Secretary Snow Hears Energy, Housing Affordability Issues

NAHB President David Pressly and fellow home builders Steve Temkin and Connecticut State Representative Greg Ugalde joined Treasury Secretary John Snow in Torrington, Conn. on Feb. 22 for a press event highlighting what the nation’s home builders and the Bush Administration are doing to promote residential energy efficiency.

The secretary called attention to the importance of energy-efficient housing and announced new IRS guidelines for tax credits that provide incentives for energy-saving features in home building and remodeling.

Temkin and Ugalde, the CEO and president, respectively, of family-owned T&M Building Co. in Torrington, had an opportunity to show Snow some of the energy-efficient features they are incorporating into their new homes, including special furnaces, multi-zone heating and cooling systems, Low-E insulated windows and programmable thermostats.

Pressly and Secretary Snow both commented on the need for government and private interests to join forces to expand the reach of energy efficiency in the housing marketplace at a time when U.S. dependence on foreign energy resources is a growing concern.

In a private exchange following the press event, Pressly discussed with Snow NAHB’s serious concerns over the unfavorable tax simplification measures that were proposed by a presidential advisory panel last fall, and reminded the secretary that while those proposals are currently under review by the Treasury Department, President Bush has publicly confirmed his support for the mortgage interest deduction several times.

The President expressed his support for the deduction during the NAHB Fall Board of Directors meeting in Columbus, Ohio two years ago, and most recently reiterated that view at a town hall meeting in Tampa, Fla. when asked about it by an NAHB member in the audience.

President Bush at Tampa Town Hall Meeting

John C. “Chuck” Fowke, head of Homes by John C. Fowke in Brandon, Fla., a past president of the Tampa Bay Builders Association and currently a state representative, told President Bush of his concerns over housing affordability at a public forum on Feb. 17.

After identifying himself as a home builder and member of NAHB’s board of directors, Fowke noted, “We’re concerned with the environment just as much as anyone else, but there’s got to be a balance to make sure that we can develop land and provide homes — affordable homes. And Congress is working on some things now that have an effect on financing and interest rates for people buying their first homes. Let’s make sure that we have affordable homes for people.”

Agreeing with Fowke, Bush cited the need for the country to be “an ownership society” and mentioned downpayment assistance for helping first-time home buyers. “Maybe you’re hinting at whether or not the mortgage deduction would be part of a plan,” the President then added. “I don’t think you have to worry about the mortgage deduction not being part of the income tax law.”

Pressly expressed gratitude for the opportunity to discuss energy efficiency and tax reform with Secretary Snow and voiced confidence that the Administration would keep an open door for further conversations on issues related to concerns of NAHB members over housing affordability.

In NAHB’s latest survey on critical issues facing members of the association, the availability of affordable housing was 10th on the list of their top concerns.

Property Owner Protections Upheld by Oregon Supreme Court

In a huge win for property owners in the state, the Oregon Supreme Court on Feb. 21 overturned a trial court decision in the case of MacPherson v. DAS and upheld the constitutionality of a measure designed to provide landowners with recourse against state or local land use regulations that restrict the use of their property and reduce its fair market value.

The Oregon Home Builders Association and NAHB filed an amicus brief in the Supreme Court case.

Approved by the voters by a margin of 61% to 31%, Ballot Measure 37 entitles affected property owners to seek compensation or a waiver of the offending regulation. Last week’s ruling means that thousands of land owners in Oregon whose property has been unduly burdened by government regulations can now proceed to have their claims heard.

However, the court ruled only on the constitutionality of the measure, leaving a number of questions on its implementation unresolved.

"We're delighted that the court recognized the validity of Measure 37," said Jon Chandler, executive officer of the Oregon association, "but this is just the opening battle in the long war for increased private property protection in Oregon."

Among the issues on Measure 37 that have yet to be addressed are:

• Whether a waiver of a land use regulation applies only to the property owner or whether any rights granted by the waiver can be conveyed to a subsequent purchaser
  
  
• Whether state statutes, which account for a significant share of Oregon’s land use law, can be waived by state agencies or whether these waivers will require legislative approval
  
  
• Whether the language of Measure 37 encompasses the right to subdivide or partition property, or only the right to construct a building

These issues, and others, will be answered either through cases currently or about to start wending their way through the courts, or by Oregon’s legislature in its 2007 session.

Supporters of Measure 37 say they expect to see ongoing attempts to overturn or dilute its protective provisions.

For more information, e-mail Alex Strong at NAHB, or call him at 800-368-5242 x8279.

Cancelled Home Orders: Latest Bubble Prick?

A recent member survey by NAHB found one in five reporting more cancellations of new home orders than six months earlier, with 4% saying that the increase in cancellations was significant. “When you start to see cancellations, you really get worried,” said the association’s chief economist, David Seiders. Of those who said they experienced an increase in cancellations, 45% said it was due to a buyer’s inability to sell their existing home and a third cited buyers not being able to qualify for financing at a time of rising mortgage rates. But the concern of Seiders and others is that cancellations are being driven by real estate investors who were ordering homes with the intention of selling them quickly in a hot real estate market. “If you’ve overbuilt the market and sales get cancelled, you have to do something with the homes,” Seiders said. “The incentives we’re seeing builders offering are clearly designed to support prices and stop cancellations.” (www.cnnmoney.com)
CNNMoney.com (2/24/06); Chris Isidore

What We Own Vs. What We Owe

While it is true that a surprisingly large percentage of recent home buyers have minimal or even negative equity levels, on the other hand most home owners have substantial net equity holdings out of a total of $11 trillion, which is almost double what they had five years ago, according to a study by First American Corp. Based on appraisal or valuation information on 26 million homes in 36 states and the District of Columbia, the study found that among mortgage borrowers in 2004-2005, nearly one in 10 had zero or negative equity and 5% owed more than their house was worth by more than 10%. Nearly 30% had equity of less than 20% and 44% less than 30%. However, according to research from the Federal Reserve, home owners have equity of 57% on average, compared to 58% five years earlier. Not surprisingly, households with the oldest mortgages had the best equity positions. For example, eight in 10 people who took out their mortgages in 1985 had equity of 75%-80%. (www.washingtonpost.com)
Washington Post (2/25/06); Kenneth R. Harney

The Anti-Development Boom

A phone survey of 1,000 adults across the country commissioned by P. Michael Saint, CEO of Saint Consulting Group in Hingham, Mass., found that Americans are twice as likely to oppose new real estate development projects as to support them. One out of five American families have actively opposed development in their communities, according to the poll, including mounting a letter-writing campaign and organizing community groups to ensure that elected officials hear their protest. The survey also found that 93% of Americans care about a candidate’s position on new development. “For senior citizens,” said Saint, “66% said it was very important, and they vote in much greater numbers than the rest of the populace. So candidates are starting to realize that regardless of the tax-base implications, a strong stance against new development in the community is going to be politically advantageous.” As the anti-sprawl debate intensifies, smart developers are “spending time going door to door, talking to neighbors and trying to find ways to get people to show up in favor of the project,” said Saint. (www.globest.com)
GlobeSt.com (1/25/06)

Thomas Jefferson: The Founding Father of Sprawl?

Jefferson hated cities and as a writer, philosopher and leader was able to hard-wire an anti-urban bias into the culture of the United States, according to Leonardo Vazquez, an instructor at the Edward J. Bloustein School of Planning and Public Policy at Rutgers. The U.S. Constitution gave power to the states, not cities and towns, he says. States increase their power through representatives by increasing their population, which they prefer to do by discouraging compact development that risks giving more electoral power to urban areas. After becoming president, Jefferson encouraged movement away from cities through the Louisiana Purchase, which provided Americans with plenty of extra land. Before the Constitution, Vazquez says, Jefferson pushed his anti-urban policy in the Land Ordinance of 1785, a policy that divided land in today’s Midwest into six square mile townships, divided into 640 acre sections. Each section would be used for farming, except for one section that would be reserved for public education. “I view great cities as pestilential to the morals, the health and the liberties of man,” Jefferson said. “True, they nourish some of the elegant arts; but the useful ones can thrive elsewhere; and less perfection in the others, with more health, virtue and freedom, would be my choice.” (www.planetizen.com)
Planetizen (2/20/06); Leonardo Vazquez

Bringing Down the House

Modular home building saw growth of about 20% between 1994 and 2004, according to Eric Fulton, communications manager for the Building Systems Councils of NAHB, and teardowns represent the next step in the evolution of the industry. “Scattered sites are still the majority of modular housing, but teardowns are a growing market in general,” he said. Experiencing a shortage of land in southeastern Massachusetts, his primary market, builder Don Shulman has been looking for teardowns as an alternative to scattered, vacant sites for new construction. The teardown market now represents 60% of his company’s total revenue, which was about $8 million last year. Shulman says teardowns can shave off nearly half of the total cost of building a modular home at a new site. While the cost of a modular house itself can run from $225,000-$250,000 on the low end, the entire price tag can soar to between $475,000 and $500,000 when land and site improvements are factored in. “It didn’t take long to realize that in most of these situations, the value wasn’t in the house at all; it was in the land,” he said. (www.bizjournals.com)
Boston Business Journal (2/17/06); Sean McFadden

Taylor to Bring New Focus to Commerce

Joe E. Taylor Jr., the retired chief executive and founder of Southland Log Homes in Irmo, S.C., was recently named by South Carolina Governor Mark Sanford to become the head of the state’s Commerce Department because of his success in growing and running his business. Along with his father, Taylor built Southland into the largest producer of pre-cut log home packages in the country, and his success was partially based on the strength of exporting, with Japan his first overseas market. “We want to see more of those things: business growing from within and more headquarters in South Carolina,” the governor said. (www.thestate.com)
TheState.com (2/10/06); C. Grant Jackson

Letter to the Editor: Eagles in Ohio

Dear Editor:

To be brief, The Building Industry Association of Central Ohio, located in the Columbus, Ohio suburb of Westerville, is very excited to have a pair of our nation’s majestic bald eagles nesting in its own backyard.

The Ohio Department of Natural Resources, Division of Wildlife, has put up fencing and posted signs and designated a viewing area for the hundreds of onlookers. We suspect eggs have been laid. Cameras in a neighboring office building are focused on the nest 24/7 and terrific pictures are already circulating.

When we see them each day both in the nest and close up in our field, it is indeed heartwarming to know that the birds may be going off the Endangered Species list due in part to the cooperation and understanding of those in the building industry ("Industry Role Cited in Return of Bald Eagle," 2/20/06).

Marylou B. MacDonald
Membership Services Director
BIA of Central Ohio

Rudman Report Renews Discussion of GSE Reform

Following the release on Feb. 23 of a 2,700-page report on Fannie Mae that could provide some new impetus in Congress for passing reform legislation for the nation’s government sponsored enterprises, NAHB reaffirmed its support for corrective actions that the current management of the institution has taken to rebuild the confidence of policymakers and investors while refocusing the company on its housing mission.

Home builders also reiterated support for H.R. 1461, “The Federal Housing Finance Reform Act of 2005” as the best regulatory reform legislative vehicle to ensure the safety and soundness of the GSEs while still enabling them to provide critical financial support for housing.

Commissioned by the Fannie Mae Board of Directors following the release in September 2004 of a report by the Office of Federal Housing Enterprise Oversight detailing extensive accounting problems at the company, last week’s report presented the findings of a 17-month investigation by former Sen. Warren Rudman and the Paul, Weiss law firm into accounting, structure and governance issues at Fannie Mae. The report was based on the examination of more than 4 million documents and 240 interviews.

“The Rudman report confirms our long-held belief that the current Fannie Mae management team is taking the necessary steps to put the company back on the right course,” said Jerry Howard, NAHB’s executive vice president and CEO. “Specifically, Fannie Mae’s current management and board have taken corrective actions to refocus on the company’s housing mission, rebuild credibility with Washington policymakers and Wall Street investors and change the company’s structure and corporate culture to ensure that the financial problems that Fannie Mae has been wrestling with will not occur again. We have great confidence in (President and CEO) Daniel Mudd and his management team.”

Generally, the report found:

• Fannie Mae has disclosed the principal problematic accounting issues that are the subject of the report.
  
  
• No member of management who Paul, Weiss found knowingly participated in improper conduct is still employed by Fannie Mae.
  
  
• The suggestions made in the report for changes in corporate governance either have been implemented or are underway at the company.

Specific conclusions on Fannie Mae’s historical accounting practices, internal controls, corporate governance and structure prior to 2005 include:

• Management’s accounting practices in virtually all of the areas that were reviewed were not consistent with Generally Accepted Accounting Principles (GAAP) and, in many instances, management was aware of the departure from those principles.
  
  
• Except for one instance in connection with the 1998 financial statements, there was no evidence found to support the conclusion that management specifically departed from GAAP in order to maximize executive bonuses. There was, however, extensive evidence that the departures from GAAP were intentional in order to show stable earnings growth, achieve forecasted earnings and avoid income statement volatility.
  
  
• Employees in critical accounting, financial reporting and audit functions at Fannie Mae were either unqualified, did not understand their roles or failed to carry out their responsibilities properly.
  
  
• The information provided by management to the Fannie Mae Board of Directors with respect to accounting, financial reporting and internal audit issues generally was incomplete and misleading at times.
  
  
• Fannie Mae’s accounting system was grossly inadequate.
  
  
• The former chief financial officer, Timothy Howard, and the former controller, Leanne Spencer, were primarily responsible for adopting or implementing accounting practices that departed from GAAP, and they put undue emphasis on avoiding earnings volatility and meeting earnings-per-share targets and growth expectations.
  
  
• The report did not find that former Chairman and CEO Franklin Raines knew that Fannie Mae’s accounting practices departed from GAAP. However, the report did find that he contributed to a culture that improperly stressed stable earnings growth and that, in his leadership position, he was ultimately responsible for the failures that occurred on his watch.

NAHB’s Howard noted that the report’s findings underscore the need to pass H.R. 1461, which was introduced by Reps. Richard Baker (R-La.) and Michael Oxley (R-Ohio) and adopted by the House by a wide margin.

“The Rudman findings do not support taking any draconian action as some policymakers have suggested,” Howard said. “H.R. 1461 provides the appropriate regulatory structure that allows GSEs to fulfill their housing mission and to deliver the necessary credit to the housing market while, at the same time, guaranteeing that the GSEs operate in a safe and sound manner.”

The outlook for further consideration of GSE reform legislation in the Senate remained unclear last week. For its part, the House Financial Service Committee had indicated that hearings would be held with former Sen. Rudman upon completion of the report.

To read the legislation, click here and enter H.R. 1461 in the box at the center of the page.

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

New Home Sales Dip 5% in January

Sales of new single-family homes fell 5% to a seasonally adjusted annual rate of 1.233 million units in January following upward revisions to the November and December rates, the U.S. Commerce Department reported on Feb. 27. The January sales rate was 3.3% above a year earlier.

“After a record-setting sales pace in 2005, home builders are seeing an orderly cooling-down process as the supply-demand balance shifts and buyers gain more leverage,” said NAHB President David Pressly. “While many builders are now offering more sales incentives to adjust to this changing environment, housing demand continues to remain quite healthy by historical standards.”

The inventory of new homes for sale rose slightly in January to a record 528,000 units from 515,000 units. There was a 5.2-month supply at the current sales pace, the highest since late 1996.

“With sales volume off, the inventory level has edged higher, but this rise is nothing to be alarmed about because the fastest growing component of the inventory run-up relates to homes that have been permitted but not yet been started, which jumped 60% from this time last year,” said NAHB Chief Economist David Seiders.

While the weather across the nation was very mild in January, Seiders noted that this was essentially not a factor in the new home sales report. “There is little statistical relationship between home sales and weather, unlike the strong relationship between weather and housing starts. Therefore, any inference that sales numbers were actually weaker than they appeared because the weather was so good just does not hold water,” he added.

January sales were down 14.9% in the Northeast, 10.8% in the Midwest and 10.3% in the South. They were up 11.3% in the West.

“NAHB’s forecast continues to anticipate a decline of roughly 7% in new-home sales for 2006 as a whole, essentially returning to the healthy 2004 level,” said Seiders.

Housing Affordability Slumps to Record Low

Indianapolis was the nation's most affordable major housing market for the second consecutive quarter during the final three months of 2005, according to the NAHB/Wells Fargo Housing Opportunity Index, which was released on Feb. 23.

Meanwhile, higher interest rates and rising home prices caused nationwide housing affordability to slip for a fourth consecutive quarter to its lowest level on the index ever.

"The latest HOI shows that only 41% of new and existing homes that were sold during the final quarter of 2005 were affordable to families earning the national median income," said NAHB President David Pressly. "This is down from 43.2% of homes sold in the third quarter and 52% of homes sold in the final quarter of 2004."

Pressly noted that the housing affordability situation should start to improve as mortgage rates peak later this year and home price appreciation decelerates from the record rates of the last several years to a more normal pace. "This will give incomes a chance to catch up."

"Between the third and fourth quarters of last year, the national weighted interest rate on fixed- and adjustable-rate mortgages that we use in calculating the HOI rose from 5.84% to 6.21%, and this certainly increased the threshold for families seeking homeownership," said NAHB Chief Economist David Seiders. "Meanwhile, nationwide home prices were on a strong upward trajectory through 2005."

NAHB is forecasting that the average rate on a 30-year, fixed-rate mortgage will inch up gradually to about 6.6% late this year and average about 6.5% for the year as a whole.

In the nation's most affordable major housing market of Indianapolis, 88.7% of new and existing homes that were sold in the fourth quarter were affordable to households earning the area's median income of $64,000. The median sales price of all the homes sold in Indianapolis during the fourth quarter was $120,000.

Other major metro areas near the top of the list in housing affordability were: Youngstown-Warren-Boardman, Ohio-Pa., followed by Detroit-Litonia-Dearborn, Mich.; Grand Rapids-Wyoming, Mich.; and Dayton, Ohio.

Midwestern metros also dominated the list of the most affordable small housing markets with less than 500,000 people. Davenport-Moline-Rock Island, Iowa-Ill. was the most affordable, followed by Cumberland, Md.-W.Va.; Lima, Ohio; Mansfield, Ohio; and Lansing-East Lansing, Mich.

At the bottom of the affordability scale was Los Angeles-Long Beach-Glendale, Calif., where just 2.3% of homes sold in the fourth quarter were affordable to families earning the area's median household income of $54,500. The median price of all homes sold in that area was an even $500,000.

As usual, the bottom of the affordability scale was dominated by large California cities, including Santa Ana-Anaheim-Irvine, San Diego-Carlsbad-San Marcos and Stockton.

New York-White Plains-Wayne, N.Y.-N.J. rounded out the list of the five least-affordable major housing markets.

Among cities with smaller than 500,000 populations, Merced, Calif., was lowest on the list and the second least affordable market overall. Other small cities in the unaffordable column included Modesto, Salinas, Santa Barbara-Santa Maria and Santa Cruz-Watsonville, Calif.

Benefits Outweigh Costs of New South Carolina Housing

New homes generate an average of $1,412 more than they cost local governments, according to an independent study released by the South Carolina Association of Realtors® and the Home Builders Association of South Carolina.

Examining the development of 1,091 units in six residential subdivisions in Berkeley, Greenville and Lexington counties, the study — prepared by Impact DataSource, an economic research firm in Austin, Texas — estimated that the activity added more than $2.9 million of additional revenue to local taxing districts on a one-time basis and 1,448 direct and indirect construction jobs.

The developments then continue to generate surplus community funds through taxes, spending by the new residents and an increased demand for workers. The annual personal income of the residents of the subdivisions was calculated at more than $78 million.

The estimated $6.7 million in the annual benefits of the development to cities, counties and school districts exceeded the $5.1 million in annual costs by more than $1.5 million, the study found.

Of the $25.2 million spent by the developers on the six subdivisions, $11.8 million was for infrastructure dedicated to local governments and utilities, including streets sidewalks, drainage improvements and off-site improvements.

The study points out that most South Carolina governments have adopted policies and ordinances that shift almost all of the cost of new residential development and related infrastructure to the developer, builder and, ultimately, to the new home owner.

Because government services such as police stations, fire stations, utilities and schools tend to serve large benefit areas, the growth in the tax base associated with each individual development is sufficient to cover any marginal costs, the study says. For instance, the money generated by new families joining a school district provides more than enough funds for schools to pay for extra classrooms, teachers and learning materials.

For the complete study, click here.

Local Economic Impact Studies Available from NAHB

NAHB’s Housing Policy Department maintains economic models to estimate the local economic impact of home building.

One model estimates the economic benefits — including the effect of the construction activity itself, the economic ripples that occur when income earned from construction activity is spent and recycles in the local economy and the ongoing impact that results from new homes becoming occupied by residents who pay taxes and buy locally produced goods and services.

A second model estimates the costs home building imposes on local governments for supplying education, police and fire protection and other public services.

Together these models can be used to show that, from the standpoint of local governments, home building usually pays for itself.

The NAHB models are calibrated to a typical metropolitan area using national averages, but they can easily be adapted to a specific local economy by replacing key housing market variables.

Areas covered by NAHB Local Impact Studies

More than 350 customized reports analyzing residential construction in various metropolitan areas, non-metropolitan counties and states across the country (darker shaded areas in the map above) have been produced by NAHB’s Housing Policy Department. The reports have analyzed the impacts of specific housing projects, as well as total home building in areas as large as entire states

The models analyze single-family construction, multifamily construction or a combination of the two; specific cases of active adult housing projects; multifamily development financed with Low-Income Housing Tax Credits; and the local impact of residential remodeling. 

For more information about the NAHB models, applying them to a particular local area, or the current price for this service, click here, or e-mail Elliot Eisenberg at NAHB, or call him at 800-368-5242 x8398.

Eye on the Economy

The Economy Has Regained Its Stride Following the Late-2005 Stumble

The “advance” report on GDP for the final quarter of 2005 showed an alarming slowdown in economic growth to an annualized rate of only 1.1%. It now appears that fourth-quarter growth will be revised up to about 1.5%. Still a weak performance, but it’s pretty clear that several major causes of the weakness were temporary — including downshifts in both auto sales and federal spending.

Incoming data for the first quarter of 2006 point toward a major rebound in economic growth. Indeed, it now appears that GDP growth could exceed 5%.

It’s true that some of the early-year strength in spending and production reflects a swing from unusually bad weather in December to outlandishly good weather in January. But, everything considered, the economy appears fundamentally sound and GDP growth should settle into a healthy and more sustainable range before long.

Labor market conditions actually have been improving all along, and the outlook definitely remains positive for job growth and the unemployment rate.

The Fed’s Economic Projections Look a Lot Like NAHB’s

Ben Bernanke became chairman of the Federal Reserve Board on Feb. 1 and he delivered the Fed’s semiannual Monetary Policy Report to the Congress in mid-month. Bernanke’s testimony painted a positive picture of the current condition of the U.S. economy. He also expressed comfort with the Federal Open Market Committee’s (FOMC) economic projections for 2006-2007 that were contained in the Fed’s formal report to Congress — the kind of endorsement seldom (if ever) offered by the former Fed chairman, Alan Greenspan.

The FOMC’s economic “projections” may also be viewed as the intentions or preferences of the Fed’s policy-making committee. In any case, the central tendencies of the projections for real GDP growth, inflation and the unemployment rate are close to NAHB’s current baseline (most probable) forecasts for 2006-2007.

Those forecasts depict trend-like GDP growth in both years (a bit slower in 2007), core PCE (personal consumption expenditures) price inflation around 2%, and an unemployment rate in the 4.75%-5.00% range in the final quarters of both 2006 and 2007.

The New Fed Chairman Paves the Way for More Monetary Tightening

Bernanke has yet to chair a meeting of the FOMC, but his mid-February monetary policy testimony gave a pretty good indication of which way he will be leaning at his first FOMC meeting on March 28. He emphasized upside risks to the outlook for economic growth and stressed the Fed’s paramount responsibility to maintain price stability — factors that tend toward more monetary tightening.

At the same time, Bernanke stressed that further changes in monetary policy will be highly data-dependent — a message that also had been delivered in the FOMC statement of Jan. 31 (Greenspan’s last meeting).

Since economic momentum is likely to be impressive during the first quarter, and since core inflation continues to run close to the upper bound of the Fed’s implicit comfort zone, it’s highly likely that the Fed will enact another quarter-point rate hike on March 28 (raising the federal funds rate to 4.75% and the bank prime rate to 7.75%). There’s a significant probability of yet another rate increase at the May 10 FOMC meeting, although NAHB’s forecast does not yet incorporate that step.

Bernanke Expects a Soft Landing for Housing, But Highlights Downside Risks

In his mid-February congressional testimony, Bernanke noted recent signs of softening in the housing market, including slowing home sales, rising inventories and turndowns in indicators of home builder and home buyer sentiment.

He also stressed that “some cooling of the housing market is to be expected and would not be inconsistent with continued solid growth of overall economic activity.” That assessment is entirely consistent with NAHB’s outlook.

Bernanke went on to highlight downside risks to the outlook for modest softening of the housing market, and he stressed that “the Federal Reserve will continue to monitor this sector closely.”

The chairman noted the “substantial gains in house prices and the high levels of home construction activity over the past several years” and conceded that “prices and construction could decelerate more rapidly than currently seems likely.” He also noted that slower growth in home equity, in turn, could lead households to boost saving and trim consumer spending by more than currently anticipated.

The minutes from the Jan. 31 FOMC meeting also expressed concern about downside risks to the housing market. The minutes noted that home price appreciation reportedly had slowed noticeably in some areas, highlighting the risks to aggregate demand of a pullback in the housing sector.

Some FOMC members felt that the effects of an end to rising house prices were “potentially sizeable,” and that the negative effects could be compounded by rising debt-service costs as variable-rate mortgages are reset at higher rates.

January Rebounds in Housing Starts and Building Permits Do Not Invalidate the Housing Slowdown

The evolving slowdown in housing market activity from the highs reached in the third quarter of last year was interrupted by surprisingly large rebounds in housing starts and permit issuance in January (reported after Bernanke’s monetary policy testimony).

However, the rebounds obviously were associated with a massive swing in weather conditions — from unusually bad conditions in December to the best January weather conditions on record. There’s no doubt that the January surge in starts/permits was “full of hot air” and primarily represented acceleration of building that would have occurred later.

The bulk of evidence on housing continues to depict cooling market conditions from unsustainable highs last year. NAHB’s single-family Housing Market Index fell substantially during the second half of 2005 and held steady in both January and February of this year.

Our surveys of builders also reveal a modest upshift in sales cancellations along with efforts by builders to maintain sales and limit cancellations as demand ebbs. With respect to demand patterns, the index of applications for mortgages to buy homes (Mortgage Bankers Association series) is now down by nearly 17% from the recent high reached around the end of September 2005.

Builders Are Fighting Back as Housing Demand Ebbs

A nationwide survey of nearly 500 single-family home builders, conducted by NAHB in January, identified a range of measures being taken to support sales and limit cancellations. Most builders prefer not to trim asking prices when demand ebbs, but our January survey picked up some price cutting in response to growing buyer resistance to elevated market prices. Nineteen percent of respondents said they had reduced prices to maintain sales volume, and the average cut was 5%.

Some builders have reacted to growing price resistance by adjusting their production mix. Indeed, 32% of respondents to NAHB’s January survey said they were placing more emphasis on lower-priced models and less emphasis on high-priced models in current and planned production.

Furthermore, one-third of builders said they had increased their use of Realtors®/brokers in an effort to maintain sales at current prices — a strategy that can bolster sales but doesn’t deliver cost advantages to buyers.

Builders also have cranked up various non-price sales incentives offered to prospective buyers. In order of importance, the incentives were as follows:

• Include optional items in homes at no cost (41%).
• Pay closing costs (31%).
• Pay up-front financing points (15%).
• “Buy down” mortgage interest rates (8%).
  
  

The average value of incentive packages (often including several types) was about 2.5% of the sales price.

Anticipate the trends, make better decisions and improve your bottom line. HousingEconomics.com, the online publication from 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 and metro forecasts.  

HousingEconomics.com combines unique scientific research with practical applications providing insights that are original and useful. This interactive Web site at the executive level provides critical data and information quickly, easily and frequently, and includes the following features:

• Home Builders Forecast ― state, metro, non-residential, remodeling, etc.
• Exclusive access to NAHB’s staff of economists
• The Seiders' Report
• Housing Market Statistics — 29 tables including housing starts, home prices, building permits, home sales, value of new construction, etc.
• Housing Activity
• In Depth-Analysis
  
  

For more details, visit www.housingeconomics.com.

Attend the Spring Construction Forecast Conference in April

Plan to attend NAHB's Construction Forecast Conference on April 27 at the National Housing Center in Washington, D.C. The conference brings together the nation's premier housing economists and finance experts for an in-depth examination of the economic outlook for the housing industry.

For more information, visit www.nahb.org/cfc.

Give Us Your Perspective on the NAHB Economics Blog

Give your economic perspective on NAHB's economics blog, “Seiders on Housing,” an informal Internet-based forum dealing with economic issues, housing trends, survey research and other topics affecting the housing sector of the economy.

Log onto the blog at http://nahbblog.blogs.com and get direct access to NAHB Chief Economist David Seiders' expert opinions, projections and responses. Then let Seiders know what you think.

Builder's Tip: Self-Centering Router Base

I recently built and wired a gazebo. I didn’t want conduit intruding on the woodwork so I buried the electrical supply in a post. That meant cutting a groove in the post for the wire — a good job for my router and a 1⁄2-inch straight bit.

	[Click for larger imager]

It would have been even easier if I’d had a self-centering router base. Because I didn’t have one, I put one together:

• As shown in the drawing, I outlined the base of my router on a piece of 1⁄4-inch Lexan. I marked the hole for the bit and three screw holes for attaching the new base to the router and added circular “ears” on opposite sides of the base for guide pins.
  
  
• I bandsawed out the new base, smoothed the edges and set about finding the guide pins.
  
  
• In my miscellaneous-hardware drawer, I found a pair of nylon pins for a bifold door. I chucked a 3⁄8-inch bit in the drill press and bored holes, equidistant from the bit hole, in each ear for the pins.
  
  

The pins’ shoulders rest on the top of the base, where I secured each one with a couple of drops of adhesive. As shown in the drawing, rotating the router so that the pins bear against the sides of the workpiece centers the bit as it plows its groove.

— Edward Sprouts, Columbus, Ohio

Tips & Techniques provided by Fine Homebuilding.
©2005 The Taunton Press

To request a reprint of this feature, e-mail Mary Lou von der Lancken at Fine Homebuilding.

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.

Tie Employee Compensation to Achievement, Experts Say

Just as you have risked everything to build a successful company, everyone you employ should have a portion of their compensation that is “at risk” — not guaranteed, but rather dependent on the fortunes of your company, according to some industry experts.

The reason, they say, is simple: when a portion of their pay is riding on your company’s performance, then everyone in the company has a tangible stake — an incentive to do their best for your business.

However, less than a third of workers who indicated they wanted tangible rewards — whether it’s a special event, cash bonus, gift or plaque — actually receives them. More than half agree that company recognition (or lack of it) affects their job performance, according to a recent online poll.

“Home builders are placing more emphasis on bonuses as a means to compensate employees,” said Robert Rivinius, CEO of the California Building Industry Association, which last year commissioned a survey of compensation in that state. Forty-four builders with more than 12,000 employees participated.

Experts in developing compensation plans for home builders say the amount of money devoted to incentive compensation will differ according to a company’s structure, culture and the “level” of a particular employee within the business’s hierarchy.

Compensation Guidelines Available in NAHB’s BizTools

Want to learn more? General guidelines about the future of incentive compensation, some mistakes companies have made and areas to consider when developing compensation-reward plans for employees are available in the BizTools section of the NAHB Web site, available to NAHB members only. To read more about compensation programs, click here.

To view other resources available in BizTools, visit www.nahb.org/biztools.

Builder Input on Employee Performance, Evaluation and Compensation Wanted

NAHB’s Business Management Department and Publications Work Group is gauging how much builder interest there is in performance evaluation and compensation strategies. To assist, please complete the department’s short survey by clicking 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, visit www.nahb.org/BoB on the Members Only side of the NAHB Web site.

Bankruptcy Laws Provide Relief to Manufacturers, Suppliers

By Mark Shaiken, Marc Albert, Janet Nesse, Darrell Clark, Lawrence Block and Katie Sutcliffe Becker, Stinson Morrison Hecker LLP

A building products retailer filing for bankruptcy protection is a constant threat and common problem for those who manufacture and supply wholesale building products.

Compounding the frustration is the likelihood that news of the bankruptcy may not reach the manufacturer or supplier for several days, a week or longer.

This is because of a provision in the bankruptcy laws that permits a bankruptcy to be filed in a state other than the state where the retailer’s principal place of business is located. Consequently, a supplier might not learn about the bankruptcy until it receives a notice mailed from the court in which the bankruptcy was filed.

That delay could mean the potential loss of the supplier’s once valuable weapon in an insolvency situation — the exercise of reclamation rights.

This legal remedy exists outside of bankruptcy. It becomes important in bankruptcy because without it the supplier is generally standing last in line for payment by the bankrupt customer. The ability to reclaim goods might be the only means for minimizing the financial loss imposed by an insolvent customer.

Outside of bankruptcy, depending upon the applicable state law, when a supplier of goods delivers product to a business on credit and then learns of the customer’s insolvency, the supplier may have as little as 10 days from the date of delivery to reclaim his goods. To accomplish this task, the goods must be in the customer’s possession, in their original form, and the wholesaler must specifically identify the goods sought.

Under the prior bankruptcy law, when a bankruptcy was filed within that 10-day window, the wholesaler had another 20 calendar days from the date of delivery to go to the bankruptcy court and seek reclamation. Unfortunately, as this scenario illustrates, if the supplier does not learn of the bankruptcy filing promptly, there is a possibility that the 20-day time period will expire before the supplier can adequately respond.

Fortunately, recent changes to bankruptcy laws provide much-needed relief to preserve the reclamation rights of suppliers. The 20-day window is expanded to either 45 days after delivery of the building products or 20 days after the bankruptcy petition is filed, whichever is later.

This should provide the supplier with greater access to the bankruptcy courts, so that the rights of the supplier can be adjudicated in a timely manner. Also, the new law eliminates the requirement that the reclamation claim be valid under state law.

Reclamation claims in bankruptcy are still subject to the prior rights of lenders who hold a security interest in a retailer’s inventory, resolving a dispute that existed prior to the new amendments.

Now, this issue — the rights of a reclaiming seller to its product versus the lender’s rights to its collateral — will determine the validity of most reclamation claims. Further, for those suppliers who delivered goods within 20 days of the bankruptcy filing, the new law grants a priority in payment without following the formal reclamation procedures and fighting with the retailer’s lender.

Since most suppliers would rather have a payment than return of product, this new legislation should provide an additional measure of improvement.

For more information on how recent changes in federal bankruptcy law affect the building industry, visit “The Regulatory Environment and Your Business” section of www.nahb.org/biztools. Many articles in this section are available to NAHB members only.

The legal firm of Stinson Morrison Hecker LLP, with offices throughout the Midwest and in Washington, D.C., includes construction, real estate, corporate finance, environmental and employment among its practice areas.

The preceding article is solely for informational purposes. The views and opinions of the authors expressed herein do not necessarily state or reflect those of the National Association of Home Builders. The National Association of Home Builders and the authors expressly disclaim any responsibility for any damages arising from the use, application, or reliance on any information contained in this article. The ideas presented in the article are not a substitute for considered professional advice. If specific legal advice or professional assistance is required, the reader should seek the services of a qualified professional. 

Education, Designation Credits Available at 50+ Symposium

The annual spring conference for industry professionals who serve the 50+ housing market, Building for Boomers and Beyond: 50+ Housing Symposium 2006, offers plenty of opportunities for continuing education and designation credits.

The symposium, held April 24-26 at the Pointe Hilton Tapatio Cliffs Resort in Phoenix, Ariz., begins with three days of educational programming, including two pre-conference courses on April 23.

Three of the four classes offer designation credits for building industry professionals working towards their CAPS (Certified Aging in Place) or Master CSP (Master Certified New Home Sales Professional) designations.

In addition to its educational program, the symposium features a full schedule of breakout sessions covering such topics as:

• “Navigating the Fair Housing Minefield”
• “The Changing Face of 55+ Communities”
• “Design Ideas that Create Value”
  
  

Neil Howe, a prominent expert on generational issues, will be the keynote speaker.

Courses offered at the 50+ housing symposium include:

• Working With and Marketing to Older Adults
  Sunday, April 23, 9:00 a.m.-5:00 p.m.
  
  Communities specifically designed for older home owners constitute a growing segment of the remodeling market. Learn how to identify and serve the needs of an aging population.

Designation Credit: CAPS, Master CSP
Continuing Education Credit: CGA, CGB, CGR, GMB, Master CSP, CSP, MIRM
Approved for .7 CEUs by ASID, IDC, IDEC, IIDA, NKBA

---

• Designing for the Active Adult
  Sunday, April 23, 9:00 a.m.-5:00 p.m.
  
  By 2010, there will be 77 million active adults age 50 and older in the United States who comprise a variety of market segments defined by lifestyle, community, amenities and product design preferences. This one-day course discusses the design considerations for single-family and multifamily housing for active adults.
  
  Designation Credit: Active Adult Housing Specialist (Coming in 2006)
  Continuing Education Credit: CAPS, CGA, CGB, CGR, GMB, Master CSP, CSP, CMP, MIRM
  
  

  ---

  
  

• Home Modifications
  Monday, April 24, 9:00 a.m.-5:00 p.m.
  
  Physical limitations often force older people out of their homes when sensible remodeling could allow them to age in place. This course teaches remodelers the relevant codes and standards, depicts common barriers and demonstrates how to redesign living areas for safety and comfort.

Designation Credit: CAPS, Master CSP
Continuing Education Credit: CGA, CGB, CGR, GMB, CSP, CMP, MIRM
Approved for .7 CEUs by ASID, IDC, IDEC, IIDA, NKBA

---

• Business Management for Building Professionals
  Tuesday, April 25, 9:00 a.m.-5:00 p.m.
  
  This one-day course discusses the components of a business plan — defining and staffing your business; performance tools for managing and monitoring administration, sales and production; and strategies for managing common challenges experienced in startup businesses.

Designation Credit: CAPS, CGA, CGB, CGR, Master CSP
Continuing Education Credit: CAPS, CGA, CGB, CGR, GMB, Master CSP, CMP, MIRM

For all course fees and requirements, e-mail the NAHB University of Housing’s Office of the Registrar, or call 800-368-5242 x8338.

To register for Building for Boomers & Beyond: 50+ Housing Symposium 2006, click here.

Learn More About The NAHB University of Housing

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 educational 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.

Find Out What Boomers Want

“Boomers on the Horizon: Housing Preferences of the 55+ Market,” available through BuilderBooks.com, can help you better build and market homes to this age group.

Capitalize on the niches, needs and opportunities of this rapidly growing market by learning their preferences. To view or purchase this publication online, click here, or call 800-223-2665.

Remodelers Expect Slower Market Growth This Year

Remodeling activity slowed in the fourth quarter of 2005, according to NAHB’s Remodeling Market Index (RMI), although those polled for the latest report remained upbeat in their assessments for the year, even though their scores were slightly below those for 2004.

Ratings of current market conditions in the fourth quarter dropped to 46.6, down from 50.9 in the previous quarter, and future expectations dipped from 51.8 to 47.5. Any number over 50 indicates the view that market conditions are expanding.

“The rise in interest rates has slowed home owner refinancing, often used to fund remodeling projects,” said Remodelors™ Council Chairman Vince Butler, CGR, CAPS, GMB. “The less frenzied housing market also contributed to a lowering of market expectations in the final quarter, but we still expect to see solid growth in the remodeling industry in 2006.”

Owner-occupied units moved down in the final quarter of last year from 56.2 to 48.9, while ratings of the renter-occupied component of the index pushed up, from 37.9 to 40.4. As for future expectations, optimism about owner-occupied units showed signs of erosion, slipping from 55.4 to 50.4, while the outlook for multifamily remodels climbed from 31.0 to 37.8.

Remodeling accounts for 40% of all residential construction and improvement spending and more than 2% of the U.S. economy.

“The market could not sustain the record pace of home sales and housing production recorded in 2005, but we feel that 2006 will be a solid year in the housing sector with ongoing growth in the remodeling industry” said NAHB Chief Economist Dave Seiders. “Home owner equity will continue to support the industry, and last quarter’s rise in the rental components of the RMI bodes well for this year.”

Regionally, a strong pickup in optimism out West was offset by declines in the South, Midwest and Northeast. In the West, ratings of current market conditions improved from 56.3 to 58.5 and future expectations rose from 55.5 to 63.5. Respective ratings in the South dropped from 53.7 to 48.0 and from 58.0 to 46.6. Declines in the Midwest went from 50.2 to 41.l and 51.8 to 46.2, respectively; in the Northeast they went from 43.6 to 41.6 and 48.2 to 41.0.

Participants in the fourth-quarter survey were asked special questions about significant problems they were facing. Among the results:

• At the top of their list of concerns, 71% of remodelers said they were wrestling with high material costs last year, compared to 36% in 2001.
  
  
• Nearly eight in 10 expect material costs to be a significant problem in 2006.
  
  
• The availability of skilled labor was the number-two concern, with 67% of the remodelers identifying it as a problem in 2005 and equal numbers expecting the problem to persist this year.
  
  
• More than three out of four remodelers said they expected shortages of skilled labor to continue shaping the industry for the next five years.
  
  
• Fifty-six percent indicated that the nation’s aging population will bolster demand for remodeling for the next five years.

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

It’s Easier to Apply for the Remodelor™ of the Month Award

The Remodelors™ Council has re-launched the national Remodelor™ of the Month award to recognize up-and-coming members of the industry.

Winners will still receive the same national recognition — including a spotlight within Qualified Remodeler — but the application process has been made easier.

Important changes include:

• A streamlined application where candidates can nominate themselves. (The executive officer of their association will be contacted during the judging process.)
  
  
• An emphasis on recent contributions to the remodeling industry
  
  
• No specific regional limitations
  
  
• Consideration for two additional months for applications that are not selected as the winner
  
  
• Applications for Remodelor™ of the Month will no longer be considered for Remodelor of the Year. Candidates may apply separately throughout the year for the annual award; the deadline is Aug. 21.

Candidates must still be Remodelors™ Council members. The deadline for each award is the 15th of the month two months prior to the award month. For example, to submit for May Remodelor of the Month, your application must be in by March 15.

Visit the award Web page to apply.

For any additional questions, e-mail Melissa Benik at NAHB, or call her at 800-368-5242 x8323.

Log Home Combines Hot Design With Rustic Feel

At the intersection of Abe Lincoln meets Gucci, a 5,500-square-foot home scheduled to be completed next month on a two-acre lot on Lake Petenwell, Wisc. will help educate consumers about the design and construction process of a log home and provide support for the University of Wisconsin Children’s Hospital in Madison.

Built by Golden Eagle Log Homes as a rustic retreat with the latest in technology and interior design, the showcase home will be furnished with a Sub-Zero refrigerator and custom-design cabinets in the kitchen; a wine cellar and a wine tasting room; and a theater with three rows of lighted and elevated custom seating, surround sound and a large high definition television screen. The theater includes a snack room with see-through glass countertops, a display cabinet and a popcorn machine.

“The log home industry has grown over the years, offering home buyers a rustic form of primary living with modern amenities included,” said Jay Parmeter, owner of Golden Eagle.

A series of articles on the construction of the home will appear in Country’s Best Log Homes magazine.

The home will be open to the public and used for fund-raising events to benefit the hospital, which includes a complete children’s medical and surgical center, pediatric intensive care unit, an international recognized transplant surgery program, a children’s cancer center and a family-friendly atmosphere.

Golden Eagle Log Homes is a member of NAHB’s Log Homes Council.

For more information on the council, e-mail Eric Fulton at NAHB, or call him at 800-368-5242 x8577.

Is Your Digital Home Future Proof?

The first of two articles about the promise — and challenge — of building and selling “digital homes.”

The “digital home” segment of the housing industry is a promising young part of the industry that is characterized by exciting new concepts and technologies, growth and lots of change.

But while change and technology open up new opportunities, they also create challenging uncertainties.

So, if you are a builder who is promising a home with sexy new digital home features, you must first ask yourself if your new product will stand the test of time.

The Digital Home — Defined

Before going much further, let’s try to define “digital home,” an industry term that varies in definition according to which industry you ask.

Let’s define the “digital home” as a dwelling that supports seamless communications and control of entertainment and living services.

Home buyers have no idea what a digital home is, but they do care about some of the features these homes offer, such as:

• Cable television in any room they choose
• Wall-mounted flat screen TV without any visible cables
• Sharing the Internet among the owners’ personal computers (PCs)
• Listening to music in any room of the house
  
  

However, many of the developers and suppliers of the new technologies available have loftier designs on what to put in new homes. Some of what they would like to see in the digital home, include:

• Viewing photos and videos that are stored in the den PC on the living room TV
• Recording a program on a living room digital video recorder (DVR) and being able to watch it on the bedroom TV
• Having the cable company remotely service the home network
• Having the TV, DVD and sound system automatically turn to the right mode — with lights dimmed, drapes drawn and phone muted when pressing “play” — without the need for a fancy programmable remote control
• Visually monitoring the home while on vacation by using mobile phone technology
• Remotely monitoring elderly parents to make sure they haven’t wandered off or forgotten to take their pills
  
  

Cables for digital wiring may converge in a junction box in a closet or utility room.

So, how do builders pick and choose between what home buyers want and the vast array of technology that may prove useful — or complicated and superfluous?

A good place to start is the Digital Living Network Alliance (www.dlna.org), which is working toward establishing an interoperable network of personal computers, consumer electronics (CE) and mobile devices in the home that home owners can enjoy and builders can deliver.

DLNA is in the process of developing a series of standards for the digital home that includes the following:

Centralized Architecture

Many of today’s homes come with “speed wrap” structured wiring. Speed wrap usually contains a pair of coax cables for television and a pair of ethernet cables for networking.

There may be additional cables for ceiling-mounted speakers. Cables may be wired in a star pattern, converging in a junction box located in a closet or utility room.

A fully-equipped home might put all of the electronics, except for TV displays, in a rack. Equipment may include television set top box (STB) receivers for cable or satellite, DVD, audio-video receivers, DVRs, switch boxes, network routers, modems and more.

Centralizing everything makes it easier to switch and send content — including DVR and DVD video — to any room. Devices are controlled with a programmable remote control that ultimately sends infrared (IR) signals to each device via an “IR Blaster.”

A fully-equipped home may have all it's electronics, except for TVs, in a rack.

Networked Vision

This is where the PC industry is looking for opportunities in the digital home. In theory, audio, video, photos, data and control signals can all pass through an ethernet cable.

A network-based system offers more flexibility. Signals can be switched electronically, not mechanically. It is not necessary to centralize everything, and there can be fewer cables.

Again, in theory, all components can communicate and are smart enough to know what to do for each situation. New “media servers” can store, play and send music, videos and photos. There are even some concept homes that attempt this level of service connectivity.

In reality, however, this digital home vision is not yet ready for prime time. But understanding how various industries hope to get there can help you better plan for the future.

Next Week: the next generation in ethernet, WiFi, ultrawide band and finding the right IT management firm to help you wire your new homes for the future.

Gary Sasaki is the president of Silicon Valley, Calif.-based DIGDIA, which provides strategic analysis and consulting of digital media industries. For more information, visit www.digdia.com for a glossary of more than 1,000 digital home terms, industry reports and links to dozens of related organizations and publications.

This article excerpted from the fall issue of Building Women, published by NAHB's Women's Council.

Is the Grass Greener on the Commercial Side of the Fence?

The first of two articles about diversifying into commercial construction.

If you’re considering diversifying into commercial construction or have already done so, you should be asking yourself, “Why?”

If you don’t understand the need to diversify this way, you probably shouldn’t attempt it. The grass is not always greener in the commercial yard. Yes, commercial construction offers many opportunities — but only if you’re prepared for them.

I can’t promise you a commercial rose garden, but the information that follows will cover the issues you must address to ensure you can be successful in commercial construction.

Tactical Differences That Require Adjustments

First, residential and commercial construction are significantly different in the trenches.

In commercial construction, there are architects, engineers, bonding requirements, liquidated damages, new regulations and different codes, shop drawing submittals, various bidding processes and a different protocol overall. None of these are exactly daunting, but they do create an environment that can require a period of adjustment.

• The Client Dictates the Rules: The most significant tactical change is probably the client. Generally, in residential construction you deal with individual consumers, who frequently allow the home builder to dictate the rules. By contrast, commercial construction involves a business-to-business relationship in which the client tends to dictate the rules.
  
  
• Operate Like a Business: The first requirement for becoming a commercial contractor is to look and operate like a business.

This means you will need a dedicated fax line, an e-mail address other than Yahoo or hotmail, proposals that are typed and generally conform to the CSI’s (Construction Specification Institute) 48 divisions commonly used on most commercial projects, a business office, a Web site, scheduling software and formalized safety procedures, to name a few.

Though many home builders already have these basic elements in place, those that don’t will find the transition more complicated.

Although most quality home builders adapt relatively easily to the tactical changes inherent with commercial construction, the real challenges occur at the strategic level. Both commercial and residential construction involve addressing strategic issues, but commercial construction’s strategies are more complex. Before we explore these strategic issues, let’s examine diversification.

Diversity — Don’t Stretch Yourself Too Thin

As Coke and Pepsi have illustrated, diversity for the sake of diversifying is not always a good idea. Pepsi is the larger company, yet Coke is the more profitable. Pepsi is diverse; Coke is not. Coke is only a beverage company, while Pepsi has diversified into restaurants.

In part, the reason why Pepsi isn’t as profitable is because by diversifying it spread it resources too thin and was unable to take advantage of the opportunities in the beverage industry with the same vigor that Coke did.

The moral of the story is that if your diversity stretches you too far, it might actually result in a loss of earnings instead of a gain. In essence, it’s better to be an “A” player in a single niche than to be a “B” or “C” player in multiple niches.

• Take Advantage of Timing and Skills: Since the construction industry is cyclical, there are certainly strong arguments for diversity. However, it’s critical that contractors uncover the right opportunity at the right time — preferably on a different cycle than that of their residential business.

It’s also important to seek opportunities that take advantage of the skills that have made a builder successful to begin with.

Since successful production builders usually have great coordination skills, they should consider choosing commercial projects where these coordination skills would provide a competitive advantage.

Most home builders understand this concept when they consider other areas within the residential industry. But too many seem to forget that it also applies to commercial work. Contractors who make the wrong strategic choices risk sacrificing potential earnings.

Strategic Issues — Commercial Construction Has More Options, Choose Wisely

The home builder has many strategic choices to make, such as what type of homes to build — production, semi-custom, custom, luxury or multifamily. It’s important to remember these significant differences between home types make it difficult for most home builders to thrive in all segments of the industry.

Not surprisingly, in commercial construction, the number of options is significantly greater, so it’s absolutely essential for commercial contractors to understand their options and make the right strategic choices.

• Be Specific When Choosing Your Area of Diversification: When considering your options, don’t ask yourself whether you should diversify into commercial construction, but rather ask:

Should we diversify into this particular area of commercial construction?

Answering this question honestly will significantly improve your chances of succeeding.

The most successful companies have learned they must focus on more than just their own needs. They have learned to think from a strategic perspective, focusing on the needs of their customers and employees as well as their own company. In commercial construction, this strategic perspective should include the needs of your subcontractors.

Next week: How to develop effective strategies to stand up to your competition.

Ted Garrison is president of Garrison Associates and author of Strategic Planning for Contractors. As a consultant, author and speaker, he works with businesses in the construction industry to grow their business by improving profit margins and increasing productivity. For more information, e-mail Garrison.

This article was excerpted from Commercial Builder magazine.

What CGR, CAPS Designations Mean to My Business

As part of National Designation Month, Nation’s Building News talked with Alan Hanbury, Jr., CGR, CAPS, the president and CEO of the House of Hanbury in Newington, Conn. about the value of his professional designations.

A remodeler and contractor, Hanbury served on the NAHB Education Central Task Force that led to The NAHB University of Housing. He has chaired the NAHB board of education and served on the CAPS board of governors.

What designations do you hold?
CGR, CAPS

Have you ever won a customer or a job because of your NAHB designation?
Although it is doubtless I have, no one has ever said it was because of the CGR. But I have won customers because of CAPS a few times, now. 

With CGR, they ask what it means. It is in our advertising, job signs, Yellow pages, business cards etc. — and we brag that we have three CGRs on staff, a fairly large percentage of the entire Connecticut state list of CGRs. 

How has your designation tangibly benefited your career?
In several ways.  When I was taking the classes back in the late '80s, I met some people from Rhode Island and Massachusetts and, to this day, we speak for a while when we meet at conventions and educational venues. 

These people give me the pulse of the "area" and have openly shared some documents they use, some pricing strategies that they have employed and products to avoid. 

When teaching, which I started in 1993, I get similar feedback and additional input into every subject I teach, filling in holes in the official workbooks.

The conversations during breaks and overnights when the classes are held back to back are priceless. The DesignBuild course saved us during the depression years of the early '90s, as well as some forms and contracts that my classmates openly shared with me.

How have you promoted designations among your peers? Your home builders association?
Whenever we give our names, we use our designations — almost always, anyway. We were instrumental in bringing the old GBI program (the forerunner of CGR, CGB, etc.) to the Home Builders Association of Hartford County in 1993. 

I offered to be an instructor, at fees that were not "profitable" to make the program viable for 10 years. 

I always ask, “Why not?” for those who ask, “Why?” 

Why should consumers ask for designations from their builders?
It is just one more reason to believe that they are dealing with a professional who is interested in being the best he can be and around for the long run.

Why did you choose to pursue a designation through NAHB?
It was the only game in town — and it fortunately was designed with my needs in mind.

Education Calendar

March 12-14	National Green Building Conference	Albuquerque, N.M.
March 19-22	Log Home Councils Presidents Tour	Harrisburg, Pa.
April 2-5	2006 NAHB Multifamily Pillars of the Industry Conference and Awards Gala	Scottsdale, Ariz.
April 24-26	Building for Boomers and Beyond: 50+ Housing Symposium 2006	Phoenix, Ariz.
April 27	Construction Forecast Conference — Spring 2006	Washington, D.C.
May 21-22	Building Systems Councils Modular and Panel Plant Tour	Appleton and Wausau, Wisc.
June 5-7	2006 NAHB/BALA Design Institute for Builders	Charlotte, N.C.
June 11-13	Building Systems Councils Concrete Tour & Conference	Phoenix, Ariz.
Aug. 1-6	2006 EOC Seminar	Uncasville, Conn.
Oct. 20-22	National Conference on Membership	San Antonio, Texas
Oct. 25	Fall Construction Forecast Conference	Washington, D.C.
Oct. 27-29	Custom Builder Symposium	Las Vegas, Nev.
Nov. 5-8	Building Systems Councils SHOWCASE	Miami, Fla.
Nov. 9-11	State & Local Government Affairs Conference	New Orleans, La.

Learn More About The NAHB University of Housing

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 educational 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.

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 24 hours a day at www.nahb.org. Just click the "Log In" button to get started.

Once you log in, personalize the site to reflect your interests. Simply go to the My NAHB>My Profile page and click the “Edit Content Preferences” link. To learn more about how you can customize My NAHB — including how to customize the links that appear on the Home page ― visit the How to Use www.nahb.org section.

Testing Continues on Lead-Safe Work Practices

With roughly only six weeks remaining until the Environmental Protection Agency's deadline for comments on its proposed lead-based paint rulemaking, NAHB volunteers continue to test lead-safe work practices and gather information to prepare a detailed response.

The bottom line is that the rules do not effectively prevent lead poisoning in children, said NAHB leaders. The rules apply only to remodelers or other professionals who are making renovations for compensation and not to home owners, who do the work themselves more than half the time.

A concern for the remodeling industry is that the cost of training, materials and other expenses associated with complying with the proposed rule will lead to higher remodeling costs, and then fewer home owners will be able to afford to use a qualified remodeler, said Vince Butler, CGR, CAPS, chair of the NAHB Remodelors™ Council.

Home owners are more likely to lack experience with typical renovation and remodeling jobs and tend to work in their free time, thus increasing and prolonging potential exposure to lead dust, he said. “The unintended consequence of making it more difficult to hire a remodeler actually increases the chance that children could be exposed,” he said.

NAHB supports voluntary lead-safe work practices and continues to work on developing them. A voluntary program, combined with effective consumer education, would create a more affordable market for consumers requesting a remodeling firm that employs lead-safe work practices, Butler said.

"By eliminating mandated work practices no matter what the job, there is a greater likelihood that a home owner needing a lead-safe contractor can afford one,” Butler said. “There’s also less incentive for a home owner to find an alternate and potentially less safe way to get remodeling work done.

“A focused attempt to improve the housing conditions of affected families is more likely to reduce lead exposure problems than targeting an industry that serves less than 50% of home owners,” he said.

For more information, e-mail Calli Schmidt at NAHB, or call her at 800-368-5242 x8132.

More Effective Approach to Species Protection Advocated

NAHB has thrown its support behind current efforts on Capitol Hill to update and improve the Endangered Species Act, which costs millions of dollars to enforce, delays home construction and threatens housing affordability even in areas it does not directly affect.

Meanwhile, the legislation has done a poor job of recovering endangered or threatened species, the goal for which it was created more than 30 years ago.

All agree that the act needs to be fixed. The question is how. NAHB leaders believe that a balanced approach is best: Encourage affected property owners to protect endangered plants and animals while still making room for homes.

NAHB wants regulatory certainty so property owners know exactly what their responsibilities will be, and also wants to be sure that the potential economic impact of restricting development — for example, higher home prices — is always taken into account.

Some Background

Since Congress passed it in 1973, the Endangered Species Act has allowed the federal government to regulate endangered and threatened species and their habitats. It defines an endangered species as “in danger of extinction throughout all or a significant portion of its range.” A threatened species is one “likely to become an endangered species within the foreseeable future.” Species can be protected regardless of whether their population has decreased or the species has always been rare.

The act covers the bald eagle and grizzly bear, and also mice, snails, clams, beetles, spiders and a fly, not to mention more than 20 different kinds of cacti. Species are protected, or “listed,” after the federal government decides they are endangered or threatened based on scientific evidence. Once listed, the government can place a host of restrictions on activities that might affect the species, including home building. The government is also required to devise a plan to recover the species.

The act’s impact on housing affordability has been increasing across the country as more restrictions are placed on available land. One reason is the growth in the number of listed species. A little more than 100 species were originally on the list. Today, there are more than 1,260, with nearly 300 additional species labeled as candidates. Many developments in high-growth areas such as California, Florida, Texas and Hawaii have been especially hard hit.

Effect on Home Builders and Buyers

A number of federal regulatory provisions are triggered when a species is listed. Home builders and developers often run into the Endangered Species Act when applying for a federal permit, such as a wetlands permit. Often, they must modify or delay their project because of the possibility that grading or other activities might result in the death of a listed species, even inadvertently. If they don’t, violations can result in criminal fines of up to $50,000 and one year in prison.

Some of the act’s regulatory provisions, such as the designation of critical habitat, have become targets of litigation and symbols of the law’s outdated approach to species conservation. In 2002, for instance, 1.2 million acres outside Tuscon, Ariz. were proposed as critical habitat for just 18 endangered pygmy owls, effectively giving each some 66,000 acres on which to roam.

Other provisions, like habitat conservation plans, have recently emerged as win-win alternatives to the antiquated command-and-control approach. For example, Clark County, Nev. developed Multi-Species Habitat Conservation Plans to protect the desert tortoise, southwestern willow flycatcher and 77 other species with help from home builders, local governments, federal agencies, ranchers and mining interests. Between 4,000 and 7,000 new residents move to the area every month, and as the county worked to keep up with housing and other infrastructure, it also wanted to protect native desert plants and animals. The county assessed a $550 per acre fee to builders and developers to pay for long-term protection measures for endangered species as well as long-range planning to facilitate economic growth for the entire region.

How the Act Can Change

Last fall, Rep. Richard Pombo (R-Calif.) introduced "The Threatened and Endangered Species Reform Act," or TESRA. NAHB supports this legislation because it is clear that there are provisions in the ESA that are too confusing, expensive or limiting and must be fixed. Most importantly, the provisions have failed to recover species.

TESRA eliminates critical habitat from the act and, in exchange, gives greater prominence to recovery plans and the recovery planning process. At the same time, the legislation increases protection of private property rights, includes compensation provisions for taking property and includes other features that clarify language and eliminate duplication. For instance, it requires approved recovery plans to be consistent with local comprehensive plans, which otherwise might create confusion for local governments and go against the wishes of area residents.

Importantly for builders, TESRA also codifies “no surprises” for habitat conservation plans. Once the government approves a landowner’s plan to invest money or land to help save endangered or threatened species, the government can’t return to demand more land or money later. Clark County’s plan would not have been successful without the active participation of the home builders working to provide housing for the new residents streaming into the greater Las Vegas area. Home builders were willing participants because their responsibilities were clearly spelled out — and they knew the county would not return to the well.

NAHB strongly supports appropriate protection of the nation’s endangered species and advocates solutions that are cooperative and that balance the needs of future generations, available resources and costs. TESRA eases the ability of all interests to work together toward conservation goals while continuing to allow the needed construction of American homes.

For more information on endangered species, e-mail Calli Schmidt at NAHB, or call her at 800-368-5242 x8132.

Conference in Albuquerque Takes Tour of Green Homes

Kicking off three days of seminars, exhibits, awards and educational opportunities at NAHB’s National Green Building Conference, the Home Builders Association of Central New Mexico has invited attendees to tour a half-dozen innovative homes in the Albuquerque area on March 12.

• High Mountain Homes. Photovoltaic cells and a roof-top glycol system in this 5,300-square-foot home transfer heat into the in-floor radiant heating system. Pipes collect rainwater and gray water from sinks and tubs; it is filtered to remove bacteria and then reused in the greenhouse and for landscaping.
  
  
• Vision House '06. A collaboration between Sun Mountain Construction and Green Builder Media, this stunning Southwest contemporary home overlooks the Rio Grande Valley. Designed and built in accordance with the NAHB Model Green Home Building Guidelines, the project demonstrates the cutting edge of luxury home building technologies and systems. Insulated concrete form construction, highest quality windows and patio doors, super efficient mechanical systems, water and energy saving fixtures and appliances, and fine workmanship exemplify the latest in custom green building.
  
  
• Charter Building & Development Corp. Charter Building’s 3,349-square-foot home has a Home Energy Rating System (HERS) score of 90.3, 2x6 exterior walls framed on 24-inch o.c., R-38 blown-in attic insulation, R-23 blown-in-blanket insulation in the exterior walls, a Reem 90% AFUE furnace, Reem 12-SEER DX cooling and an Aircycler thermostat. The home was tested in November with whole house leakage of 1087 cfm at 50 Pascal negative pressure, 45% below the target of 2005 cfm, and total duct leakage on the return side of 26 cfm and zero leakage on the supply side at 25 Pascal.
  
  
• Durano Custom Homes. Indoor air quality features, solid waste reduction and resource and water conservation highlight this tour home with a HERS 91.8 rating. Low VOC paints, stains and finishes promote indoor air quality. Low-flow plumbing fixtures, including dual-flush toilets and the elimination of water-reliant evaporative coolers, contribute to water conservation. Air transfer grills between bedrooms and main living areas ensure even temperatures and balanced interstitial air pressure throughout the home.
  
  
• Cromlech LLC. Combining the feel of the Southwest with contemporary style, this 4,000-square-foot custom home is a Bronze level green house, according to the NAHB Model Green Home Building Guidelines, with particular emphasis on indoor air quality and energy efficiency. House orientation, a tight building envelope and a duct system designed and constructed within the building envelope help eliminate energy loss. This custom home demonstrates how easy it is to incorporate sustainability without sacrificing design or style.
  
  
• The Strosnider Company. This home is designed to maximize living space with elevated ceilings and abundant natural light throughout. All heating and cooling systems have undergone rigorous design specifications for the floor plan and random field testing by an independent contractor to ensure optimum performance for the consumer. Engineered lumber, blown-in insulation throughout, low ‘E’ windows, Solatube skylights, foam-seal air filtration and Energy Star digital auto-programmable thermostats combine for  improved air quality along with an average 30% reduction in utility costs, and a significant reduction in water use.

Advance registration for the conference is no longer available. Attendees can register onsite beginning at 7:00 a.m. Monday, March 13, at the Hyatt Regency in Albuquerque. Call the hotel at 505-842-1234 for accommodations.

For more information about the tour, e-mail Kaycee Coffman at the Home Builders Association of Central New Mexico, or call her at 505-344-3294 x113.

Funds Help Support Builder Battles on Significant Issues

Home builders associations across the country fighting industry battles with national implications received support from NAHB’s State & Local Issues Fund during the International Builders’ Show in Orlando, Fla. last month.

Financial assistance was provided on the following issues:

• Visitability. The Builders Association of Metropolitan Pittsburgh was awarded funding to help enact model legislation that would permit all local governments in Pennsylvania to offer tax credits for homes that have been built or renovated with “visitable” design features.
  
  In October 2002, the Pittsburgh City Council began deliberating a proposed ordinance that would have effectively mandated that all new residential construction and significantly renovated homes be designed with “visitable” features.  With the help of the mayor and the city redevelopment agency, the builders association was able to convince a majority of the city council to appoint a visitability task force.

The task force recommended an abatement of $2,500 in property taxes for home owners who purchase new or renovated homes with visitable design. In the fall of 2004, the city’s solicitor issued an opinion that the city did not have the statutory authority to offer the tax abatement. Legislation introduced in 2005 that would grant the tax credit authority exclusively to the City of Pittsburgh has stalled because it pertains only to Pittsburgh.

Energy Code. In 1999, Michigan enacted the Michigan Uniform Energy Code (MUEC), which included NAHB’s standard for determining cost-effectiveness, making it the nation’s only truly cost-effective residential energy code. The MUEC was included in the Single State Construction Code Act, creating a single statewide construction code in Michigan. The act prohibited local amendments to the code and required that any revisions to the MUEC be tested against NAHB’s cost-effectiveness definition before those revisions could be adopted.

In 2004, the state discarded this consensus code and replaced the MUEC in its entirety with the International Residential Code (IRC). The Michigan Association of Home Builders (MAHB) sued the state, arguing that it lacked the authority to amend the MUEC by adopting the IRC provisions. An injunction was subsequently issued barring the state from enforcing the IRC provisions pending further proceedings in the lawsuit. A trial is set to begin this year.

The Michigan association received funding to educate the public about the importance of the MUEC and is designing a campaign that can serve as a model for other states tackling energy code issues.

• Zoning. The City of Dallas recently passed an ordinance allowing residents, through a petition, to initiate the creation of an “overlay zoning district” aimed at controlling the size and scale of new homes built in older, mature neighborhoods. The new district, with a minimum size originally set at just a few acres, would govern the size and scale of new homes, with provisions addressing building and lot issues, including the number of stories, height and garage placement.
  
  The Home Builders Association of Greater Dallas received funding to perform a comprehensive market analysis of the direct market and tax impacts on the housing industry before, during and after a district is created. The results of the study could be of use to planning departments across the country where such ordinances are being considered.
  
  
• Endangered Species. The northern pine snake is not a federally-listed threatened or endangered species and is common in much of its range in southeastern New Jersey. It is, however, listed as a threatened species in New Jersey. With the state acknowledging that the snake’s population is secure nationally and abundant locally, the New Jersey Builders Association has argued that there is a lack of sound science to support the state listing.
  
  The association was awarded a grant to help delist the northern pine snake as a threatened species in New Jersey. The grant will go towards securing and compiling data about the snake, mapping snake sightings and reviewing and analyzing the data.
  
  
• Data Quality. In 2000, the U.S. Congress approved the Data Quality Act, which directs the Office of Management and Budget to issue government-wide guidelines that provide policy and procedural guidance to federal agencies for ensuring and maximizing the quality, objectivity, utility and integrity of information disseminated by those agencies.
  
  The HBA of Bucks and Montgomery Counties and the HBA of Chester and Delaware Counties in Pennsylvania were provided funds to spearhead a legislative and public relations effort to reform the state’s rules and regulations governing state agencies’ use of scientific reports and studies. These HBAs would like to replicate the federal Data Quality Act at the state level and develop model legislation that other associations can use in their states.
  
  

The deadline for State & Local Issues Fund applications that will be reviewed at NAHB’s upcoming spring board meeting is April 6.

To learn more about projects that have been supported by the fund, visit the Issues Fund Projects section on NAHB’s Web site.

For more information on the State & Local Issues Fund, e-mail Gerry Keegan at NAHB, or call him at 800-368-5242 x8326.

State Laws Proposed to Limit ‘One-Stop’ Home Buying

Arguing that additional safeguards are needed to protect consumers against deceptive business practices, proponents of affiliated business legislation have introduced bills in Illinois and Colorado that could interfere with the ability of builders to provide their home buyers with readier and less expensive access to mortgage financing.

Two bills on this issue have appeared so far in this year’s state legislative sessions:

• llinois House Bill 4731 would make it illegal to condition or refuse the sale of residential or commercial property based on a purchaser’s choice of mortgage, title, appraisal or insurance provider. It would also make it illegal to increase the cost of the property based on a purchaser’s choice of these providers. In addition, the bill would prohibit a person or entity selling or transferring real property from requiring a purchaser to use a specific provider as a condition to receiving an incentive, promotion or special offer. This bill has not moved forward since it was referred to the House Rules Committee.
  
  
• Colorado House Bill 1141, which recently passed the House Business Affairs and Labor Committee, would establish a new state regulatory structure for affiliated businesses in the state. The measure represents a compromise on legislation that would have mandated title agencies to maintain at least 40% of their business with unaffiliated sources.

Builders have pointed out that there are already laws in place that accommodate healthy competition while providing safeguards for consumers.

“The practice of offering incentives is expressly allowed and regulated in the federal Real Estate Settlement Procedures Act (RESPA), which also provides that a builder cannot charge more for the home on the back end,” said Eric Menyuk, assistant general counsel for California-based Ryland Group, Inc.

Additionally, federal and state consumer protection laws protect buyers from the alleged harm cited by supporters of the Illinois and Colorado legislation.

Empirical data suggest that some home buyers prefer the “one-stop shopping” approach to home buying, and that one-stop shopping offers potential consumer benefits such as convenience and lower costs.

The most recent survey on the subject, performed in March of 2002 by Harris Interactive, found that 82% of the 2,052 recent and prospective home buyers who were polled said that they would “strongly” or “somewhat” strongly consider using a one-stop shopping service for their home purchase.

The study also found that more than 90% of home buyers who did not use one-stop shopping programs believed that if they had used one, they would have had a better overall home-purchase experience.

For more information on affiliated business legislation, e-mail Alex Strong at NAHB, or call him at 800-368-5242 x8279.

Steel Framers Focus on Training in Katrina Recovery

With a commitment of $1.1 million, 12 North American steel companies have joined together under a “Gulf Coast Steel Initiative” to help rebuild the U.S. Gulf Coast region in the aftermath of hurricanes Katrina and Rita.

Put together by the American Iron and Steel Institute, the initiative will mobilize its resources to support local communities and businesses in the rebuilding process, particularly in the areas of steel framing and roofing.

In conjunction with this effort, the Steel Framing Alliance will be conducting on-site training sessions along the Interstate 10 corridor in Louisiana and Mississippi. Training was identified by local builders and developers as their greatest immediate need in the rebuilding process. The alliance is a member of the National Council of the Housing Industry — The Supplier 100 of NAHB.

“Our training initiatives will be focused on supporting large and influential builders as they convert from traditional construction materials to steel framing, and will reach a broad spectrum of trades and professions, including building inspectors, insurance agents and brokers, framers and general contractors, and design professionals,” said Larry Williams, president of the Steel Framing Alliance.

The alliance provides training through