Nation's Building News Online: March 5, 2007Print All Articles Text Version |
||||||||||||||||||||||||||||||||
Procrastinating Home Buyers May Lose Price AdvantageMirroring what is occurring in many of the nation’s top housing markets, conditions in the Washington, D.C. metropolitan area, which includes Northern Virginia and the Maryland suburbs, show that the market correction is winding down during the first half of this year, according to Stephen Fuller, director of the Center for Regional Analysis at George Mason University. The first in a series of reports commissioned by the Northern Virginia Building Industry Association and the Maryland National Capital Building Association, the study — "Understanding the Local Housing Market" — suggests significant repercussions for prospective buyers who delay their purchases much longer in hopes that they will find even better deals in the local housing market. Excess units on the market are already beginning to dwindle, and prices are expected to stabilize by the middle of the year, the report concludes. The area’s “housing supply increased rapidly as investors dumped their units onto the market in an effort to capture the value gained in the preceding years,” the study says. Simultaneously, higher energy costs, interest rate fears and media speculation over the housing slowdown exacerbated the temporary softening in demand during the latter part of 2005. The process of “normalization” continued last year, and it accelerated when energy prices rose further during the second quarter. Housing Demand ‘Solidifying’ Housing demand in the Washington, D.C. metro area is now in the process of solidifying, according to the George Mason research, in response to several factors: interest rate stability, declining energy costs, rising consumer confidence and positive factors associated with the industry entering into the prime spring home buying season. “Annual price appreciation for 2006 is 1.8%, lower than the long-term average of 7% gain, but a sign of a return to a healthy long-run condition,” the report says. Similar to many of the prime growth areas in the country, builders in the Washington region have had a difficult time keeping up with demand. “The Washington area rarely produces enough new housing to accommodate the demand generated by new workers moving to the region to fill its new jobs,” the report says. “Job growth and housing prices have been shown to have a .95 correlation; that is, areas with above-average job growth have rising housing prices. “On average, over the past 10 years, new household demand in the region has exceeded new housing unit production by approximately 15,000 units. This excess demand has driven prices up and has also driven many workers to markets outside of the Washington metropolitan area (e.g., Winchester, Baltimore) who would have preferred to live closer to where they work. Rising gasoline prices and growing traffic congestion have refocused these commuters’ desires to relocate back to the Washington area, further increasing the local housing demand and underpinning housing prices.” The average price for an existing single-family detached home in the area declined 2.7% between December 2005 and December 2006, the study finds, and average condominium prices were 4.8% lower, with changes in price varying widely by specific locations, some of which have continued to experience price appreciation. Inventory Run-Up Slowing Down Looking over the past 15 years at the percentage of the supply of available units sold each month, the study shows just how overheated the local market became at the height of the recent boom and also suggests that home sales have been proceeding at a relatively normal rate even during the worst of the current slowdown. For the first seven years of the 1990s, which included a recession, about 10% of active listings were sold each month in the region. In 2003 and 2004, when price appreciation reached its most dramatic levels, between 40% and 50% of the active listings were being sold each month. Homes were selling so fast that listings were only at about 50% of their normal level. By December of 2005, the ratio of sales to listings dropped to 26% and it was down to 16% in December 2006. “The rapid run up in inventories has slowed dramatically in the Washington, D.C. metropolitan area,” the report says, “indicating a transition to a better balance between buyers and sellers.” Early last year, the total number of monthly listings was more than double the number of the same period a year earlier, but by December active listings were only 23% higher than the same month in 2005. “Eventually, the month-over-year change in the total number of listings will approach zero. This ratio indicates that the imbalance between supply and demand is being reduced and that the prospects for the area’s housing market are good,” according to the study. “A normal market is good for both buyers and sellers.” The Best of All Investment Options Looking out to 2010, Fuller expects to see a return to average annual housing price appreciation of 7% and annual supply shortfalls of approximately 15,000 units. The report concludes with a strong “buy-now” message for procrastinators: “The 7% average annual housing price growth trend for the Washington area is a good guide for judging the investment value of housing. An annual 7% compounded rate of price increase over 10 years doubles the initial rate; that is, a $250,000 investment will increase to $500,000 in 10 years and $1.0 million in 20 years. This has been the experience of the Washington housing market for the last three decades." Conference Puts Green Homes on Tour in St. Louis This MonthA tour of seven green homes in the St. Louis area will be a highlight of the ninth annual NAHB National Green Building Conference on March 25-27. Advance registration closes this Friday, March 9.
The homes in the March 25 tour, which will be led by members of the St. Louis HBA, are both new and remodeled and in various sages of construction. All have been rated or will be rated in accordance with the NAHB Model Green Home Building Guidelines.
On the day’s itinerary:
The conference is geared to a wide audience, ranging from the novice to the experienced green practitioner, said Belcher, who is also chair of the annual event and president of the Home Builders Association of St. Louis and Eastern Missouri, the conference host. The HBA launched one of the very first green building programs based on the NAHB Model Green Home Building Guidelines when they were introduced in January 2005. Monday morning's keynote speaker is William McDonough, the Charlottesville, Va. architect and originator of the "Cradle to Cradle" philosophy of sustainable design. He was named a "Hero of the Planet" by Time magazine for his vision of socially and economically intelligent architecture. Two educational programs will also debut at this year's conference: an advanced track for "Houses That Work" from the Energy and Environmental Building Association, a recognized leader in green education; and a green remodeling track, with seminars on deconstruction techniques and evaluating existing structures. A pre-conference "Green Building for Building Professionals” course now has a waiting list. This two-day course from the NAHB University of Housing provides designation credit toward the Certified Graduate Builder and Certified Graduate Remodelor™ programs and continuing education for additional certification programs. The conference’s largest exhibit hall yet with more than 70 vendors and service providers will be open Monday and Tuesday, March 26-27, with breakfast and lunch provided. In addition, a Saturday afternoon tour of the Anheuser-Busch Brewery will provide networking opportunities and a chance for attendees to get to know each other before the serious work of the conference begins, said Belcher. To download the conference brochure and register, click here. For more information, e-mail Calli Schmidt at NAHB, or call her at 800-368-5242 x8132. Apply for ‘Buy Now’ Advertising Assistance Grants From NAHBIf your local association is currently engaged in an ongoing advertising campaign in print, radio or television outlets, or if you are planning such a campaign, have your association apply for a “Buy Now” advertising assistance grant from NAHB. HBAs from around the country have already applied. To date, 21 local associations have applied for $581,000 in grants from the $1 million to be awarded during the first phase of the program. Another $2 million will be made available if the program is successful. NAHB launched the multi-million dollar grant program last month to assist local home builders associations in an effort to bolster home sales in markets hit hard by the current housing downturn and help offset the cost of local ad campaigns. The NAHB “buy now” ad assistance program will provide grants to qualifying HBAs in three different categories:
A total of $3 million was approved by the NAHB board. NAHB will evaluate the effectiveness of the program after the first $1 million in grants is put to work by local associations. If it is determined that the local ad campaigns have been successful, then the remaining $2 million will be made available in grants to qualifying HBAs. To learn more about the program, eligibility considerations and requirements, click here (www.nahb.org/buynowapplication), or call Niki Clark at 800-368-5242 x806l. Share Nation's Building News With Your Staff. It's Free.Make your business click. Subscribe your employees and trade partners to Nation's Building News — the free, online e-newspaper of NAHB. Each issue is filled with valuable news and information on every aspect of the home building industry — business and builders tips; the latest materials prices and mortgage interest rates; new technologies; cutting-edge design; state and federal regulations and how they affect the industy; and more. Information your entire company needs to stay ahead of your competitors. Forward this issue to your employees and trade partners and ask them to subscribe. Nation's Building News, it's free to them — invaluable to you. Don't delay, have your employees subscribe today. To subscribe, go to www.nahb.org/nbn. NAHB Kit Gives Builders Back-to-Basics Tips in Cooling Market With the current cooling of the nation’s housing market expected to persist into the middle of the year, NAHB has developed a comprehensive online toolkit geared to providing association members with information that will help them prosper in today’s changing business environment. To access the “Back to Basics” toolkit, you must be an NAHB member and have a login to www.nahb.org. To create a login, go to www.nahb.org/login or click on the log-in button on the main menu bar. For assistance, call the NAHB Member Service Center at 800-368-5242. Toll Brothers CFO Optimistic on Housing, EventuallyJoel Rassman, CFO of Toll Brothers, makes the case that the current slump in the housing market is different from previous downturns because it is due to an oversupply of housing rather than job losses, higher interest rates or a slowing economy. In November, he said that improving conditions in the Washington, D.C. market could indicate that the duration of the current downturn will come in close to the year-and-a-half that is typical of the industry’s cyclical slowdowns. Occurring about the same time as Hurricane Katrina, Washington was the first market to show slowness, mostly in Northern Virginia, and things could now be in the process of turning positive there. “You’ll see incentives slowly but surely disappear,” he said. “And when that happens, you’ll see some consumers coming back into the market thinking that maybe they missed the bottom and that they’d better get in before it’s too late. And it builds from there. There is even the potential for a significant shortage of housing, because in many markets it takes anywhere from two to five years to get approvals for development.” (www.bloggingstocks.com; www.cfo.com)
Housing Market to Heat Up? Sellers, Agents Hope Spring Sales Will Be SpectacularAfter more than a year of falling sales and sinking prices, the residential real estate market in Massachusetts is poised to enter its most crucial test in years. A strong spring market could put an end to the real estate downturn that has cast a long shadow across the state, from downtown Boston to the Berkshires, and some are seeing grounds for optimism. The number of homes and condos on the market as the spring season starts is up over last year, according to MLS Property Information Network. Condos for sale are up by about 500, to 13,787 and the number of houses for sale has risen by about 1,000 to more than 25,000. That’s a reflection of more optimistic home sellers trying the market, sometimes after having pulled those properties during the downturn. Also, the latest batch of market reports for the state showed the number of home and condo sales rising, although prices have continued to fall. Real estate brokers say they already see signs that the pace of deals is picking up. “We have had five or six bidding wars in the last few weeks,” said Michael Carucci, president of ERA Boston Real Estate Group. “I see buyers that have been on the sidelines getting very active lately. That is the clearest sign of a recovery.” (www.bostonherald.com)
Sudden Overload: When the Mortgage Adjusts Upward, Here’s How to CopeBy some estimates, $1 trillion worth of adjustable-rate mortgages will reset this year, creating “payment shock” for consumers who didn’t see it coming or expected to be in better financial shape by the time their payments increased. But before they do anything, there are a number of steps that consumers who are facing an increase should take, according to Jack Guttentag, professor of finance emeritus at the Wharton School at the University of Pennsylvania who created www.mtgprofessor.com, a Web site to educate consumers about mortgages. For starters, he advises home owners to dig out their loan documents and figure out when the adjustment will occur. Look for the name of the published index to which the rate adjusts, identify the margin listed in the loan documents and add the most current value of the index to the margin to get a ballpark estimate of the future rate. “By the time the lender sends a notice of the new rate, you should not be surprised if you’ve been tracking it,” Guttentag said. “You want to make your decisions based on what you know, and this is something you can know.” Then it’s time for a reality check. Take a look at how much you make and how much you spend, and adjust your budget accordingly. Freddie Mac suggests that borrowers trim their expenses, everything from gas to groceries, if the new rate stretches their budget, and they should consider refinancing the loan if it is possible, but only if they can land better terms, keeping in mind that it costs money to refinance. (www.washingtonpost.com)
Seeking Curbed-Cost Appeal, Builders Cut Homes’ Price and SizeNow that overheated markets such as Miami are cooling fast, Miami-based Related Group, the nation’s largest condo developer, has trotted out a rebranded “affordable housing division” to build condos for buyers priced out of the market. “You make less money, but the demand for this type of housing is so great that the volume you can do justifies the concession on the returns,” said Oscar Rodriguez, senior vice president of the division. “It used to be the bigger the better. That has changed,” said Morningstar housing analyst Eric Landry. Building smaller and cheaper “is on the table for all of (the builders),” he said. One example comes from KB Home, which lost $49.6 million in the past quarter as orders fell 38% from a year ago. Chief Executive Jeffrey Mezger told analysts in a Feb. 13 conference call that KB is “quickly retooling product on our new openings to go to smaller product.” That’s an about-face from recent years, when KB upped some home sizes 300 to 400 square feet to get more profit on same-sized lots. KB and other builders now get subcontractor price concessions too. “Over the last 24 months you were almost a heretic to talk about affordable housing,” said Bryan Finnie, managing director of North Miami developer Redevco. “Now the conversation is, ‘Oh, market opportunity.’” (www.investors.com)
Gulf Shores Give Up on Beach Mouse Housing PermitsAfter trying since 2004 to gain the ability to issue special permits for single-family home construction within the habitat of the endangered Alabama beach mouse, Gulf Shore officials have abandoned their efforts. The officials sought to cover the species’ entire range with an “incidental take permit” that would absolve landowners from legal liability should they accidentally harm the mouse or its habitat. It had been the intention of the city and the U.S. Fish and Wildlife Service to place one permit over the mouse’s entire range — dune and scrub habitat encompassed entirely by Gulf Shores’ planning jurisdiction — to expedite the permit process for the owners of about 500 undeveloped lots on the Fort Morgan peninsula. On an individual basis, the process can take two years. The city sent its application to the Service in January 2006 and when it was finally reviewed by federal regulators earlier this year, it was returned with a request for newer information and maps. Bill Pearson, the local field supervisor for the Service, said that his staff has been primarily occupied with suits from environmental groups alleging that the government wasn’t doing enough to protect the mouse. At the moment, Pearson said, five property owners have outstanding permit applications before Fish and Wildlife. Since the first of the lawsuits was filed in 2003, the Service has, in three batches, issued incidental take permits to about 100 landowners who want to build houses, he said. The most recent group of permits was issued earlier this year. (www.al.com)
FEMA Closes Louisiana Mobile Home Park Housing Katrina Victims Over Health and Safety ConcernsThe Federal Emergency Management Agency said that it has requested work permits to dismantle a trailer park in the Hammond, La. area that was providing shelter to dozens of families left homeless by Hurricane Katrina but was plagued by sewage leaks and power outages. FEMA abruptly closed down the mobile home park because of ongoing problems with raw sewage that pours onto the grass. FEMA said that electricity was cut off last week for the third time since Oct. 12. Manuel Broussard, an agency spokesman, said that the landowners hadn’t paid bills on time; while a co-owner of the site said FEMA hadn’t paid on time. The site, on the edge of town in loblolly pine country about 45 miles northwest of New Orleans, was one of the dozens of compounds the government rushed to establish for the tens of thousands of displaced hurricane victims. Its residents said they questioned the genuineness of the sudden concern for their health because the stink of the sewage has been a nuisance for about a year. (www.sunherald.com)
2008 Budget Process Likely to Be Drawn-OutIn the $2.9 trillion fiscal 2008 budget request he sent to the Congress last month, President Bush proposed increasing discretionary spending to $929.8 billion, $57 billion above the fiscal 2007 spending cap. As in previous Administration budgets, the lion’s share of this increase is targeted to “security” funding — defense, homeland security and international affairs — which is slated to grow by $53.5 billion, or 10.7%. The remaining domestic discretionary programs would receive a $3.5 billion or 1% increase under the White House plan. While the President’s budget recommends spending levels for the next fiscal year, it is not legally binding. Congressional appropriators will have the final say in program realignment and spending levels. The Administration requested $35.2 billion for the Department of Housing and Urban Development, up from last year’s $33.6 billion budget request, with much of the difference slated for a proposed increase for the Section 8 voucher program. After deep cuts were proposed and enacted in fiscal 2006, the Administration’s fiscal 2008 budget proposes a total of $16 billion for the Section 8 program in an attempt to restore some of that funding. Of the $16 billion, $14.4 billion would be directed to the Section 8 voucher renewals. The Administration is seeking to use $100 million of that amount as a set-aside to pay for unforeseen emergencies and for one-time payments to housing authorities that incurred high costs as a result of voucher holders leaving one jurisdiction and relocating in another. Project-based rental assistance would rise to $5.8 billion from $5.5 billion, up 5%. The budget would provide $150 million for tenant protection vouchers, which would only be provided for units under lease just prior to demolition or loss. Congress did not adopt this approach in fiscal 2006. Currently, demolished units that have been vacant for some time for various reasons are counted towards the tenant protection voucher total to ensure that the community does not suffer a net loss of affordable housing units. This change could have significant impact in areas affected by the hurricanes in 2005. If damaged public housing properties or other Section 8 assisted properties need to be demolished rather than rehabilitated, residents who had to relocate, and therefore, did not renew their lease, may not be eligible for tenant protection vouchers. The Home Investment Partnership Program, the largest federal block grant program dedicated to creating affordable housing for low-income families, would receive $1.91 billion in fiscal 2008. The Administration proposes $50 million for the American Dream Downpayment program to be set-aside within HOME. NAHB supports this program, but would prefer to see it funded elsewhere. The Administration proposed another consolidation of community and economic development programs in its budget, but retains the Community Development Block Grant (CDBG) program at HUD. The consolidation refers to the elimination of the Brownfields Economic Development Initiative, the Rural Housing and Economic Development program and the Section 108 Loan Guarantee program. NAHB opposes their elimination, which would be transferred to a newly “consolidated” grant program under the CDBG. The CDBG program would be funded at $3 billion, a decrease of $735 million from the previous year’s budget plan. The grants provide affordable housing and supportive services to families with low to moderate incomes. In other areas of interest to housing, the President’s budget plan:
Given the austerity of the fiscal 2008 budget presented to Congress, the differing priorities of the new governing majorities in the House and Senate, the scores of key programs that the Administration has targeted to be cut or eliminated and the number of lawmakers who have already voiced concerns over the President’s budget, the ensuing appropriations process is likely to be drawn-out and contentious. For more information, e-mail Jenna Morgan Hamilton at NAHB, or call her at 800-368-5242 x8407. New Home Sales Slow in January, But Inventories DropFollowing gains in November and December, new single-family home sales dropped 16.6% in January to a seasonally adjusted annual rate of 937,000 units, 20.1% below the pace of a year earlier, the Commerce Department reported last week. Despite January’s decline, which followed an upward revision for December, new single-family sales remained in the narrow range that has persisted since the middle of last year. "The falloff in new-home sales in January largely reflected a return to more normal weather conditions, following a weather-related increase in sales late last year," said NAHB Chief Economist David Seiders. "NAHB's monthly surveys actually have been showing modest improvements in builders' confidence regarding home buyer demand since last September." "The new-home sales statistics continue to show a lot of month-to-month volatility, but the pattern has been fundamentally flat since the middle of last year," Seiders said. "The market is being supported by solid gains in employment and personal income, as well as by a historically low interest rate structure, and we expect those supports to be well maintained as we move forward. Furthermore, builders continue to use both price and non-price incentives to bolster sales and reduce inventory," he added. The inventory of new homes for sale edged down in January to 536,000 units, the lowest since February 2006 and equivalent to a 6.8 months' supply at the January sales pace. Nearly 33% of the inventory was comprised of completed homes for sale; 51% consisted of homes still under construction and units with permits that were not yet started accounted for 16% of the inventory. Completed homes were on the market for a median of 4.8 months in January. Homes sales declined in January in all four regions of the country. Sales were down 37.4% in the West, 18.7% in the Northeast, 9.7% in the South and 8.1% in the Midwest. The median price of the new homes sold in January was $239,800, slightly higher than the previous month but 2.1% below a year earlier. Is the Housing Correction Over? Attend Construction Forecast Conference Will housing demand outweigh affordability hurdles, inventory overhangs and the retreat of investors? Where are home prices headed? Get the answer to these and other questions at the Construction Forecast Conference — Spring 2007 on April 26 in Washington, D.C. Panels of nationally recognized experts will discuss economic trends, government policies, developments in the housing industry and the results from NAHB's recent surveys at the day-long conference. For more information and to register, click here. The conference is also available via Webcast. For Webcast information, visit www.nahb.org/cfcwebcast. Want to Know the Housing Starts Through 2015? Find out in HousingEconomics.com’s Long-Term Forecast. HousingEconomics.com includes downloadable Excel tables featuring the housing starts forecast, GDP, demographics and more. To learn more, visit www.housingeconomics.com. NAHB Kit Gives Builders Back-to-Basics Tips in Cooling Market With the current cooling of the nation’s housing market expected to persist into the middle of the year, NAHB has developed a comprehensive online toolkit geared to providing association members with information that will help them prosper in today’s changing business environment. To access the “Back to Basics” toolkit, you must be an NAHB member and have a login to www.nahb.org. To create a login, go to www.nahb.org/login or click on the log-in button on the main menu bar. For assistance, call the NAHB Member Service Center at 800-368-5242. Home Price Gains Continued to Moderate in 2006 Fourth QuarterContinuing a trend started earlier in the year, the rate of home price appreciation continued to decelerate during the fourth quarter of 2006, according to the House Price Index released by the Office of Federal Housing Enterprise Oversight (OFHEO) on March 1. Prices for the quarter were on average 5.9% higher than they were during the same quarter of 2005. Fourth-quarter home prices last year, which include refinancings, were up a seasonally adjusted 1.1% from the third quarter. The 2005 third-quarter price increase was revised upward to 1%. Price appreciation in 2006 was substantially smaller than the tremendous price gains of recent years, which ranged from 7.4% in 2002 to 13.2% in 2005. “These data show that, on the whole, prices are still rising, albeit at a much slower pace,” said OFHEO Director James B. Lockhart. “The continuing strength in the economy and decreasing interest rates for borrowers prevented a harder landing in housing markets during the second half of last year,” added Patrick Lawler, OFHEO’s chief economist. OFHEO’s purchase-only index, which excludes refinancings, indicated slower price appreciation for homes in the U.S., with a 4.1% gain for 2006 and a 0.5% increase from the third to the fourth quarters. The states with the greatest rates of appreciation on the Consumer Price Index from the fourth quarter of 2005 to the fourth quarter of last year were: Utah (17.6%), Wyoming (14.3%), Idaho (14.0%), Washington (13.7%) and Oregon (13.5%). The lowest rates of appreciation for the same period were: Michigan (-0.4%), Massachusetts (0.5%), Ohio (1.0%), Indiana (2.3%) and Minnesota (2.5%). Is the Housing Correction Over? Attend Construction Forecast Conference Will housing demand outweigh affordability hurdles, inventory overhangs and the retreat of investors? Where are home prices headed? Get the answer to these and other questions at the Construction Forecast Conference — Spring 2007 on April 26 in Washington, D.C. Panels of nationally recognized experts will discuss economic trends, government policies, developments in the housing industry and the results from NAHB's recent surveys at the day-long conference. For more information and to register, click here. The conference is also available via Webcast. For Webcast information, visit www.nahb.org/cfcwebcast. Want to Know the Housing Starts Through 2015? Find out in HousingEconomics.com’s Long-Term Forecast. HousingEconomics.com includes downloadable Excel tables featuring the housing starts forecast, GDP, demographics and more. To learn more, visit www.housingeconomics.com. NAHB Kit Gives Builders Back-to-Basics Tips in Cooling Market With the current cooling of the nation’s housing market expected to persist into the middle of the year, NAHB has developed a comprehensive online toolkit geared to providing association members with information that will help them prosper in today’s changing business environment. To access the “Back to Basics” toolkit, you must be an NAHB member and have a login to www.nahb.org. To create a login, go to www.nahb.org/login or click on the log-in button on the main menu bar. For assistance, call the NAHB Member Service Center at 800-368-5242. Freddie Mac Toughens Subprime Lending StandardsFreddie Mac announced last week that it will cease buying subprime mortgages that have a high likelihood of excessive "payment shock" and possible foreclosure. With the goal of protecting borrowers from payment shock, Freddie Mac announced that it would only buy subprime adjustable-rate mortgages (ARMs) — and mortgage-related securities backed by these subprime loans — that qualify borrowers at the fully-indexed and fully amortizing rate. The company also said that it would limit the use of low-documentation underwriting of these types of mortgages to ensure that future borrowers have the income they need to afford their homes. In addition, Freddie Mac said that it would strongly recommend that mortgage lenders collect escrow accounts for borrowers’ taxes and insurance payments. To avoid any market disruption, the new investment requirements will take effect with mortgages originated on or after Sept. 1, 2007. To help lenders better serve borrowers with impaired credit, Freddie Mac said that it is also developing fixed-rate and hybrid ARM products that will provide lenders with more choices to offer subprime borrowers. For example, its new hybrid ARMs will limit payment shock by offering reduced adjustable rate margins; longer fixed-rate terms; and longer reset periods. “Freddie Mac has long played a leading role in combating predatory lending and putting families into homes they can afford and keep,” said Richard Syron, the company’s chairman and CEO. “The steps we are taking today will provide more protection to consumers and enhance the level of underwriting standards in the market.” Is the Housing Correction Over? Attend Construction Forecast Conference Will housing demand outweigh affordability hurdles, inventory overhangs and the retreat of investors? Where are home prices headed? Get the answer to these and other questions at the Construction Forecast Conference — Spring 2007 on April 26 in Washington, D.C. Panels of nationally recognized experts will discuss economic trends, government policies, developments in the housing industry and the results from NAHB's recent surveys at the day-long conference. For more information and to register, click here. The conference is also available via Webcast. For Webcast information, visit www.nahb.org/cfcwebcast. Want to Know the Housing Starts Through 2015? Find out in HousingEconomics.com’s Long-Term Forecast. HousingEconomics.com includes downloadable Excel tables featuring the housing starts forecast, GDP, demographics and more. To learn more, visit www.housingeconomics.com. NAHB Kit Gives Builders Back-to-Basics Tips in Cooling Market With the current cooling of the nation’s housing market expected to persist into the middle of the year, NAHB has developed a comprehensive online toolkit geared to providing association members with information that will help them prosper in today’s changing business environment. To access the “Back to Basics” toolkit, you must be an NAHB member and have a login to www.nahb.org. To create a login, go to www.nahb.org/login or click on the log-in button on the main menu bar. For assistance, call the NAHB Member Service Center at 800-368-5242. Eye on the Economy: Inventory Overhangs Weigh on PricesThe Commerce Department now says that annualized growth of real gross domestic product (GDP) was only 2.2% in the final quarter of last year, down from the “advance” estimate of 3.5%. This means that the economy turned in a subpar performance during the final three quarters of last year, largely due to a dramatic contraction in the housing production component of GDP (residential fixed investment) and weakness in closely associated components of the economy. The domestic auto sector also was fundamentally weak during 2006. The weakness in fourth-quarter GDP growth also reflected a major decline in nonfarm business inventory investment — a development that actually bodes well for economic growth further down the line. NAHB’s forecast shows another subpar rate of GDP growth in the first quarter of 2007, followed by a strengthening process over the balance of this year and into 2008. A near-term end to the pronounced contraction in residential fixed investment is central to this forecast pattern. Recent Volatility in Financial Markets Conveys Some Benefits to Housing Markets Global and national equity markets have been extremely volatile in recent days, prompted by sharp losses in the Shanghai market, rising concerns about the future of the U.S. economy and statements by the former Federal Reserve Chairman Alan Greenspan about the possibility of economic recession in this country later this year. Indeed, the losses in the U.S. stock market on Feb. 27 were the largest since the setback that followed the terrorist attacks on 9/11. The abrupt sell-off in equity markets transferred huge amounts of funds to fixed-income markets, particularly to the safe haven of the Treasury securities market. The buying pressure drove bond prices upward and drove interest rates downward, particularly on longer-maturity securities. These rate declines were promptly reflected in the structure of mortgage interest rates — at least in the dominant “prime” components of the home mortgage market. Subprime Mortgage Markets Are in Disarray and Mortgage Lending Standards Are Firming Up Bad news has been coming out of the subprime mortgage market since the beginning of the year, and on Feb. 27 Freddie Mac announced that it would no longer buy mortgage securities backed by subprime mortgages with features that provoke serious “payment shock.” This announcement apparently contributed to the turmoil in financial markets later that day. There is no doubt that lending standards in the subprime mortgage market deteriorated badly during the 2004-2005 housing boom, and even into 2006, and it’s clear that neither the investment community nor the financial rating agencies fully understood the risks associated with subprime mortgage securities — particularly the subordinated tranches. While tightening of lending standards in the subprime market inevitably will take some toll on home buying in 2007, the adjustments now underway are essential to the health of the subprime market down the line. The biggest issue for the housing outlook relates to lending standards in the “Alt-A” and the quantitatively dominant “prime” components of the home mortgage market. The Federal Reserve’s January Senior Loan Officer Opinion Survey — the most recent survey — showed that about 15% of domestic commercial banks (net) had tightened credit standards on residential mortgage loans over the prior three months, the highest fraction since the early 1990s. This tightening, of course, followed three years of cumulative net easing and hardly means that mortgage lending standards at banks have become overly tight! On Feb. 28, Fed Chairman Ben Bernanke told Congress that the current problems in the subprime mortgage market are not likely to spill over into the prime market to a serious degree, suggesting that the projected stabilization of the housing market is not likely to be derailed by an abrupt firming of mortgage lending standards. We certainly agree, although there definitely are risks on this front. The Demand Side of the Single-Family Housing Market Apparently Has Stabilized Although signals are mixed to some degree, the weight of evidence shows that the demand for single-family homes has been fundamentally stable since mid-2006 and some indicators suggest that modest improvements may now be underway. Sales of existing homes ― based on closings ― actually rose by 3.5% in January, although this increase may very well have reflected unusually warm weather conditions late last year, when the contracts were signed. New-home sales (based on contracts signed) fell sharply in January, when weather was essentially normal. But this decline followed increases in November and December that may very well have been weather related. The new-home sales series also is subject to extreme month-to-month volatility associated with Commerce Department sampling procedures. The Mortgage Bankers Association’s weekly series on applications for mortgages to buy homes has been all over the place recently, even on a four-week moving average basis, but this series definitely is off the lows of last fall. Furthermore, NAHB’s single-family Housing Market Index has risen systematically from the low point last September to 40 in February, showing that builders’ assessments of the demand side of the market have been on the mend following the sharp contraction from the highs of mid-2005. Inventory Overhangs and Buyers’ Market Conditions Weigh on Home Prices Although sales volume has stabilized, unsold inventories of new and existing homes still are quite high and affordability measures still are quite low. Under these conditions, house prices have been under downward pressure and sellers have been offering a variety of non-price incentives to support prices and sales volume. It’s perfectly clear that house prices have decelerated dramatically from the rapid rates seen during the earlier boom period. Furthermore, prices have been falling in many previously overheated housing markets and national average home prices now are slipping into the negative range according to both sequential and year-over-year comparisons. If non-price sales incentives were incorporated into the analysis, “true” price declines would be much more dramatic than shown by the standard measures. The best house price measures are repeat-sales calculations that follow the same houses through time. On this basis, the relatively new S&P/Case-Shiller® Home Price Indices are the deepest and most comprehensive measures — currently providing monthly data for 20 major metro areas as well as a quarterly national home price index. Data for the final quarter of 2006 show broad-based annualized declines on a sequential basis (-2.9% nationally) and a mixture of positives and negatives on a year-over-year basis (+0.4% nationally). More negatives are inevitable as 2007 rolls along, helping to restore better supply-demand balance in the markets. NAHB Chief Economist David Seiders analyzes the economy from the point of view of the housing market every other week in the free e-newsletter, “Eye on the Economy.” The preceding is a reissue of his Feb. 28 edition. To subscribe to “Eye on the Economy,” click here. Is the Housing Correction Over? Attend Construction Forecast Conference Will housing demand outweigh affordability hurdles, inventory overhangs and the retreat of investors? Where are home prices headed? Get the answer to these and other questions at the Construction Forecast Conference — Spring 2007 on April 26 in Washington, D.C. Panels of nationally recognized experts will discuss economic trends, government policies, developments in the housing industry and the results from NAHB's recent surveys at the day-long conference. For more information and to register, click here. The conference is also available via Webcast. For Webcast information, visit www.nahb.org/cfcwebcast. Want to Know the Housing Starts Through 2015? Find out in HousingEconomics.com’s Long-Term Forecast. HousingEconomics.com includes downloadable Excel tables featuring the housing starts forecast, GDP, demographics and more. To learn more, visit www.housingeconomics.com. NAHB Kit Gives Builders Back-to-Basics Tips in Cooling Market With the current cooling of the nation’s housing market expected to persist into the middle of the year, NAHB has developed a comprehensive online toolkit geared to providing association members with information that will help them prosper in today’s changing business environment. To access the “Back to Basics” toolkit, you must be an NAHB member and have a login to www.nahb.org. To create a login, go to www.nahb.org/login or click on the log-in button on the main menu bar. For assistance, call the NAHB Member Service Center at 800-368-5242. Useful Links to Monitor Economic and Housing TrendsThe following are links to useful information from government agencies and NAHB that will enable you to monitor the housing market. To access the latest information available, simply click the links.
Is the Housing Correction Over? Attend Construction Forecast Conference Will housing demand outweigh affordability hurdles, inventory overhangs and the retreat of investors? Where are home prices headed? Get the answer to these and other questions at the Construction Forecast Conference — Spring 2007 on April 26 in Washington, D.C. Panels of nationally recognized experts will discuss economic trends, government policies, developments in the housing industry and the results from NAHB's recent surveys at the day-long conference. For more information and to register, click here. The conference is also available via Webcast. For Webcast information, visit www.nahb.org/cfcwebcast. Want to Know the Housing Starts Through 2015? Find out in HousingEconomics.com’s Long-Term Forecast. HousingEconomics.com includes downloadable Excel tables featuring the housing starts forecast, GDP, demographics and more. To learn more, visit www.housingeconomics.com. NAHB Kit Gives Builders Back-to-Basics Tips in Cooling Market With the current cooling of the nation’s housing market expected to persist into the middle of the year, NAHB has developed a comprehensive online toolkit geared to providing association members with information that will help them prosper in today’s changing business environment. To access the “Back to Basics” toolkit, you must be an NAHB member and have a login to www.nahb.org. To create a login, go to www.nahb.org/login or click on the log-in button on the main menu bar. For assistance, call the NAHB Member Service Center at 800-368-5242. Builders’ Tip: Easing Your Load With a Simple Roof-Rack Roller
I use a lot of ladders and planks on my carpentry rounds, but getting them on and off the roof of my van by myself was a hassle. So I developed a very simple solution using PVC pipe to ease my load. To help get ladders and planks on and off the roof of my van, I created a simple roller by slipping a 30-inch long section of 2-inch diameter PVC pipe over the rack’s rear crossbar. That's it. Now, all I have to do is put one end of the load on the PVC pipe and the load slides easily onto the roof rack. Plus, with the roller on only the rear rack, I can leave the width adjuster on the front rack. — George Hennigan, Baldwin, N.Y. Tips & Techniques provided by Fine Homebuilding.
To request a reprint of this feature, e-mail Christina Glennon 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. Free NAHB Kit Gives Builders Back-to-Basics Tips in Cooling Market With the current cooling of the nation’s housing market expected to persist into the middle of the year, NAHB has developed a comprehensive online toolkit geared to providing association members with information that will help them prosper in today’s changing business environment. To access the “Back to Basics” toolkit, you must be an NAHB member and have a login to www.nahb.org. To create a login, go to www.nahb.org/login or click on the log-in button on the main menu bar on the NAHB Web site. For assistance, call the NAHB Member Service Center at 800-368-5242. Boost Your Business With Free Biztools Business Guides
Available to members only and downloadable from the NAHB Web site, www.nahb.org, the guides offer members tips on technology, business planning, ensuring the financial health of their businesses and more. Produced by NAHB’s Business Management and Information Technology Committee and found in the NAHB Business Management Resources section of the Web site, the 2007 Biztools builder business guides include:
The guides are downloadable in a PDF format only. Free 2006 Builder Business Guides Also Available The 2006 Biztools builder business guides are also available free to NAHB members and can be downloaded from the NAHB Web site. The three 2006 guides provide business tips on technology, human resources and measuring profits. To view or download the 2006 guides, click here. NAHB Has More Than 300 Resources to Help You Run Your Business More Profitably Go to NAHB's Business Management Tools Web pages (available to members only) for instant access to more than 300 timesaving, moneymaking and cost-cutting business resources to help you run your business more profitably. Get guidance on accounting and financial management, business strategy, computers and information technology, customer service, human resources and more. Resources are added weekly, so bookmark www.nahb.org/biztools to go directly to these vital business management resources. Local and state home builders associations can link directly to www.nahb.org/biztools from their Web site and give their members instant access to these resources. It will make your HBA's Web site the place to go for the information and guidance that members need to succeed. Implement Procedures and Standards to Increase Quality Standardize each step of the construction process by implementing the tools and procedures in “The Scopes of Work Program: Procedures and Standards to Increase Quality,” available through BuilderBooks.com. Field tested by builders concerned with quality issues, this program has proven to significantly reduce warranty work. "The Scopes of Work Program" will help you:
To view or purchase this publication online, click here, or call 800- 223-2665 to order. NAHB Kit Gives Builders Back-to-Basics Tips in Cooling Market With the current cooling of the nation’s housing market expected to persist into the middle of the year, NAHB has developed a comprehensive online toolkit geared to providing association members with information that will help them prosper in today’s changing business environment. With the current cooling of the nation’s housing market expected to persist into the middle of next year, NAHB has developed a comprehensive geared to providing association members with information that will help them prosper in today’s changing business environment. To access the “Back to Basics” toolkit, you must be an NAHB member and have a login to www.nahb.org. To create a login, go to www.nahb.org/login or click on the log-in button on the main menu bar. For assistance, call the NAHB Member Service Center at 800-368-5242. Warning: IRS Stepping Up Scrutiny of Passive Real Estate LossesThe Internal Revenue Service (IRS) is stepping up scrutiny of real estate professionals and passive investors under the tax code and warning taxpayers to closely follow the reporting requirements for “passive activity losses.” The passive activity loss rules were enacted in 1986 to prevent individuals from using tax shelters to reduce tax liability on their tax return by offsetting passive activity losses and passive activity tax credits against other taxable income. But the tax rules went beyond that and covered real estate investors and silent partners in businesses. Now, the IRS is warning filers to “avoid netting or combining income against losses or expenses not reported on Form 8582, Passive Activity Loss Limitations” and to “refer to the instructions for Form 8582 on how to properly report passive activity losses.” However, some taxpayers have said that, when filing what they believe is the proper documentation, they are being ensnared in seemingly endless IRS requests for even more documentation. The IRS claims that wrongly reported passive activity losses account for a large chunk of the tax gap — the difference between what is owed the government under IRS rules and what is actually paid. While the tax gap is an important tax policy issue, NAHB is concerned that regulatory or legislative proposals and actions to close the gap may impose significant burdens on businesses, and in particular, small businesses. NAHB believes it is critical for the Department of the Treasury to comprehensively study the tax gap more before adopting rules that have the potential to harm small business. For more information on reporting passive activity losses, download the following IRS documents:
For updates on basic tax information of interest to builders from NAHB, visit www.nahb.org/taxes. New Laws Could Require Checking Worker ID OnlineHome builders and other employers who fail to comply with a wave of legislation enacted last year to restrict the hiring of illegal immigrants can face fines, have their business with public entities restricted, lose their license and even go to jail. In 2006, some 120 new municipal and county ordinances and 84 statutes in 32 states were passed to prevent illegal immigrants from obtaining jobs or receiving benefits and services. Many of these new laws require employers to verify the identity and status of their workers. The federal government's Basic Pilot Program is often the required method of state and local verification. Some of these laws provide a "safe harbor" for those who are found to have hired an illegal alien, but who was nonetheless "verified" by the Basic Pilot Program. These new state and local laws are in addition to the federal Immigration Reform and Control Act (IRCA), which has been in effect since 1986. IRCA requires employers to verify the identity and work authorization of new employees by means of documents presented in the Form I-9 verification process. However, verification under federal law does not require employers to use the Basic Pilot Program. Several lawsuits have been filed recently challenging these new laws, arguing that the federal legislation preempts the right of states and localities to enact their own immigration laws, and that state and local governments cannot legally require participation in a voluntary federal program. Final rulings on these suits will take years, likely requiring decisions from the nation’s top appellate courts, and in the meantime, employers will have to deal with these new legal requirements. Depending on the jurisdiction and circumstances, this could make using the federal Basic Pilot Program to verify employees mandatory. The Basic Pilot Program was initiated in 1997 as an experimental approach to verify identity and employment eligibility on the Internet through the Social Security Administration and other federal databases. The program originally had limited availability, but employers in all 50 states have had access to it since 2004. To use the program, employers must have their own computer equipped with a Windows operating system and a Web browser, such as Internet Explorer 5.5 or higher, and must first register online at: visdhs.com/employerregistration (click here). After signing a memorandum of understanding with the U.S. Citizenship and Immigration Services and the Social Security Administration, the employer will receive a user ID and temporary password by e-mail. Completion of a Web-based tutorial program is required prior to initial access. To use the Basic Pilot Program, the employer enters the form I-9 verification data, which is then checked for accuracy against the information in the federal databases. Based on the information submitted, the employer may be notified that the employee is verified or receive notice of a "tentative non-confirmation," which indicates that the submitted information does not match the federal data. An employer who receives a "tentative non-confirmation" notice is required to inform the employee, but cannot terminate the employee based on this tentative finding. The employee will have the opportunity to correct the misinformation, which could be as simple as a transposed Social Security number. Employees will lose their job if they don’t contest the tentative finding or the employer receives a final non-confirmation notice. The Basic Pilot Program cannot be used to pre-screen employees before they are hired, and if the program is used, it must be performed for all new hires, not just those who appear to be foreign. Otherwise, the employer could face fines or civil judgments for discrimination. Several criticisms have been raised about the Basic Pilot Program:
For more information, e-mail David Crump at NAHB, or call him at 800-368-5242 x8491. Mold-Resistant Gypsum Tops Housing Technologies ListThe Partnership for Advancing Technology in Housing (PATH) Breakfast of Innovators at NAHB’s International Builders’ Show in Orlando, Fla. last month provided a foretaste of the new technologies that are in the process of transforming the nation’s housing through faster construction, greater safety and efficiencies of every stripe. The new technologies unveiled this year also were seen responding to ideas for harnessing the elements at a time of rising energy costs and protecting structures from the levels of devastation that have been seen in the hurricanes and tornadoes of recent years. “The updated 2007 Top 10 Technologies hold the most promise for improving the quality of our homes,” said Darlene F. Williams, assistant secretary of the Department of Housing and Urban Development’s Office of Policy Development and Research. “These technologies are ready now and they can perform in the houses that we build tomorrow.” The Top 10 Technologies list was first introduced in 2004 to alert builders and home owners to valuable innovations ready for adoption in U.S. housing. The Top 10 Technologies are:
Inaugural CAASH Designees Inducted at Builders' Show
The CAASH designation is an NAHB education program that gives housing professionals serving the rapidly burgeoning 50+ market the essential knowledge, tools and skills that will help them succeed — from conducting initial research to design considerations and features to closing the sale and servicing the customer. The inaugural class was inducted as part of a grandfathering program that waives the educational requirements for candidates who meet specific requirements. The inaugural CAASH designees include:
Housing professionals in the 50+ market can earn CAASH designation credits at the upcoming Building for Boomers & Beyond: 50+ Housing Symposium 2007 on May 30-June 1 in Denver. Post-conference courses will be held June 2-3.
Mark May 30-June 1, 2007 on your calendars to attend the 50+ Housing Symposium. The seniors housing symposium is the premier educational and networking event for industry professionals who serve the burgeoning 50+ market. Visit www.nahb.org/build4boomers for more information. “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.
Register Early for 50+ Housing Symposium and SaveRegister now for Building for Boomers & Beyond: 50+ Housing Symposium 2007, the premiere networking and education event for professionals serving the growing 50+ housing market, and save. The symposium will be held at the Hyatt Regency Denver at the Colorado Convention Center from May 30-June 1. The symposium will feature several breakout sessions on factors that are driving the 50+ market, as well as three housing tours. Post-conference courses will be offered June 2-3. Some symposium highlights include:
New this year, the 50+ Symposium is offering three housing tours from 8:00 a.m. to 4:00 p.m. Wednesday, May 30.
To Register for the Symposium Register online for Building for Boomers & Beyond: 50+ Housing Symposium 2007 by clicking here. Register online by March 30 and save $100 off the registration fee. The housing tours fill up fast, so register early.
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 Confidence of Condo Builders Is on the RiseCondo builders reported somewhat better market conditions in the fourth quarter of 2006 than in the previous quarter, according to the latest results of the NAHB Multifamily Condo Market Index (MCMI) released on March 2. While the component of the index gauging current conditions remained substantially lower than it was a year earlier, builders and developers were more optimistic about prospects for the condo market six months out and reported some slight improvement in the traffic of prospective buyers from the previous quarter. "The condo market is coming back toward balance following the previous four quarters when the pendulum swung from red-hot to seriously cold," said NAHB Chief Economist David Seiders. "What we are looking for — and likely to find in 2007 — is a healthy and sustainable level of condo production that will fall short of the unsustainable levels registered during the earlier boom period, but that will meet current market demands." The component of the MCMI that tracks current condo market conditions registered 29.6 on the index in last year’s closing quarter, compared to 47.1 during the fourth quarter of 2005; that component hit bottom during the third quarter of 2006, at 19.7. The index measuring builder sentiment about condo market conditions over the next six months rose to 49.1 — the highest seen since the last quarter of 2005. A rating of 50 on the quarterly index, which is based on a survey of multifamily builders and developers, indicates an equal number of positive and negative responses. Below 50 is negative and above positive. Responding to a special set of questions on insurance costs for multifamily developers, more than 70% of those polled for the fourth quarter of 2006 reported an increase in property insurance premiums over the preceding 12 months. There were significant regional differences across regions, with increases reported by 38% in the Northeast, 43% in the Midwest, 78% in the West and 84% in the South. Among the developers who reported higher premiums, just over 50% reported an increase ranging from 1% to 24%; 18% cited increases between 25% and 49%; and 3% said their increase was 50% or higher. Such increases can have a serious impact on affordability, especially in areas being rebuilt following the hurricane damage inflicted in 2005. For more information, e-mail Ann Marie Moriarty at NAHB, or call her at 800-368-5242 x8350. Toolkit Addresses Excessive Taxes on Affordable HousingA new resource from NAHB’s Housing Credit Group — the “Local Tax Assessment Toolkit for Affordable Housing Programs” — addresses excessive local real estate tax assessments of affordable housing projects. The toolkit includes a state-by-state analysis of existing tax assessment legislation and case law, model legislation and other Low Income Housing Tax Credit (LIHTC) resources that developers and owners can use to respond to assessments that increase their costs, threaten existing properties and discourage the development of new affordable housing. Commercial properties can be assessed by their replacement cost, comparable sales or income. Under the replacement-cost approach, the value of the property is the estimated cost of replacing the structure, less depreciation. Under comparable sales, the value is based on the recent sales of similar properties in the marketplace. Using the income approach, an assessor converts cash flow into property value using the capitalization rate. Of these methods, the income approach best represents the reality of affordable housing properties. Several states have passed legislation addressing the valuation of affordable housing properties. Many of these statutes require valuations based on income for LIHTC projects, but other statutes take a broader approach. The toolkit summarizes how affordable housing properties are assessed in each state and provides a successful model for legislation in states where the laws are not favorable. This toolkit is available to home builders associations. For more information, e-mail Carmel McGuire at NAHB, or call her at 800-368-5242 x8207. Register Now for the Multifamily Pillars of the Industry Conference Attend the 2007 Multifamily Pillars of the Industry Conference and Awards Gala, the premier industry event for the multifamily industry, on April 11-13 at the Westin Diplomat Resort and Spa in Hollywood, Fla. For more information, click here. To register online, click here. The advanced registration deadline is Friday, March 23. Vigorous Growth to Follow Current Remodeling LullConcerns have grown over the past year about the short-term outlook for remodeling as a result of the cyclical downturn in residential construction, but once housing emerges from the current slump remodeling will be safely on track to repeat through 2015 the solid growth it has recorded over the past 10 years, according to housing analysts at last month’s International Builders’ Show in Orlando, Fla. Before the downturn, the remodeling market was barreling toward the annual $300 billion mark, reaching $280 billion in 2005, according to calculations by the Joint Center for Housing Studies of Harvard University, almost double the volume of 1995. Growth in the industry accelerated from 2000 to 2005, said Kermit Baker, director of the center’s Remodeling Futures Program, climbing at a 7.5% compound average annual rate for “the best five years in the industry’s history.” Home owners’ improvements during that period rose about 10% a year and their expenditures for maintenance and repair grew at a healthy annual clip of 6%. Spending on rental properties, by comparison, was less robust, with improvements moving up by less than 4% yearly and maintenance and repair by 2.5%. Spending on home owner improvements for the five years ending in 2005 was “dominated by a few top spenders,” Baker noted, who had high incomes and valuable homes in rapidly appreciating markets. In 2004-2005, the top 5% of households spending the most for home improvements accounted for 60.7% of remodeling expenditures, up from 45.2% a decade earlier. At the same time, Baker said, the percentage of home owners making improvements to their homes has been slowly declining — from 29.7% in 1995 to 27.2% in 2005. And from 2000 to 2005, almost 45% of the nation’s owner-occupied homes — or 31 million — averaged less than $1,000 in annual spending on improvement and maintenance, compared to an average of $2,500 among all owners. “Homes that missed the bull remodeling market,” Baker said, including “even a lot of expensive homes,” will be prime candidates for remodeling in the years to come. Remodeling Projects Put on Hold A recent report from Harvard — “Foundations for Future Growth in the Remodeling Industry” — says that the remodeling industry began to cool in late 2005 as the result of a steady rise in short-term interest rates and a slowdown in house price appreciation and equity growth. “As the housing market correction has progressed, many potential remodeling projects, like many potential home purchases, are being deferred until local housing prices hit bottom,” according to the study. A slowdown in the existing home market has also put the breaks on remodeling activity because sellers of older properties typically make improvements before putting them on the market and buyers typically make changes to customize them after moving in. With properties turning over less often and owners remaining in their homes longer, there are direct implications for spending on home improvement. Roughly two-thirds of spending in 2005 by those who had bought their homes within five years was for kitchen and bath upgrades and adding rooms or making other structural alterations. Owners who had been in their homes for 30 years or more, by contrast, made half of their expenditures for replacements and system upgrades. “They are less likely to be changing space, but maintaining the condition of the home,” said Baker. Further Fragmentation in the Industry The structure of the industry itself is also changing, he said, moving in the opposite direction of the consolidation that is occurring in residential construction and among building product manufacturers and distributors. The number of remodeling contractors with revenues of $25,000 or more increased more than 30% from 1997 to 2002, from 400,000 to 530,000, he said. Most of this growth came from self-employed individuals, leading to further fragmentation in the industry. In this increasingly competitive marketplace, Baker observed, remodelers have been able to improve their profits by becoming more specialized, sharpening their expertise and realizing economies of scale at lower revenue levels. William Apgar, senior scholar at the Joint Center, said that “the professional remodeler portion of the home improvement market is expected to grow 46%, or 3.8% per year in inflation-adjusted dollars, between 2005 and 2015. At the same time, do-it-yourself spending should grow a respectable 3.2% annually and increase almost 38%.” In the current downturn, he added, “consumers may pull back if they are not clear about where the market is going, but they will still do basic stuff.” Upscale Projects Out, Mid-Range In According to survey research by Remodeling magazine and the National Association of Realtors®, the upscale improvements such as major kitchen and bath remodels, room additions and structural alterations that were popular during the recent boom tended to increase the value of the home by close to the value of the remodeling expenditures, Apgar said, with cost recovery in the 90% range. Starting in 2005, however, survey results showed that mid-range projects, including kitchen remodels and siding replacements, started paying off better for home owners, he said. Helping to lay a foundation for growth during the period ahead is the rising share of the nation’s housing stock that is more than 25 years old, Apgar indicated. Remodeling expenditures move up steadily as homes reach the quarter-century mark, he said, and retrofitting for energy efficiency is a growing trend, especially in the South, where an increasing share of housing is older and the discrepancy between the energy usage in new and existing homes is high. The need for repairs in the rental sector, which accounts for one-third of the homes in the U.S. and one-quarter of the value of the housing inventory, will also bolster remodeling activity, he said. The emergence of new construction at the high end of the rental market will also put pressure on upscale rentals built 10 years ago to make improvements so that they can remain competitive with the product just coming out of the pipeline. An upward trend in the homeownership rate will also help sustain remodeling growth, he said. “There will be 12 million more home owners over the next 10 years,” Apgar said, “and the homeownership rate is still moving up.” Yesterday’s Luxuries Set the Standard for Today Generational shifts in the composition of the remodeling market will also be favorable for the industry. “Each generation outspends its predecessor,” Apgar said. “Over time, the image of what’s the appropriate house has gone up” and features that were once considered luxuries — such as hard countertops — are now expected. “Looking forward, the action will shift from baby boom spending to Generation X,” he predicted. Moving into the prime years for household spending on improvement projects, between age 35 and 45, Gen Xers will see their share of home owner spending rise from 20.4% in 2005 to 27% in 2015,” he said. Because home building had been “going gangbusters” up until last year, remodeling has actually been on a decline in comparison to expenditures on new construction. It has dropped from almost half in 1995 to 39.7% now, he said, but “it will get back to 47% in 2015. Gopal Ahluwalia, NAHB’s vice president of research, said that the association’s Remodeling Market Index indicated a decline in activity starting with the fourth quarter of 2005. “The index has been running below average,” he said, but it started “inching up” with the third quarter of 2006. For more information on remodeling resources at NAHB, e-mail Jim Lapides, or call him at 800-368-5242 x8451. Apply for the NAHB Remodeler of the Month AwardThrough the Remodeler of the Month award, the NAHB Remodelers are honoring remodelers who demonstrate strong business practices, community service or industry involvement through the Remodeler of the Month award. Winners will be featured in Qualified Remodeler magazine and in Nation’s Building News. To qaulify:
How Does Your Remodeling Business Measure Up? The “Remodelers’ Cost of Doing Business Study,” available through BuilderBooks.com, is a comprehensive assessment of the growth and viability of the remodeling industry that enables remodelers to see how their business stacks up against the competition. Conducted by the NAHB Economics Group and the NAHB Remodelers, the study provides a statistically accurate analysis of the remodeling industry in terms of size, profitability, time in the business, business organization and staffing. The study allows remodelers to compare key business statistics, such as gross and net profit margins, against results from the most successful remodelers. To order the “Remodelers’ Cost of Doing Business Study” online, click here, or call 800-223-2665. Hal Von Nessen Named 2007 IRM President
An active member of NAHB since 1983, Von Nessen serves on the NSMC Board of Trustees and the IRM Education Committee. He is a principal instructor of IRM courses and is a member of the editorial team revising the MIRM designation curriculum. “Hal’s leadership and his commitment to education are highly regarded among our membership,” said Michael Copp, assistant staff vice president of the NSMC. “We’re looking forward to achieving great things with him.” Von Nessen founded RESH Marketing, which provides marketing, advertising and public relations services, in 1979. He has more than 40 years of career experience in media and advertising. His career began with a stint at a Georgia radio station in 1959. Von Nessen earned the Member, Institute of Residential Marketing (MIRM) designation in 1992 and was presented with NAHB’s Trina Ripley Excellence in Education Award in 2004. Subscribe to Sales + Marketing Ideas Magazine for Cutting-Edge Information For additional cutting-edge sales and marketing information, subscribe to NAHB’s Sales + Marketing Ideas magazine (www.smimagazine.com). Click here to learn about membership benefits of the National Sales and Marketing Council and the Institute of Residential Marketing. Earn Valuable Sales and Marketing Designations Through IRM Programs The Institute of Residential Marketing (IRM) offers four designation programs for sales and marketing professionals:
Want to Know More? Ask an Expert You also can ask designation holders questions about obtaining a designation, specific courses, case studies and more. "Ask An Expert" is available on the NAHB Web site by clicking here. 'Sales and Marketing Checklists' Covers the Ins and Outs of New Home Sales “Sales and Marketing Checklists for Profit-Driven Home Builders,” available through BuilderBooks.com, covers the major steps involved in successful new home sales. Learn the ins and outs of the comprehensive contract, the move-in, warranty service, asking for referrals and a great close. This expanded second edition also includes a new chapter on utilizing technology in your marketing and a more extensive chapter on multicultural sales. To view or purchase this publication online, click here, or call 800-223-2665. Inaugural Class of IRM Fellows Inducted at IBSThe Institute of Residential Marketing (IRM) inducted its inaugural class of Fellows during the International Builders' Show in Orlando, Fla. last month. Advancement to Fellow is the highest honor that a Member of the Institute of Residential Marketing (MIRM) can receive. The newly named Fellows are:
To be eligible for a Fellowship nomination, an individual must be an active MIRM for a minimum of 10 years. Fellows are nominated by their peers and selected by the IRM Admissions and Standards Committee. The College of Fellows was founded in 2006 by the IRM to introduce an elite IRM membership level and build a community that will:
St. Louis Sales Professional Receives IRM’s Ripley AwardAt the International Builders’ Show in Orlando, Fla. last month, NAHB’s Institute of Residential Marketing (IRM) named Jean Ewell, MIRM, the 2006 recipient of the Trina Ripley Excellence in Education award. Ewell is the director of sales and marketing for CF. Vatterott Construction Company in St. Louis. Created in 1989, the annual award was named for Trina Ripley, who played an instrumental role in creating IRM's educational programs. Throughout her career, Ripley generously gave her time, expertise and energy to further the education of marketing and sales professionals throughout the home building industry. "Jean embodies all of the qualities that the Trina Ripley Award honors," said Mary DeWalt, president of IRM and the Mary DeWalt Design Group in Austin, Texas. "Her tireless efforts on behalf of IRM have helped to make it the esteemed organization it is today, and those of us who have had the opportunity of knowing Jean are all better at what we do because of her." A licensed broker and salesperson and a member of the St. Louis Association of Realtors,® Ewell is also a Certified Residential Specialist (CRS) and a member of the Women's Council of Realtors.® Prior to moving to St. Louis, she worked as a personnel recruiter, a high school teacher and tutor and "professional volunteer." Ewell is the immediate past president of IRM. Under her leadership and guidance, the breadth of the institute’s activities has grown along with the quality of education it is providing its students. Ewell currently serves on her local sales and marketing committee and is an instructor for four IRM courses: Certified New Home Sales Professional (CSP), Marketing Research (IRM I), Marketing Plans and Budgets (IRM II) and New Home Sales |