Nation's Building News Online: October 22, 2007Print All Articles Text Version |
||||||||||
Small Dip Helping to Improve Health of Remodeling MarketLooking on the bright side, the current slump in remodeling activity will gradually lead back to a healthier market than existed at the height of the housing boom, when big spenders accounted for a disproportionate share of home owner improvements, Kermit Baker, senior research fellow at the Harvard Joint Center for Housing Studies and project director of its Remodeling Futures Program, said at last week’s Remodeling Show in Las Vegas. In 2005, Baker said, 5% of the households remodeling their homes accounted for 60% of total market activity, which was “highly concentrated” and “not healthy over the longer term.” A revival of smaller-scale projects and a movement to greater household participation is “healthier for the industry, and more sustainable,” he said. Following the downward path of the overall housing industry but not nearly as precipitously, remodeling should resume growth in 2009 coinciding with a turnaround in housing sales and starts. With market conditions back to normal, the annual increase in remodeling volume should be in the traditional 6% to 7% range through 2011, he said. The remodeling industry will also receive a boost from household formations, fueled largely by strong immigration, Baker indicated, with the Joint Center projecting 2 million more formations in the current decade over the previous decade, which was a period of rapid population growth. Despite easing in owner remodeling spending beginning in mid-2006 and continuing into this year’s first quarter, the latest period for which statistics are available from the U.S. Census Bureau, the industry is profiting from an “economic tailwind,” Baker said, as the expansion of the nation’s economy continues, generating jobs and income. “Remodeling does better during expansions than recessions,” he said. Since 1990, the home remodeling market, which is now close to $300 billion a year, showed an average annual increase of 6.7% when the economy was growing but only 2.3% when it was in decline. In additiion, remodelers don’t have to contend with the sizable inventory of unsold homes that has been troubling builders. “Remodeling doesn’t build up excess inventory, so it can’t get so far ahead of itself,” Baker said. On the negative side, Baker noted that remodeling contractors have been experiencing a significant slowdown in revenue. According to Qualified Remodeler magazine, the top 500 contractors reported a 4.7% median annual rate of revenue growth last year, down from 7.5% in 2006 and 12.5% in 2004. “There will be further erosion this year and next,” he predicted. Also, in today’s down housing market, home owners are more concerned that they may be “over-improving,” Baker said, and more routine improvements and replacements have become stronger than big kitchen and bath overhauls. According to the latest annual survey by Remodeling magazine and the National Association of Realtors® on the cost of remodeling projects and the percentage of those expenditures on improvements that are recouped when the home is sold, the trend has been down in the last two years — declining from a national average of 80.7% in 2005 to 75.5% in 2006 and 70.0% in 2007. This year’s study also found that mid-range improvements and replacements are generally having better payback today than upscale projects. For example, home owners are recovering 68% of the cost of upscale bath remodels, compared to 78% of mid-range bathroom improvement jobs. Baker noted that there is still “relatively strong demand” for housing, “but there is a huge inventory of unsold homes that needs to be worked off.” Conditions “would be far worse if the economy tipped into recession,” he warmed, but remodeling is “likely to see a fairly shallow downturn and an early recovery.” Falling Prices the Biggest Negative Gopal Ahluwalia, NAHB’s vice president of research, identified home price declines as the biggest negative factor for the current remodeling market. When they see prices heading down, “home owners are not likely to spend on remodeling,” he said. The industry is also taking a hit from the slowdown in home sales, Ahluwalia said, because home owners undertake a large amount of remodeling work soon after they purchase the property. Remodeling is most threatened in the West, where the housing slowdown has been most pronounced, Ahluwalia said. Per household remodeling expenditures in that region averaged $2,493 per household last year, according to Census Bureau statistics, followed by $2,345 in the Northeast, $1,920 in the Midwest and $1,566 in the South. Even so, the remodeling slowdown looks relatively mild, with a decline of less than 5% he said, compared to a 45% drop in overall housing activity. Accounting for the biggest share of owner-occupied housing remodeling expenditures in 2006, Ahluwalia said, citing the Census Bureau:
Smaller remodeling contractors are most vulnerable to the fluctuations now being felt in the marketplace, Baker noted, and “we expect a growing list of business failures as we move through this transition.” The 200,000 remodeling firms with payrolls in 2002 were dominated by smaller businesses, he said, with 48,800 general and special trade remodelers reporting annual receipts of less than $100,000 and 67,700 with receipts of $100,000 to $249,000. There were only 1,700 with receipts of $5 million or more. According to Case Design/Remodeling, remodeling businesses should be ideally in the $750,000 to $2.5 million range for specialties in kitchens, baths, basements and decks; small and handyman jobs and large and design/build projects; and restorations. Baker cited Census figures showing that 12.9% of the remodeling contractors who were in business in 2003 went out of business in 2004, and the smaller the payroll, the more likely they were to cease operations. Of those with payrolls under $30,000 in 2003, 22.1% went out of business in 2004. The business failure rate was 7.8% for those with payrolls of $30,000 to $69,000; 5.3% for $70,000 to $129,000; 3.8% for $130,000 to $349,000; 2.4% for $350,000 to $1.49 million; and 2.4% for $1.5 million or more. Failure rates are also significantly higher for new remodelers and those with declining payrolls, Baker said:
Builders See Further Headway on Mortgage Credit CrunchFollowing adoption of policy at last month’s fall board meeting in Seattle calling for prompt action in Washington to ease the mortgage credit crunch, several NAHB-supported proposals are in the pipeline to increase liquidity for the nation’s mortgage markets, develop solutions to subprime and foreclosure problems and stabilize financial markets. “Much has happened since our board set forth its marching orders,” NAHB President Brian Catalde said in an Oct. 16 memorandum to the association leadership. “The Federal Reserve Board has cut interest rates, Congress is moving several bills to help the housing market and ease the growing problem of home foreclosures, and federal regulators are providing Fannie Mae and Freddie Mac more flexibility to address the subprime crisis. “Moreover, NAHB has updated and revamped its ‘Back to Basics Toolkit’ (nahb.org/toolkit) with a new Myth Buster section that debunks sensationalized and often false or misleading media reports about the nation’s housing finance system and housing market. It includes resources tailored for HBA leaders to help reassure the public and spur new home sales.” (To read more on myth busters elsewhere in this issue, click here.) Federal Reserve Cuts Interest Rates The Federal Open Market Committee on Sept. 18 announced that it was cutting its federal funds and discount rates by one-half of a percentage point, sending a strong signal to the financial markets and consumers that it intends to keep the economy moving forward, which is key to stabilizing housing. By lowering borrowing costs, the Fed action is expected to help ease the credit crunch in mortgage markets and potentially forestall foreclosures on loans that are scheduled to reset in the near future, which would prevent homes from being returned to the market at a marked-down price. However, it will take about six months for the full effects of the rate cults to be felt by consumers. In the weeks leading up to the Fed’s big announcement, NAHB’s Economics team provided the Fed with regular updates on the health of the housing sector and the need to act decisively to bolster housing and the economy.
OFHEO Provides Modest Boost to GSE Portfolio Limits On the regulatory front, the Office of Federal Housing Enterprise Oversight (OFHEO) announced on Sept. 19 that it will allow both Fannie Mae and Freddie Mac to raise their portfolio limits by 2% annually so that they can invest more than $20 billion in subprime mortgages.
Agreeing with NAHB on the need to act now, lawmakers in both chambers of Congress recently announced they would introduce legislation to temporarily increase caps of the two housing government-sponsored enterprises’ (GSEs) portfolios by 10%. Bills Would Help Subprime Borrowers On Capitol Hill, the House has recently approved two bills that address NAHB policy concerns — FHA reform (H.R. 1852) and mortgage debt forgiveness (H.R. 3648) — and other legislation is pending in Congress that would give Fannie Mae and Freddie Mac greater flexibility to help creditworthy subprime borrowers to refinance out of their ARM loans. Sen. Charles Schumer (D-N.Y.) announced on Oct. 11 that he plans to unveil legislation shortly that would allow Fannie Mae and Freddie Mac to expand their mortgage portfolios by 10% for six months, to help bring stability to the mortgage markets and provide additional capital to support refinancing efforts. The portfolio increase would amount to about $150 billion. House Financial Services Committee Chairman Barney Frank (D-Mass.) indicated that he will introduce a companion bill in the House. Under the Schumer proposal, 85% of the increase (approximately $125 billion) would be required to fund refinancing of subprime borrowers. The proposal is a targeted and scaled-back version of a similar bill that Schumer offered last month. Schumer said that he plans to attach his legislation to “the first available legislative vehicle.” Schumer’s plan is similar to bipartisan legislation introduced on Oct. 10 by House Financial Services Committee members Melissa Bean (D-Ill.) and Randy Neugebauer (R-Texas) that would allow Fannie Mae and Freddie Mac to expand their mortgage portfolios by 10% for one year to help subprime borrowers refinance mortgages that could become burdensome when the interest rate is reset and monthly payments increase significantly. This bill, like the legislation outlined above, is one of the policy provisions adopted at the NAHB fall board meeting on Sept. 8. FHA Reform Sails Through House By a strong bipartisan margin of 348 to 72, the House on Sept. 18 approved Federal Housing Administration (FHA) reform bill H.R. 1852, the Expanding American Homeownership Act of 2007. “This legislation is an important step forward to address problems in the subprime mortgage market and to help creditworthy borrowers obtain home loans at prices and terms they can afford,” Catalde said.
Addressing the subprime lending crisis, the House on Oct. 4 approved legislation by an overwhelming 386-27 vote that would eliminate any taxes home owners might face when banks renegotiate the terms of a home loan and forgive a portion of the outstanding mortgage debt. The change in the tax law would cap untaxable forgiven debt at $2 million and apply only to principal residences. “This legislation will play a central role in helping American families avoid foreclosure and stay in their homes,” said Catalde. Existing tax rules under Section 108 of the Internal Revenue Code impel many struggling home owners to seek foreclosure over restructuring their loan with lenders because forgiven mortgage debt is taxed as ordinary income. H.R. 3648, the Mortgage Forgiveness Debt Relief Act of 2007, would remove this tax burden on mortgage indebtedness, encourage market-based restructuring between lenders and home owners and discourage foreclosures, said Catalde. In other congressional action, the House on Oct. 10 approved H.R. 2895, the National Affordable Housing Trust Fund Act of 2007. The legislation, which passed by a vote of 264 to 148, would provide grants and other assistance to support producing, rehabilitating and preserving 1.5 million affordable housing units over the next 10 years. The fund would be financed by part of the FHA’s mortgage lending surpluses (under H.R. 1852) and from a portion of the portfolios of Fannie Mae and Freddie Mac (H.R. 1427). At this point, no comparable legislation has been introduced in the Senate. ‘HOPE NOW’ to Aid Distressed Borrowers To help home owners facing foreclosure, the Administration on Oct. 10 introduced a new government program to assist distressed borrowers. Announced by Treasury Secretary Henry Paulson and HUD Secretary Alphonso Jackson, “HOPE NOW” brings together foreclosure prevention counselors, mortgage servicers and other mortgage market participants to help home owners who are facing default avoid foreclosure and stay in their homes. NAHB has strongly encouraged and supported recent efforts of the mortgage industry to provide foreclosure prevention counseling and assistance to borrowers who have encountered mortgage difficulties. A hotline established to assist borrowers facing foreclosure has been publicized through NAHB’s Web site and in communications to the association’s more than 800 state and local home builders associations. It is expected that the HOPE NOW Alliance will greatly expand the capacity, coordination and effectiveness of existing outreach efforts. “While we have made significant progress, it is important to note that this is going to be a long, tough battle,” Catalde said. “NAHB will continue to work steadfastly until the housing market turns around.” NAHB members can click here to view Catalde’s memo to the NAHB leadership updating the association’s efforts to address the mortgage credit crunch. To read legislation, click here and enter the bill number 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. Debunk Falsehoods in the Media With NAHB ‘Myth Buster’ Info
The campaign is aimed at correcting the record on falsehoods being presented in local and national media outlets, such as claims that there is no mortgage money available, foreclosures are skyrocketing and home values are in a free-fall with no bottom in sight. The campaign information, available to home builders association leadership and NAHB members, includes facts and information that corrects the record and shows why now is a good time to shop for a new home. The information is available in the Myth Busters section of the NAHB Web site — located at nahb.org/toolkit for use by NAHB members only. Myth Busters contains three sets of detailed talking points on the mortgage credit crunch geared toward a national audience, to states in the upper Midwest and to the once super-heated markets in California, Nevada, Florida and Arizona. Another set of talking points explains how today’s market conditions offer several advantages for home buyers and why owning a home provides great tax advantages and is the best long-term investment there is. The Myth Busters section also contains:
Lawyer Says EPA May Increase Criminal Enforcement of Stormwater ViolationsAn environmental law expert says the EPA could increase its use of criminal enforcement penalties to address stormwater requirements — a move that will likely garner strong industry opposition. Jane Barrett, director of the University of Maryland's Environmental Law Clinic, says EPA criminal enforcement of Clean Water Act (CWA) stormwater requirements may become an agency priority in the next few years. Barrett's comments come as the EPA on Oct. 12 issued its long-awaited enforcement priorities for FY2008 to FY2010 that gives stormwater and other wet weather issues top priority. EPA has made stormwater one of its four CWA national priorities for civil enforcement, and the pattern has been that EPA focuses first on civil enforcement and then moves on to criminal enforcement, Barrett said. Stormwater provisions "have been the stepchild of the Clean Water Act," but a combination of factors are indicating that they could become a focus of criminal enforcement, Barrett said on Oct. 4 at an American Law Institute-American Bar Association conference on criminal enforcement of environmental laws. (http://insideepa.com/)
Toilets’ Flushing Power ImprovingIf you buy a toilet, you just can't buy by brand alone. Ask to see the performance characteristics of the specific model you want to buy. A consortium of Canadian and American water departments collected the most popular toilet models and had them tested. The test is called Maximum Performance (MaP) Testing. The new testing protocol incorporated the use of soybean paste that closely replicated the real thing. This past July, the 10th edition of the MaP test results listed 142 toilet models that flushed 1,000 grams or more; 153 that flushed 900 grams; and an almost impossible to believe 356 toilets rated at 500 grams or more. The honor role of top flushing toilets (1,000 grams or more) included 58 models by American Standard; two models by Caroma; eight models by Crane; 12 models by Eljer; two models by Foremost; 25 models by Gerber; one model by Jacuzzi; eight models by Kohler; nine models by Mansfield; one by RAK Ceramics; one by Vitra; three by Vortens-Lamos; six models by Western Pottery; and four models by Zurn. (www.detnews.com)
Americans Forego Little Luxuries as Housing Slump DeepensBrian LaCroix, a 34-year-old computer engineer, developed a taste for expensive coffees. Earlier this year, however, he stopped frequenting a French coffee shop in Dallas and bought an espresso machine, slashing the daily cost for deux lattes from $8 to $1. The newlywed and his wife, who have a combined income of about $200,000, have also cut spending by mowing their own lawn. And Brian asked to work from home two days a week to save on gas for his 2002 Ford Ranger. For the past several years, American consumers at every rung of the income ladder have been trading up — splurging on a growing array of luxury products, from $4 lattes to $4,000 handbags. With easy access to credit, especially home-equity loans, middle-class Americans began regularly trading up for items that appealed to them, buying food staples at Kroger but splurging on Kobe beef at Whole Foods. Across the economy, consumers are now opting for smaller, less expensive items. In the past three years, sales of compact cars — cheaper to buy and operate than SUVs — have risen from 13.6% to 17.7% of total U.S. auto sales, even as automakers’ incentive spending per compact car fell by 55%. (www.newsweek.com)
Prepare Now for Care of Elderly ParentsForty-one percent of baby boomers who have a living parent are helping take care of them, with personal help, financial assistance or both, according to a USA Today/ABC News/Gallup Poll. Of those boomers who aren't providing care for parents now, 37% think they will someday. And about half of them say they're concerned about their ability to do so. Unpaid caregivers who contribute their own money spend an average of $2,400 a year on care, according to AARP. Adult children are paying out of their pocket "to make up for the mistakes their parents made 20 years ago" by not saving or investing aggressively enough, says Kenneth Kamen, president of Mercadien Asset Management, a financial planning firm. Try a "family conference" with all the siblings, if there are others. It's vital to get everyone on board, Kamen says, before a crisis arises. But don't categorically promise your parents you won't put them in a nursing home, Gail Hunt of the National Alliance for Caregiving says. "Sometimes, it's the only option. They might need more care than you can offer." Another option is to consider remodeling. Whether your parents move into your house or stay in their own, you might need to adapt the living space. You could add everything from handrails in bathrooms and a ramp instead of stairs at the front door, to a bathroom and bedroom on the first floor. (www.usatoday.com)
Federal Judge Blocks Disputed 'No Match' Rule for WorkersA federal judge on Oct. 10 issued a preliminary injunction blocking the Bush Administration from instituting a controversial immigration rule that could force employers to fire workers if their Social Security numbers don’t match federal records. At issue is a final rule announced in August by the Department of Homeland Security on Social Security non-match letters. The rule advises employers on how they should respond if they receive a no-match letter (“Employment Correction Request”) from the Social Security Administration (SSA) indicating that the employee’s name and Social Security number do not match agency records. SSA had intended to mail out approximately 140,000 employer no-match letters this year affecting more than 8 million workers. Many of these letters are the result of clerical and other errors, and involve the records of U.S. citizens and legal residents. The letters do not necessarily mean that the employee is an illegal alien. However, under the rule if the no-match situation is not resolved within 93 days, the employer must either fire the worker, or risk being charged with an illegal hiring violation if it is ultimately determined that the employee is in fact an illegal alien. A coalition of civil rights, business and labor groups and the U.S Chamber of Commerce sued to block the implementation of the rule because SSA records are riddled with errors and the initiative would ultimately result in the mass termination of legal workers. U.S. District Court Judge Charles Breyer of San Francisco said that the coalition had demonstrated a high probability that the Department of Homeland Security had failed to follow proper administrative procedures in promulgating the rule, including a failure to assess the economic impact on small businesses required under the Regulatory Flexibility Act. Breyer found that small businesses could expect to incur significant costs to comply with the rule, and, as asserted by the coalition, the “government’s proposal to disseminate no-match letters affecting more than 8 million workers will, under the mandated timeline, result in the termination of employment to lawfully employed workers.” Issuing the preliminary injunction would, according to the judge, cause the federal government far less harm than the rule would cause innocent employers and workers if it were to take effect. Under the terms of the preliminary injunction, the Department of Homeland Security is barred from implementing the no-match rule pending the court's final decision on the rule's legality, a process that could take many months. For more information, e-mail David Crump at NAHB, or call him at 800-368-5242 x8491. Builders Oppose Federal Oversight of State Building Code ProcessNAHB lasat week urged Congress to remove a provision in an energy bill that would create a new code-writing role for the U.S. Department of Energy (DOE) for states that fail to achieve significant above-code benchmarks. Under current law, building codes must be approved and adopted at the state and local level. H.R. 3221 would establish mandatory benchmarks and give DOE oversight of state’s energy-efficiency construction codes. “Because the structural and efficiency needs vary greatly for homes built in Florida or New York, versus homes built in Oregon or New Mexico, for example, it is crucial that the code process remains open, is based entirely upon consensus and is protected from overarching encroachment by any federal agency,” Pennsylvania home builder Frank Thompson told the House Small Business Committee on Oct. 17. “Establishing mandatory benchmarks and rigorous federal oversight for state building codes would subvert the consensus-code development process, violate states’ rights and impose unwanted and exorbitant costs on home buyers,” he said. Thompson also called on Congress to extend and expand federal tax credits that passed as part of the Energy Policy Act of 2005, noting that this would encourage the construction of new energy efficient homes, promote the use of energy-saving home improvements for existing homes and spur new innovation that will result in even greater energy savings in housing construction. “Congress should be promoting voluntary energy efficiency programs, extending tax incentives for highly efficient new home construction and protecting housing affordability from arbitrary building code increases when adopting new energy policy,” he said. He said that energy efficiency has been a priority for home builders for many years and that NAHB members, who collectively build about 80% of all the new homes in the U.S., have been engaged in several public-private partnerships and have sponsored many residential energy events and programs to bring public awareness to residential energy efficiency, Thompson told the committee. In addition, he said NAHB is a partner with the U.S. Environmental Protection Agency and the DOE’s Energy Star® Home Program, which, to date, has resulted in the construction of more than 500,000 homes built to standards that exceed the local building code. NAHB also participates in DOE’s Building America Program, which conducts systems engineering research to produce homes that consume 30% to 90% less energy on a community-wide basis, integrates Zero Energy Home technology and power systems, and boosts productivity with new, innovative energy-saving materials and technology. “Most importantly, NAHB members have taken the lead to develop the first National Green Building Standard for residential construction that is approved and accredited by the American National Standards Institute,” said Thompson. For more information, e-mail Calli Schmidt at NAHB, or call her at 800-368-5242 x8252. Maryland Enacts Law to License Builder’s Sales AgentsMaryland enacted a law earlier this month requiring home builders to use licensed real estate agents. Under the new law, all home builders selling homes in the state must hold real estate licenses issued by the Maryland Real Estate Commission. The commission issues three categories of real estate licenses — broker, associate broker and salesperson. Salespersons and associate brokers must be affiliated with a real estate brokerage that is headed by a broker. The broker is responsible for supervising the activities of the salespeople and associate brokers. Nine other states also require licensed real estate agents to sell new homes, according to the National Conference of State Legislatures. These include Alabama, Connecticut, Hawaii, Montana, Nebraska, New Jersey, Pennsylvania, Tennessee and West Virginia. Several state and local home builders associations are concerned that more state legislatures may require licenses for builder sales agents in an effort to find local solutions to the credit crunch and foreclosures now affecting the housing market. “The fact is builder sales teams are trained extensively through builder training programs, and they represent only one client, not many members of the general public,” said Kathleen Mahoney of the Maryland State Builders Association (MSBA). “Builder sales teams show only one community at a time, they sell only new construction and they don’t set or evaluate pricing. A builder sales agent has a far more limited role than a typical agent.” To read more about home builder sales agent requirements in Maryland, click here. For additional information, e-mail Mahoney at MSBA, or call her at 410-263-0070. September Housing Starts Drop 10.2 PercentWith builders focusing on reducing their inventories in the midst of continuing turmoil in the mortgage market, total housing starts dropped 10.2% in September, according to figures by the U.S. Commerce Department on Oct. 17. Most of the decline was in multifamily housing, where a significant uptick in starts had been registered in the previous month. Overall housing starts fell to a seasonally adjusted annual rate of 1.19 million units, the slowest since the March 1993 pace of 1.08 million units. Single-family production registered a 1.7% decline to a 963,000-unit rate, while multifamily production posted a 34.3% decline to a 228,000-unit rate. “This report indicates that builders are taking the necessary steps to narrow the supply of unsold units on the market as buyer demand continues to be adversely affected by tightened lending standards and concerns about negative media reports on the housing market,” said NAHB President Brian Catalde. “While there’s no question that the housing downswing continues to be played out in markets across the country, today’s numbers show that builders are pulling back on production until sales improve,” said NAHB Chief Economist David Seiders. “This is exactly what our latest builder surveys have told us. “We do expect some additional downward movement in housing production going into next year, at which point starts should begin to stabilize as sales turn upward in the second quarter,” he added. Building permits, which can be an indicator of future building activity, also declined in September. Overall permit issuance fell 7.3% to a rate of 1.23 million units, with single-family permits down 7.1% to 868,000 units and multifamily permits down 7.7% to 358,000 units. Regionally, where housing starts often display significant month-to-month volatility, the Northeast posted a 45.4% gain in September while the Midwest, South and West posted declines of 28.4% , 11.7% and 10.1% , respectively. Building permits were also down in three out of four regions, with the Midwest being the only one to post an increase for the month. While that region registered a 3% gain, permit issuance was down 4.1% in the Northeast, 2.4% in the South and 23.3% in the West.
Attend the Fall Construction Forecast Conference in October Plan to attend NAHB's Construction Forecast Conference on Oct. 24 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. Can't attend? Watch the conference webcast live. For more information, or to register for the conference or webcast, visit www.nahb.org/cfc.
Want to Know the Housing Forecast for the Top 100 Metros? Find out in HousingEconomic.com’s 2007-2008 Metro Forecast (free preview). Get the metro forecast with in-depth analysis, overviews and downloadable Excel tables. To learn more, visit www.HousingEconomics.com.
Free NAHB Kit Gives Builders Back-to-Basics Tips to Navigate the Slowdown What was once expected to be a relatively mild housing slump following three years of record new home construction and sales has given way to a significant downturn. To help members navigate the uncharted waters of this slowdown, NAHB has compiled a comprehensive “Back to Basics” online toolkit — the best of the basics, the tried and true and the truly new. To access the toolkit, click here. 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. Fed, Treasury Say Housing Hampering the EconomyDespite strong economic fundamentals, the current housing downturn remains the most serious threat to the economy in the near-term, Treasury Secretary Henry Paulson and Federal Reserve Board Chairman Ben Bernanke said in separate remarks last week. “The ongoing housing correction is not ending as quickly as it might have appeared late last year,” Paulson said during an address before the Georgetown Law Center in Washington, D.C. “And it now looks like it will continue to adversely impact our economy, our capital markets and many home owners for some time yet.” “Even so, I believe we have a healthy, diversified economy that will continue to grow,” he said. Echoing a similar theme, Bernanke said in a speech before the Economic Club of New York said that U.S. economic performance so far this year has been “reasonably good” despite a notable contraction in housing that began in the second half of 2005. Since the last meeting of the Federal Open Market Committee in September, when the Fed announced it was cutting short-term interest rates by one-half of a percentage point, the housing market has weakened further, said Bernanke. “The further contraction in housing is likely to be a significant drag on growth in the current quarter and through early next year,” he said. “However, it remains too early to assess the extent to which household and business spending will be affected by the weakness in housing and the tightening in credit conditions.” Paulson observed that this is the first housing downturn in the past three decades in which U.S. GDP growth has not turned negative. “Business investment has expanded in recent months, our exports are being boosted by the strong economic growth of our trading partners and the healthy job market has helped consumer spending continue to grow,” he said. “But let me be clear,” Paulson cautioned, “despite strong economic fundamentals, the housing decline is still unfolding and I view it as the most significant risk to our economy. The longer housing prices remain stagnant or fall, the greater the penalty to our future economic growth.” Aggressive Response Needed to Help Families Facing Foreclosure Paulson called for an aggressive government response to deal with the current housing situation, stating that the first priority is to “help as many able home owners as possible stay in their homes.” To help families facing foreclosure, Paulson cited a new government program to assist distressed borrowers unveiled by the Administration on Oct. 10. “HOPE NOW” is a program that will bring together foreclosure prevention counselors, mortgage servicers and other mortgage market participants to help home owners who are facing default avoid foreclosure and stay in their homes. No Interest in Bailing Out Speculators, Lenders In moving to help families in need, he stressed that the government is not sending a signal that it intends to protect investors from the consequences of their financial decisions. “When investors are relieved of the costs of bad decisions, they are more likely to repeat their mistakes,” said Paulson. “I have no interest in bailing out lenders or property speculators.” He also called for changes in laws and regulations that govern mortgage lending to “prevent some of the excesses and abuses of the last few years from happening again,” but cautioned that it must be done in a prudent way to “avoid overreacting and introducing unintended consequences such as those that might shut off credit to able borrowers.” Paulson also urged Senate action on several House-passed measures that address NAHB policy concerns — FHA modernization (H.R. 1852), mortgage debt forgiveness (H.R. 3648) and reform of the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac (H.R. 1427). “FHA reform is moving through Congress, and I am hopeful that it will reach the President’s desk soon,” he said. “The tax relief proposal has cleared the House and is awaiting further action in the Senate. GSE reform has cleared the House, and also awaits action in the Senate. Congress should enact these bills as quickly as possible.” Though the subprime mortgage market turmoil has sent shock waves through the investment community in recent months, Bernanke said that market participants are learning and adjusting from this experience by insisting on better mortgage underwriting and by performing better due diligence on structured credit products. “Rather than becoming more crisis-prone, the financial system is likely to emerge from this episode healthier and more stable than before,” Bernanke said. In a concurring assessment, Paulson said, “As the mortgage and credit markets continue to adjust, all of us — policymakers and market participants — will no doubt learn new lessons. Through a dedicated effort by all parties, we will work to strike the right balance, protect consumers and make mortgage capital widely available to Americans ready to be home owners.”
Attend the Fall Construction Forecast Conference in October Plan to attend NAHB's Construction Forecast Conference on Oct. 24 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. Can't attend? Watch the conference webcast live. For more information, or to register for the conference or webcast, visit www.nahb.org/cfc.
Want to Know the Housing Forecast for the Top 100 Metros? Find out in HousingEconomic.com’s 2007-2008 Metro Forecast (free preview). Get the metro forecast with in-depth analysis, overviews and downloadable Excel tables. To learn more, visit www.HousingEconomics.com.
Free NAHB Kit Gives Builders Back-to-Basics Tips to Navigate the Slowdown What was once expected to be a relatively mild housing slump following three years of record new home construction and sales has given way to a significant downturn. To help members navigate the uncharted waters of this slowdown, NAHB has compiled a comprehensive “Back to Basics” online toolkit — the best of the basics, the tried and true and the truly new. To access the toolkit, click here. 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. Builder Confidence Dips to All-Time Low in OctoberContinuing problems in the mortgage market, substantial inventories of unsold homes and the perceived effect that negative media coverage is having on potential buyers combined to rattle builder confidence further this month, sending the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) to its lowest point since the series began in January 1985. The HMI dropped two points to 18, the eighth consecutive month the measure has declined. “Builders in the field are reporting that, while their special sales incentives are attracting interest among consumers, many potential buyers are either holding out for even better deals or hesitating due to concerns about negative and confusing media reports on home values,” said NAHB President Brian Catalde. “Consumers are still trying to sort out market realities and get the best deals they can,” noted NAHB Chief Economist David Seiders. “Many prospective buyers may very well have unrealistic expectations regarding new-home prices as well as how much they can expect to receive for their existing homes.” “When the market is in proper balance, people can recognize a good deal when it comes along,” Seiders said. “At this point, they view a good deal as a moving target.” The positive news from report, said Seiders, is that builder expectations for sales conditions in the next six months held steady at 26. “Builders believe they are taking the right steps to reduce inventories and position themselves for the market recovery that lies ahead,” he said. “Indeed, NAHB’s housing forecast indicates that home sales should stabilize within the next six months and show significant improvement during the second half of next year.” Derived from a monthly survey that NAHB has been conducting for more than 20 years, the HMI gauges builder perceptions of current single-family home sales, sales expectations for the next six months and the traffic of prospective buyers. Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view sales conditions as good than poor. Two out of three component indexes of the HMI declined in October. The index gauging current single-family home sales and the index gauging traffic of prospective buyers each declined two points, to 18 and 15, respectively, while the index gauging sales expectations for the next six months remained unchanged at 26. Regionally, the West accounted for a substantial portion of the decline in builder confidence this month, with a four-point reduction in its HMI to 14. The Northeast and South each reported one-point declines to 26 and 21, respectively, while the Midwest posted a two-point gain to 15. Attend the Fall Construction Forecast Conference in October Plan to attend NAHB's Construction Forecast Conference on Oct. 24 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. Can't attend? Watch the conference webcast live. For more information, or to register for the conference or webcast, visit www.nahb.org/cfc. Want to Know the Housing Forecast for the Top 100 Metros? Find out in HousingEconomic.com’s 2007-2008 Metro Forecast (free preview). Get the metro forecast with in-depth analysis, overviews and downloadable Excel tables. To learn more, visit www.HousingEconomics.com. Free NAHB Kit Gives Builders Back-to-Basics Tips to Navigate the Slowdown What was once expected to be a relatively mild housing slump following three years of record new home construction and sales has given way to a significant downturn. To help members navigate the uncharted waters of this slowdown, NAHB has compiled a comprehensive “Back to Basics” online toolkit — the best of the basics, the tried and true and the truly new. To access the toolkit, click here. 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. OFHEO Will Not Lower Conforming Loan Limit in 2008The Office of Federal Housing Enterprise Oversight (OFHEO) said last week that it would not let the conforming loan limit for Fannie Mae and Freddie Mac to drop next year. The single-family mortgage loan limits for the two housing government-sponsored enterprises (GSEs) are currently set at $417,000. OFHEO said that if the index used to calculate the maximum loan level should increase, the amount of the increase in 2008 would be reduced by 0.16%, the decline calculated in 2006. “Under no circumstance, however, would the maximum loan level for 2008 drop below the 2006 and 2007 limit of $417,000,” OFHEO Director James Lockhart said. OFHEO is scheduled to announce the maximum conforming loan limit for 2008 next month.
Attend the Fall Construction Forecast Conference in October Plan to attend NAHB's Construction Forecast Conference on Oct. 24 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. Can't attend? Watch the conference webcast live. For more information, or to register for the conference or webcast, visit www.nahb.org/cfc.
Want to Know the Housing Forecast for the Top 100 Metros? Find out in HousingEconomic.com’s 2007-2008 Metro Forecast (free preview). Get the metro forecast with in-depth analysis, overviews and downloadable Excel tables. To learn more, visit www.HousingEconomics.com.
Free NAHB Kit Gives Builders Back-to-Basics Tips to Navigate the Slowdown What was once expected to be a relatively mild housing slump following three years of record new home construction and sales has given way to a significant downturn. To help members navigate the uncharted waters of this slowdown, NAHB has compiled a comprehensive “Back to Basics” online toolkit — the best of the basics, the tried and true and the truly new. To access the toolkit, click here. 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: Builder Price Cuts Gain Center StageA month ago, the Bureau of Labor Statistics reported that payroll employment had declined slightly in August following relatively weak gains in June and July. This pattern had prompted analysts around the globe, including yours truly, to jack up their estimated probabilities of near-term recession in the U.S. economy. The employment report for September improved recorded history and provided positive signals for September. Payroll job growth now stands at 93,000 and 89,000 for July and August, respectively, and the preliminary reading for September comes to 110,000. While this is good news, the trend of job growth definitely has slowed systematically from the peak rates in 2005, particularly in the private sector, as growth of economic output (real GDP) has slowed substantially. But payrolls apparently are continuing to advance at a decent pace and the economy does not appear to be skating dangerously close to outright recession — at least for now. But Housing Is Now Weighing Heavily on the Labor Market The systematic slowing of total payroll employment growth since 2005, and particularly the third-quarter downshift in growth of private payrolls, can be pinned largely on declining employment in residential construction and closely related industries — including the beleaguered housing finance system. The impacts of the housing downswing on total payroll employment naturally show up heavily in the construction employment numbers for residential builders and specialty trade contractors. Indeed, the declines averaged 23,000 for the August-to-September period. We’re also seeing big declines in the housing finance industry, particularly among mortgage bankers and brokers. In this regard, employment in “credit intermediation and related activities,” excluding depository institutions, fell by about 20,000 in both August and September, pulled down by the real estate credit component. The housing contraction also is showing up in the employment numbers for the retail sector. In this regard, building materials and garden equipment stores lost 17,000 jobs in September and furniture and home furnishing stores lost another 2,000. Everything considered, the housing contraction now is costing the economy roughly 60,000 jobs per month and there’s certainly more to come. The Credit Market Crisis Is Easing But Not Disappearing The wrenching credit market crisis that erupted in the early part of August has been easing off in some respects since the Sept. 18 Federal Open Market Committee (FOMC) meeting when the Federal Reserve enacted half-point cuts to both the federal funds rate and the discount rate. Financial markets are becoming more normal, with improvements in the cost and availability of funds, although credit market conditions generally remain tighter than before the crisis. The most striking improvements have been in short-term credit markets that had been severely disrupted in the stampede toward credit quality. Interbank lending has eased, the runoff in asset-backed commercial paper has been arrested, commercial paper rates have come down to pre-crisis levels, the availability of term funding has improved to some degree and borrowing by banks at the discount window has receded as the Fed has managed reserves to keep the federal funds rate on target at 4.75%. In mortgage securities markets, the nonprime segments — subprime and Alt-A — still are functioning poorly but the jumbo securities market seems to be thawing out to some degree. Spreads of prime jumbo mortgage rates over rates on prime conventional conforming mortgages, eligible for sale to Fannie Mae or Freddie Mac, have narrowed to some degree in primary markets although these spreads remain much wider than earlier in the year. Although the dust definitely is settling, credit market conditions will not return to pre-crisis conditions for quite a while. Normal liquidity conditions should be restored to money markets before long and normal functioning should be restored to most credit markets in the process. However, market participants will remain heavily focused on credit risk differentials, and pricing/trading of securities structures with uncertain risk characteristics will recover only slowly. In the mortgage sector, this means that markets for securities containing nonprime ARMs will struggle mightily for a long time. Housing Demand Still Is Weakening The dramatic downswings in gross and net home sales appeared to be slowing in the second quarter of this year. However, the erosion of economic conditions and upheaval in mortgage markets have combined to send housing demand into another serious downleg. Sales of both new and existing homes contracted sharply in August, as did “pending” sales of existing homes — based on contracts signed. NAHB’s proprietary survey of 31 large builders showed pronounced weakness in August, as new orders fell sharply and sales cancellations jumped, and the September numbers show further deterioration on both fronts — seasonally adjusted, three-month moving average basis. Furthermore, NAHB’s broad-based Housing Market Index fell to a record low in this month. The recent downshift in housing demand definitely is related to the recent tightening of mortgage market conditions as well as to associated evidence of weakening house prices in many areas. Evidence of eroding house values has caused many prospective buyers to adopt a “wait-and-see” attitude, putting additional downward pressure on prices. As a result, key measures of house prices have been falling since late last year and further declines definitely are in the cards — a point accentuated by new futures markets for home prices in major metro housing markets. Stubbornly High Inventories Will Delay Recovery in Housing Production The pronounced weakness of housing demand has provoked major downswings in permit authorizations and housing starts since late-2005. Unfortunately, sales volume has fallen so fast that very little progress has been made in reducing inventories of unsold new homes — despite the fact that the government’s inventory numbers exclude homes left with builders due to sales cancellations. The number of new homes for sale still is close to the record high reached around mid-2006 and the month’s supply moved up to a heavy 8.2 in August, as recorded by the government. For proper assessment of relative movements in new-home sales and single-family housing starts, it’s necessary to compare sales volume to starts of single-family homes that are intended for sale — excluding starts of homes that are built on owners’ lots. For-sale starts exceeded new-home sales by a huge margin during the 2005-to-2006 period, generating outsized increases in the for-sale inventory, and only recently have sales exceeded for-sale starts. Furthermore, completed homes have been accounting for a larger and larger portion of new homes for sale, and the length of time that completed homes remain on the market has stretched out to about six months. The persistently large inventory of new homes for sale, together with large numbers of vacant previously-owned homes on the market, will hold down housing starts for several quarters beyond the trough in home sales. We’re currently pegging the trough for sales in the first quarter of 2008 and we’ve set the low point for housing starts around the middle of next year. That pattern, if achieved, will eliminate the drag from residential fixed investment on overall economic growth by the final quarter of 2008. Builder Price Cuts Gain Center Stage It’s increasingly obviously that sizeable price cuts are needed to sell completed new homes in many parts of the country. After all, prices more than doubled during the boom in some places and measures of housing affordability still remain quite low. NAHB’s surveys of builders have been showing rising proportions of companies enacting price cuts as one type of sales incentive offered by builders during the past year. We’re also seeing more dramatic cuts by some companies during the past month. Indeed, several public companies recently advertised discounts of up to $100,000 for special weekend sales, apparently with good success, and at least one public company has auctioned off homes with bids starting at half the list price. NAHB surveyed about 300 home builders of all sizes during the first half of October to get a handle on the frequency, depth and effectiveness of recent price cuts. Nearly three-fifths of all respondents and three-fourths of larger companies had recently cut prices. The average price cut came to 8%, and 37% of those cutting prices had dropped them by more than 10%. But only half the builders said their price cuts had been effective in bolstering sales or limiting cancellations. Looking forward, one-fifth of all respondents said they were planning to do major price reductions for limited periods of time. We’ll report on the success of these efforts down the line. The Fed Most Likely Will Buy More Insurance The recent labor market data and the recent easing of the credit crisis suggest that the Federal Reserve was not actually “behind the curve” when dropping short-term interest rates on Sept. 18, and recent market developments seemingly have reduced the chances for additional rate cuts before the end of the year. The implied probability of a rate cut at the Oct. 30-31 FOMC meeting has receded to about 50% in the fed funds futures market. We still believe the Fed will cut rates before year-end. After all, the housing contraction actually has gained downward momentum recently, credit costs for the majority of private-sector borrowers remain higher than in July, and core consumer price inflation is quite benign — despite hefty increases in oil prices and a sliding dollar. Furthermore, as the Fed Vice Chairman Don Kohn suggested recently, the Fed’s half-point rate cuts on Sept. 18 partly reflected the Fed’s willingness to buy insurance against the risk of a worse-than-expected economic outcome. There’s still significant risk of a serious shortfall in near-term economic activity, largely because of downward momentum in housing production and house prices, and credit markets still are fragile in various respects. Moreover, core inflation is likely to continue to recede over the balance of this year and much of 2008, giving the Fed the green light to buy more insurance against the risk of a really adverse economic outcome. We still expect quarter-point cuts in both federal funds and discount rates at both the Oct. 30-31 and Dec. 11 FOMC meetings. We’re assuming the Fed will hold those rates during all or most of 2008 before extracting some monetary stimulus as the economy clearly emerges from the woods. 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 Oct. 10 edition. To subscribe to “Eye on the Economy,” click here. Attend the Fall Construction Forecast Conference in October Plan to attend NAHB's Construction Forecast Conference on Oct. 24 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. Can't attend? Watch the conference webcast live. For more information, or to register for the conference or webcast, visit www.nahb.org/cfc. Want to Know the Housing Forecast for the Top 100 Metros? Find out in HousingEconomic.com’s 2007-2008 Metro Forecast (free preview). Get the metro forecast with in-depth analysis, overviews and downloadable Excel tables. To learn more, visit www.HousingEconomics.com. Free NAHB Kit Gives Builders Back-to-Basics Tips to Navigate the Slowdown What was once expected to be a relatively mild housing slump following three years of record new home construction and sales has given way to a significant downturn. To help members navigate the uncharted waters of this slowdown, NAHB has compiled a comprehensive “Back to Basics” online toolkit — the best of the basics, the tried and true and the truly new. To access the toolkit, click here. 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. Consumer Calls to Mortgage Help Hotline on the RiseNearly 60,000 home owners in fear of facing foreclosure and seeking free mortgage counseling assistance have called the Homeowner’s HOPE Hotline at 888-995-HOPE (4673) during the third quarter of this year. Calls to the hotline — provided by the Homeownership Preservation Foundation (HPF) and answered 24 hours a day, seven days a week by U.S. Department of Housing and Urban Development (HUD)-approved counselors — have doubled every quarter so far this year. HPF is a private, nonprofit organization based in Minneapolis dedicated to preserving homeownership and preventing foreclosures. Home owners having trouble paying their mortgage are encouraged to call the hotline for free budgeting help, a written financial plan or assistance contacting their lender. Live online counseling is also available on the foundation’s Web site at www.995HOPE.org. According to HPF, home owners are beginning to call for help before they get too far behind on their mortgage payments. Calling earlier increases the likelihood that they will be able to effectively manage mortgage payments and stay in their homes. Twenty-four percent of callers in the third quarter were less than one month behind in their payments, up from 21% in the second quarter and 14% in the first, HPF reported. “We can’t stress enough how important it is for home owners to ask for help sooner rather than later,” said Colleen Hernandez, president and executive director of HPF. “The earlier we hear from home owners, the more options we can offer to address their individual financial situations.” Home owners who prefer face-to-face counseling can call 888-995-HOPE for a referral to their local NeighborWorks® office or other counseling organization. They can also search by state or ZIP code on the NeighborWorks® Web site. HUD and the Department of Justice also maintain searchable lists of approved free or low-cost credit-counseling agencies on their Web sites. For more information, e-mail Dave Ledford at NAHB, or call him at 800-368-5242 x8265. Attend the Fall Construction Forecast Conference on Oct. 24 Plan to attend NAHB's Construction Forecast Conference on Oct. 24 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. Can't attend? Watch the conference webcast live. For more information, or to register for the conference or webcast, visit www.nahb.org/cfc. Attend Construction Forecast Conference and Webcast Oct. 24The past months have been unpredictable for the housing industry. Get the information you need to make solid business decisions at the NAHB Fall Construction Forecast Conference and Webcast on Wednesday, Oct. 24 at the Housing Center in Washington, D.C. This year’s topic — “Will Housing Lift Off in 2008?” — addresses key concern of industry professionals. A distinguished assembly of housing economics experts will explore such important questions, including:
Conference Also Available Online Can’t attend the conference in person? The conference will also be broadcast live on the Web. To register, visit www.nahb.org/cfc.
Want to Know the Housing Forecast for the Top 100 Metros? Find out in HousingEconomic.com’s 2007-2008 Metro Forecast (free preview). Get the metro forecast with in-depth analysis, overviews and downloadable Excel tables. To learn more, visit www.HousingEconomics.com.
Free NAHB Kit Gives Builders Back-to-Basics Tips to Navigate the Slowdown What was once expected to be a relatively mild housing slump following three years of record new home construction and sales has given way to a significant downturn. To help members navigate the uncharted waters of this slowdown, NAHB has compiled a comprehensive “Back to Basics” online toolkit — the best of the basics, the tried and true and the truly new. To access the toolkit, click here. 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.
Attend the Fall Construction Forecast Conference on Oct. 24 Plan to attend NAHB's Construction Forecast Conference on Oct. 24 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. Can't attend? Watch the conference webcast live. For more information, or to register for the conference or webcast, visit www.nahb.org/cfc.
Want to Know the Housing Forecast for the Top 100 Metros? Find out in HousingEconomic.com’s 2007-2008 Metro Forecast (free preview). Get the metro forecast with in-depth analysis, overviews and downloadable Excel tables. To learn more, visit www.HousingEconomics.com. Free NAHB Kit Gives Builders Back-to-Basics Tips to Navigate the Slowdown What was once expected to be a relatively mild housing slump following three years of record new home construction and sales has given way to a significant downturn. To help members navigate the uncharted waters of this slowdown, NAHB has compiled a comprehensive “Back to Basics” online toolkit — the best of the basics, the tried and true and the truly new. To access the toolkit, click here. 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: Lop Off the Corners to Fit Crown Molding
Even when the molding is nailed loosely, this can be a hassle, especially when working with a tight fit to begin with. As shown in the accompanying drawing, I’ve found a way to handle the molding without the hassle. Here’s how:
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.
What was once expected to be a relatively mild housing slump following three years of record new home construction and sales has given way to a significant downturn. To help members navigate the uncharted waters of this slowdown, NAHB has compiled a comprehensive “Back to Basics” online toolkit — the best of the basics, the tried and true and the truly new. To access the toolkit, click here. 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. Hard Times Not the Best Times to Diversify BusinessDiversification may be a hot topic during hard times when small builders and remodelers are looking for opportunities to increase their sales, but today’s housing downturn is probably not the best time to begin expanding into new lines of business, Mike Weiss, CAPS, CGB, CGR, GMB, a contractor from the Indianapolis area, told the Oct. 9-12 Remodeling Show in Las Vegas. For one thing, remodeling and home building are not countercyclical, he pointed out, and going from one to the other doesn’t necessarily make good business sense during a housing downturn. For another, the impulse to diversify may be misdirected. “Some people don’t make a success of one effort, so they go somewhere else and make the same mistakes,” Weiss said. “You have to do self-analysis,” he advised. “Find out if you have the ingredients to make it successful, then find the product to diversify into. Do it when you want to, not because you have to. Finding different work in hard times is usually not profitable and it is not a good time to experiment.” Finding Advantages in the Slowdown Rather than diversifying, remodelers can put a housing slowdown to their advantage by going out and finding good employees who have lost their jobs, he said. Some employees, he observed, “haven’t built a nest egg for their business and will cut the most expensive employee on their payroll even if they’re the best person in the company.” Downturns are also a good time to lease out extra space or buy a piece of equipment or other asset from a competitor who needs the cash, he said, and they also can favor integrating some new activities into a business. For example, instead of waiting for a framing subcontractor to become available, hire one of your own, and bring them in and farm them out when they aren’t busy. Remodelers should also be spending their time determining if they have been undertaking jobs that are actually not good for their business. “Try to use things developed by trial and error, or networking, to develop a diagnostic to improve the way you’re doing things,” Weiss said, describing how he filters out one-third of his calls because they are not within the chosen sphere of his business and then whittles his qualified leads down much further to get the jobs that are best for his company. Diversification does have its advantages, he noted, including providing new growth and challenges for the company, mitigating the vulnerability of a single market activity, balancing the work load and seasonal activity, capitalizing on the reputation and talent in the company and providing new advancement opportunities for existing key personnel. On the negative side of the ledger, diversification can lead to squandering capital generated by the core business, can over-obligate existing personnel, can compromise the success of the core business, can delay pulling the plug on unprofitable activities and can eat up time and erode competitive advantages. Don't Give Up a Cash Cow When investing their excess earnings in a new activity, Weiss warned of the importance of sticking with the core business. On their way to diversification, “people will give up a cash cow,” he said, and that’s no way to run a business. Successful diversification requires the ability to delegate, organize and investigate and a company that is well-capitalized, that is set up to run well on its own, knows how to market and keeps its focus on earning regular profits, he said. Weiss cited several reasonably safe opportunities for remodelers to diversify into — light commercial, residential, subcontracting, design and construction management. Small industrial complexes, office parks, multi-tenant incubator warehousing and store-and-lock installations offer reasonable safe possibilities for partnerships. Storage facilities, he said, are “absolute cash cows if you have a way to run them.” Suggesting how to find some natural paths to diversification, Weiss discussed his own business experiences with the cabinet dealers to whom he sent his clients. He went from dealer to dealer and found that many dealers would allow customers to exceed their budgets. “The dealers weren’t paying attention to how good a customer I was,” he said, so he became a cabinet dealer, buying directly from the manufacturer. “I can now offer clients a better cabinet for the same money or the same cabinet for less. The kitchen designer on our staff is me.” “When looking at diversification, look at stuff where you won’t go, have a way to get out and set a time when you will get out,” Weiss said. He advised not using the existing business to meet the capital requirements of a new enterprise unless it has built up a six-month cushion. A business plan is paramount, as are good systems that can be applied to the new diversification opportunities, he said. New Master-Level Designation for Remodelers Available Soon Starting in February, Certified Graduate Remodelers (CGR) can attain further recognition for their commitment to educational excellence and longevity in the remodeling industry by earning the Graduate Master Remodeler (GMR) designation — the master level of the current CGR designation. For more information, visit www.nahb.org/GMRinfo or e-mail GMRinfo@nahb.com. Ten Common Mistakes Impede Sales, Cause SnafusBy focusing on a few common mistakes and devising some strategies to deal with them, remodelers can improve their sales and avoid some of the headaches of working with clients, Jerry Harris, of Case Handyman & Remodeling in the Tidewater, Va. market, said at the Oct. 9-12 Remodeling Show in Las Vegas. “As sales people we are most of the time our own worst enemies, making the same mistakes over and over,” Harris said. Harris laid out these top 10 mistakes, in no particular order, and provided tips on how to avoid them:
New Master-Level Designation for Remodelers Available Soon Starting in February, Certified Graduate Remodelers (CGR) can attain further recognition for their commitment to educational excellence and longevity in the remodeling industry by earning the Graduate Master Remodeler (GMR) designation — the master level of the current CGR designation. For more information, visit www.nahb.org/GMRinfo or e-mail GMRinfo@nahb.com. Improving Home Performance a New Niche for RemodelersWith interest in residential energy efficiency growing steadily, small builders and remodelers have an opportunity to sell their customers on advanced technology that will improve the performance of their homes, according to panelists at the Oct. 9-12 Remodeling Show in Las Vegas. “Customers are asking about green, and one study shows that 70% of green in building today is energy efficiency,” said Bill Zwack, vice president of energy efficiency for SENTECH, Inc., a consulting company. Remodelers can get started, Zwack said, by including energy in the design discussion; using diagnostic tools; sealing gaps and holes and insulating when adding new space or opening walls; and introducing ENERGY STAR products and processes. Zwack advocated making a whole-house energy assessment that includes air sealing gaps and holes before insulating; insulating completely and correctly; designing or repairing ducts so that they are sealed and insulated properly, keeping the ducts inside the building envelope if possible; and specifying ENERGY STAR appliances, HVAC equipment, lighting and other residential products. He also recommended a complete visual and diagnostic inspection of air infiltration, duct leakage and combustion safety. The cost of testing equipment suggested by the Environmental Protection Agency is roughly in the $8,000 to $12,000 range, but remodelers don’t have to start out with it and can work their way into it, he said, noting that it is “the ultimate sales tool.” Looking at the Whole House “You have to look at the entire house” and then specify solutions, he said, because the wrong approach can make things worse. Air sealing the house is one of the most important things to do to improve its performance, “and every home needs this to some extent” because of air coming through the foundation, basement and attic, he said. For remodelers contemplating getting started in this business, “the good news is it’s not rocket science, but it is building science,” Zwack said. With home performance contracting now wrapped around the ENERGY STAR brand, there is an expanding network of professional home performance contractors around the country, he said. Information on training is available through Home Energy Magazine, ACI and the Building Performance Institute. Getting Your Hands on the Tools “There is lots of good technical information out there,” said Bill Asdal, of Asdal Builders in Chester, N.J. “You really want to get your hands on the (diagnostic) tools and depressurize a house just once,” he said. At the same time, “I find it incredible how much bad work is out there and it’s not just one trade, it’s everybody,” he said. The trades people and the contractors managing them are not up to the current level of building technology, he said, and the skills and techniques used to improve home performance are evolving. Remodelers have two opportunities in this field: they can do the work, or they can become evalutors. The former is best suited to those who want to avoid risk, but they will be testing only one or two homes a day, at a cost ranging from $250 to $1,000, limiting annual gross sales to a maximum of about $200,000. Remediation contracting, on the other hand, will bring in jobs that are $7,500 and higher for those who are interested in running a $1.5 million a year business. “You need to sell jobs and ramp up quickly,” he said, “but there are all kinds of opportunities.” However, “if you cannot run the business you have currently, you’re not going to be able to run this business,” Asdal cautioned. “You have to be a sharp business person. You can’t wing it” and knowledge of testing and evaluation, and solutions and products, is essential. “Don’t try and sub that.” Success in this field will come from “all the resources you put at your disposal,” he said, such as case studies from the Department of Energy. He also suggested telling customers “what you are going to do and what you won’t. You are making better houses, not perfect houses.” Don’t Sell on Cost Alone Where consumers are involved, Asdal emphasized that builders are missing out on sales opportunities by focusing on first costs and ignoring the many other factors involved in the customer’s decision-making process, such as social responsibility, contractor pressure, warranties and peer pressure. The motivation behind a consumer’s decision “may not make financial sense,” he said. “And you will sell differently when you know that the decision-making process is not just cost recovery.” Showing that “there is logic and order to buying decisions,” Asdal has devised a tool that provides a hierarchy of options for consumers based on their priorities. For example, in analyzing one of his customers for whom dissatisfaction with the location of her home was the most important factor, the best option was moving instead of remodeling and staying in the house. “I had a solution to fix the house,” he said, “but it wasn’t going to fix their zip code. They would never have been happy with a $300,000 remodel.” An analysis of work on a demonstration home in Las Vegas in 2000 where energy savings was the only criterion and $2,000 was able to reduce the energy bill by 44% yielded quite different results. Looking at additional costs versus how many years it would take to pay them back, a programmable thermostat was the best option and aerosol duct sealing was the worst. To illustrate the limitations involved in not considering the full range of factors behind consumer decisions, he cited a wind power company in Okalahoma that is selling its products on operational costs alone. “Had he made this multi-dimensional, there may have been people who would buy wind towers just so the neighbors could see them.” Asdal cited a study showing that “everybody wants green things, but only 13% are willing to pay for them.” That’s why, he said, “you have to sell other options.” New Master-Level Designation for Remodelers Available Soon Starting in February, Certified Graduate Remodelers (CGR) can attain further recognition for their commitment to educational excellence and longevity in the remodeling industry by earning the Graduate Master Remodeler (GMR) designation — the master level of the current CGR designation. For more information, visit www.nahb.org/GMRinfo or e-mail GMRinfo@nahb.com. Lead-Safe Remodeling Reduces Risks, NAHB Tells Congress
Instead, Nagel told Senate leaders, Congress should work with the relevant federal agencies to coordinate efforts, to fully fund important lead-safe training programs and to effectively use the combined resources in a way that maximizes outcomes. Nagel told Senate leaders that professional remodeling, renovation and repair work, performed by knowledgeable, trained contractors, can serve as an agent against spreading lead hazards in older homes. “Despite decades of effort, lead poisoning remains an important problem facing young children living in older homes and housing units,” Nagel said. “NAHB Remodelers has responded to this challenge by implementing extensive training and public awareness programs and has worked cooperatively with the EPA and other advocacy groups to promote voluntary programs for lead-safe work practices.” Last year, NAHB Remodelers and an environmental consulting company tested the effects of typical remodeling practices in homes where lead paint was present. The testing confirmed that lead-safe remodeling and renovation improves lead levels in older homes, and that new hazards are not created when typical remodeling and renovation is done by trained professionals. NAHB continues to invest significant resources in research about the benefits of lead-safe work practices and looks forward to working with Congress to expand on efforts like these in the future, Nagel said. It’s Not Always Easy Being a Remodeler, Experts SayThree professional remodelers at various stages in their careers revealed significantly different approaches to guiding their businesses to success during an open “town hall” discussion based on questions from the audience at the Oct. 10-12 Remodeling Show in Las Vegas. Just named the winner of the inaugural Fred Case Remodeling Entrepreneur of the Year, John Abrams, founder and president of South Mountain Company, credited his success to his company’s unusual approach to both its customers and its employees. Working exclusively on Martha’s Vineyard, Mass., 16 of South Mountain’s 32 employees have an ownership stake in the company, and the rest are on track to eventually reach that milestone in their careers, Abrams said. “Sharing ownership changed everything for our company,” he said, a decision that the 30-year-old firm made 21 years ago. Anyone with five years experience or more “can buy in for the price of a good used car,” he said, from which point on they accumulate equity based on profits. Even with that incentive, however, he conceded that good employees these days can be hard to find, especially in a locality where the median price of a home is $750,000. “We have to provide affordable housing to get people,” he said. The population of the island off Cape Cod is now 20% Brazilian, he said, and the immigrants have elevated the local work ethic. “My subs rely on them 100%,” he said. When it comes to marketing, South Mountain has been ringing up an annual sales volume of $7.5 to $8 million relying entirely on referrals from its previous clients, who literally open the doors of their homes to prospective clients. The key box in the company’s office holds 120 keys to prior jobs, Abrams said, “and we take people to the houses as a design tool.” The occupants are used to the process because they participated in it themselves when they were considering having work done, and they can expect to receive flowers from Abrams for allowing strangers to visit their homes. Not Charging Enough At the other end of the spectrum and still building a foundation for his business, Dylan Wadlington, of Wadlington Remodeling in Pine Grove Mills, Pa., said he has only subs working for him but has started feeling “a little too spread out” and would like to make his first hire in the field. He motivates his production workers by letting them know the leads that are on his plate. “I let them know we have work coming,” he said. For the first seven years he was in the business, Wadlington said, he relied on the help of his friends, but now he is making introductions at places like the lumber counter, face to face, hoping to land employees without any advertising. Wadlington indicated a natural proclivity for building green and noted that such approaches to his work as recycling and using non-toxic paint don’t increase his overhead and actually help bring him customers. “People get excited by the responsible use of materials,” he said. Dylan reported that he has been “growing wildly” for four years, with sales volume plateauing at $600,000 this year — up from $528,000 last year. For his business, pricing jobs based on time and the cost of materials has provided the “meat and potatoes,” he said, and he has changed to bidding only recently. Dylan conceded that he hasn’t been marking his jobs up nearly enough, but he won’t go below a typical markup to sell a project. “I stick with my price,” he said. “I won’t lower the price to get the job, because that job’s not worth having and I don’t charge enough in the first place.” The next step for his company, he said, is to begin marketing and try to become more profitable by charging more, knowing his number and, when he doesn’t know something, start reading until he figures it out. Growing Pains Closer in the experience range to Wadlington than Abrams, Karen Zieba, of Zieba Builders, in Long Beach, Calif., has reached a yearly sales volume of $1.5 million working in three coastal communities. She said that her company started feeling “growing pains” when it surged from $1.2 million to $1.8 million in one year, and lost $140,000 in the process. “We didn’t pace ourselves, or prepare for growth,” Zieba said. To remedy the situation, “we scaled back,” she said, “turned down more work, invested in training and tried to get our markups higher.” Before growing, it’s a good idea “to figure out where you are weak first,” she said. “Growth will magnify the weaknesses. Clean those up first, then position yourself in the market.” Zieba said that she also has relied on cost-plus pricing to get her business going, charging $1,000 a week for general management job costs, a guaranteed labor rate and a 27% markup on top of that. “But with cost-plus you won’t make any more than that, and we didn’t get as many referrals.” Zeiba said she markets through customer referrals, a simple letter to the neighborhood and by networking through community service efforts such as helping out in the school classroom and helping to build a public park. Unlike the typical remodeler, Zeiba said that she does use customer financing on some jobs, although there are certain financing options that she will not recommend. She uses bankers with whom she has established relationships and she steers owners to the right financing. And unlike Wadlington, Zeiba said she finds green remodeling a hard sell. “Consumers have been reading a lot of lifestyle magazines touting green products” that tend to be more expensive than their traditional counterparts. In working with them, her job, she said, is to set reasonable expectations and “let the consumer make an informed choice.” To ensure that she doesn’t go over budget, Zeiba said that she tracks costs through the project. “You will know the first week it happens,” she said. “Clients don’t want to spend too much money. You explain that if you spend this much money on something, you will be over budget. You then have to offer them alternatives.” The discussion was moderated by Tom Swartz, J.J. Swartz Co., which has two locations in Illinois. New Master-Level Designation for Remodelers Available Soon Starting in February, Certified Graduate Remodelers (CGR) can attain further recognition for their commitment to educational excellence and longevity in the remodeling industry by earning the Graduate Master Remodeler (GMR) designation — the master level of the current CGR designation. For more information, visit www.nahb.org/GMRinfo or e-mail GMRinfo@nahb.com. Asdal, Hanbury, Petersen Honored by NAHB RemodelersBill Asdal, CGR, of Asdal Builders in Chester, N.J., and Bob Hanbury, CGR, from House of Hanbury in Newington, Conn., were inducted into the Remodelers Hall of Fame during the NAHB Remodelers gala held at the Remodeling Show in Las Vegas Oct. 11. Asdal was honored for his local, state and national leadership on key remodeling issues, including energy conservation. Hanbury was recognized for his mentoring, leadership and work on the lead issue. At the same ceremony, Bob Peterson, CGR, CAPS, of Associates in Building and Design in Fort Collins, Colo., was named the Remodeler of the Year. In addition, several other remodelers and remodelers councils were honored for their accomplishments during the year. Homes for Life Award The Homes for Life Award recognizes excellent remodeling work for aging in place and universal design remodeling work. Bill Owens, CGR, CAPS, of Owens Construction in Powell, Ohio, was given the Homes for Life Award for his work to integrate a home addition for a couple with increasing mobility concerns. CADRE Award Winners Several councils and council members were also honored with Council Awards for Demonstrating Remodeling Excellent (CADREs) that recognize achievement at the local council level.
Research Center Gets Grant to Study Post-Disaster HousingThe U.S. Department of Housing and Urban Development (HUD) recently awarded the NAHB Research Center a $2.9 million grant to conduct extensive research and provide counsel on effective post-disaster housing alternatives in areas affected by Hurricane Katrina. HUD competitively selected the Research Center to oversee technical evaluation of the construction and viability of housing built under the Federal Emergency Management Agency's $400 million Alternative Housing Pilot Program (AHPP), an initiative aimed at expanding the types of housing FEMA provides disaster-affected communities. Through this award, the NAHB Research Center will provide HUD, and ultimately Congress, an in-depth assessment of how the AHPP projects are performing in Gulf Coast states. The study of AHPP housing alternatives will span 54 months, focusing on work sites in Alabama, Louisiana, Mississippi and Texas. Since much of the AHPP housing will be factory-built, the Research Center selected the |