masonry.

Each textbook is accompanied by a number of multi-media instructional aids, including 20-minute videos and CD-ROMs that provide hands-on demonstrations, image libraries and the latest skill standards for the trade.

The curriculum for the series was carefully planned in tandem with craft trade skill standards developed by NAHB members.

Many vocational schools have begun large-scale adoptions of the RCA Series curriculum and they have been reporting positive results. “The more I use the RCA Series, the more I like it,” said Alain Archuleta, an instructor at Albuquerque Technical Vocational Institute in New Mexico.

Thomson Delmar Learning reports that sales for the series have exceeded its initial projections and this year have been running 66% ahead of 2004.

The well-known and popular Building Trades Academy at the Tidewater Builders Association (TBA) in Chesapeake, Va. also uses the RCA Series. Channing Pfeiffer, the association’s executive officer, finds that the series is “user-friendly and students seem to really respond to it.”

For more information on the RCA Series, e-mail Joseph Krinock at HBI, or call him at 800-795-7955 x8928.

Internet Courses Help Builders Train Workers

BuildIQ offers an affordable collection of online courses that small and large builders alike can use as an excellent complement to any employee-training program.

In partnership with HGTVpro.com to bring the industry online information on the best practices in home building, BuildIQ is a member of the National Council of the Housing Industry — the Supplier 100 of NAHB.

BuildIQ’s Managed Training Program addresses the unique training challenges of a home building company and helps builders prioritize their training needs, assess each employee’s knowledge and easily demonstrate their return on investment from training.

The courses are interactive, easy-to-use, filled with best-practice solutions to critical issues from real-world experience, and accessible from the Internet.

“Making this training opportunity both easy and effective for employees benefits the company by having a more knowledgeable, more productive workforce,” says Michael Dickens, the chief executive officer of BuildIQ.

The BuildIQ curriculum includes courses on construction fundamentals, customer relations, safety, construction phases water management.

This feature is solely for educational and informational purposes. Nothing on this page should be construed as policy, an endorsement, warranty or guaranty by the National Association of Home Builders of the featured product or the product manufacturer. The National Association of Home Builders expressly disclaims any responsibility for any damages arising from the use, application or reliance on any information contained on this page.

NAHB-Produced Shows on HGTV & DIY — This Week

The NAHB Production Group is a full-service, self-contained, media production unit creating programming for cable television, broadcast television, non-profit, museum and corporate clients. Productions range from magazine format shows for general audiences to museum-installation videos for specialized use.

The production group includes award winning journalists, writers and photographers with experience in broadcast, documentary and corporate television.

Subscribe Your Employees to Nation’s Building News — and Earn a Chance to Win Digital Camera

Subscribe your employees to Nation’s Building News Online. It’s free, easy and NAHB members who sign up three or more employees will be entered into the "Make Your Business Click" contest to win a digital camera. To learn more or sign up your employees, click here.

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.

Stuard Scholarship Fund Announces 10 Winners

The National Housing Endowment, the philanthropic arm of NAHB, recently announced the 10 winners of the Dale & Bea Stuard National Housing Endowment Educational Fund Scholarship.

The selection committee included educators and industry professionals. They were Richard Douglass, committee chairman, Centex Homes; Tim McSunas, Taylor Woodrow Homes; David Greminger, Fieldstone Communities; John Puckett, Anaheim Union High School District; John Larner, assistant superintendent- Anaheim Union High School District; Forest Werner, Orange County Department of Education; Kathy Johnson, Vital Link and Building Industry Association of Southern California Home Builders Council; Julie Stevens, Purcell Murray; and Thom Steele, Hardwood Creations and Building Industry Association of Southern California Trade Contractor Council.

NAHB Fall Board Meeting in Reno Sept. 7-11

OFFICIAL MEETING NOTICE OF
THE NATIONAL ASSOCIATION OF HOME BUILDERS
BOARD OF DIRECTORS

The following schedule of events is a partial listing provided as a notice for the upcoming NAHB Fall Board of Directors Meeting, which will be held in Reno, Nev. on Sept. 7–11, 2005.

Meetings will be held at the Hilton Reno Resort and Casino. The fall board program will identify the exact time and place of each scheduled meeting.

Wednesday, September 7

Subcommittees, Task Forces, Working Groups Meetings
National Vice Presidents
State Representatives
Executive Board Meeting

Thursday, September 8

Committees, Subcommittees and Councils Meetings
Past Presidents' Council
National Housing Center Board of Governors
2006 Leadership Meeting (TBC)

Friday, September 9

Committees, Subcommittees and Councils Meetings
2006 Presidential Advisor Meeting
Budget & Finance Committee
Nominations Committee
National Housing Endowment
Resolutions Committee

Saturday, September 10

Area Caucuses 1-15
Joint Executive Board, Budget & Resolutions Committee Meeting
Board of Directors Meeting

Sunday, September 11, 2005

Board of Directors Meeting

Help Tsunami Survivors Rebuild Their Homes

NAHB and the National Housing Endowment have established the Home Builders Care/National Housing Endowment-Tsunami Shelter Fund to raise desperately needed funds to build permanent shelter for the victims of the tsunami disaster in South Asia last year. The fund currently has raised more than $360,000.

NAHB has designated Habitat for Humanity® International and Shelter for Life International to be the recipients of the fund. Through NAHB donations, Habitat for Humanity will create a Disaster Response Technical Center in one of the affected countries it is serving. Shelter For Life will build a “Home Builders Care Village” of starter homes in Sri Lanka with NAHB funds.

Please help by making a tax deductible donation to the Home Builders Care/National Housing Endowment-Tsunami Shelter Fund.

Checks should be made payable to the National Housing Endowment and, in the memo section, please note the "Tsunami Shelter Fund."

The NAHB Senior Officers have selected Past President Bob Mitchell to oversee and guide this fundraising effort.

For more information, contact Troy Patterson at the National Housing Endowment at 800-368-5242 x8483 or Kym Kilbourne in NAHB Public Affairs, x8447.

Save on Dell™ Computer Products

Dell, the world's leading computer systems company, offers discounts to NAHB members on an array of products designed to meet the technology needs of your company. Discounts are available on:

Contact the Dell Association Sales Representative at 888-577-3355, Monday-Friday, 7 a.m.-8 p.m. (CT) and Saturday, 8 a.m.-5 p.m. (CT).

For the most up-to-date details on the Member Advantage discount program and all of the participating companies, go to www.nahb.org/ma.

Subscribe Your Employees to Nation’s Building News — and Earn a Chance to Win Digital Camera

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.

Calendar of Events

Subscribe Your Employees to Nation’s Building News — and Earn a Chance to Win Digital Camera

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.

Nation's Building News Online: August 29, 2005

Ruling Muddies Clean Water Act Permitting Program

Transportation Bill Gives a Boost to Growth

Subscribe Your Employees — You Could Win a Digital Camera

Crime Ring Linked to Construction Site Thefts in Southwest

Rents Head Up as Home Prices Put Off Buyers

Nation Faces Cement Shortage

Charter School Decision Delayed; School Board Wary About Home Builder’s Financing for Project

Eminent Domain Ruling Paves Way for $120M Redevelopment

Three Doors Down; Bigger Garages Gain in Popularity as Number of Cars, Belongings Grow

Private Elevators on the Rise in North Texas

Political Pressure Mounts to End Mexican Cement Duty

Housing Most Affordable in Buffalo, N.Y. and Ohio

California’s Housing Affordability in Free-Fall

Californians Finding a Way to Buy High-Priced Homes

Record Reported for New Home Sales in July

Existing-Home Sales Inventory Remains Lean

Eye on the Economy

Builders' Tip: Painting Lots of Doors All at Once

General Contractor Convicted in L.A. Fall Fatality

Northern Ohio Builders Sign OSHA Partnership

You're Fired! How to Properly Dismiss Employees

Enter 2006 Seniors Housing Awards — Entries Due Sept. 30

Remodelers Report Strong Second-Quarter Activity

Remodelers Lend a Helping Hammer to Military Families

Ads That Burst Their Borders Attract Attention

Education Calendar

Niche for Vacation Home Market Grows in Mexico

Training Series in Primary Trades Increasingly Popular

Internet Courses Help Builders Train Workers

NAHB-Produced Shows on HGTV & DIY — This Week

Stuard Scholarship Fund Announces 10 Winners

NAHB Fall Board Meeting in Reno Sept. 7-11

Help Tsunami Survivors Rebuild Their Homes

Save on Dell™ Computer Products

Calendar of Events