Pella Builds, Strengthens During Housing Downturn
Mel Haught, president and chief executive of Pella Corp., says the national housing downturn is unlike any that the Iowa-based window and door maker has experienced in 30 years. “It’s an overheated housing market that’s trying to adjust,” he says, and wasn’t triggered by high interest rates or unemployment. Looking at the long-term prospects for housing, Haught says there’s no question that the market will come back and his company has “continued to strike a balance between managing the current circumstance and investing in the future.” Pella has worked hard over the past 14 years, he says, to diversity so that a significant amount of its business is in remodeling and replacement, and it recently acquired EFCO, a Missouri-based maker of commercial windows. On prospects for job cuts, following the announcement of about 120 layoffs in February, Haught says: “We’re really well-positioned right now. In most cases, there’s some amount of turnover in our business, so we’re just letting that take place and being thoughtful and careful about replacing people. You have to get your business balanced with current circumstances. We don’t expect to reduce our workforce. We have a strong culture, a strong history of continuous improvement — sometimes referred to as lean. Sometimes when business slows a little, we increase our activity level on continuous improvement. It serves to make us more productive, and hopefully, in the long-term more efficient and more effective.” (www.desmoinesregister.com)
Des Moines Register (10/29/07); Donnelle Eller
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Industries Tied to Housing Market Slow, Let Workers Go
Housing woes in California’s Central Valley have triggered an employment collapse in some industries closely tied to the market. Mortgage companies and title insurance firms are closing branch offices and shedding employees by the dozens. Some real estate agents have walked away from the business. Others are hoping to weather the downturn and emerge as savvier professionals. Construction firms are scrambling to find commercial or industrial work to offset the slowdown in residential building. General laborers who used to spend their days nailing together houses are shifting to other fields, some returning to the farms where they worked before construction offered a better-paying alternative. Since the start of the year, more than 40,000 workers nationwide have lost their jobs at mortgage lending institutions, according to data compiled by global outplacement firm Challenger, Gray & Christmas Inc. Construction companies have announced nearly 20,000 job cuts this year, while the National Association of Realtors® expects its membership rolls to decline for the first time in a decade. Title companies were dealt a serious blow when the market turned, said Terry Harwell, division president of Alliance Title Co. in Stanislaus County. Transactions at the firm have plummeted 40% a year for the past two years, forcing the company to reduce its staff of 165 by 65% and shut three of its 10 branch offices. Its remaining employees have taken a 10% pay cut. (www.modbee.com)
Modesto Bee (10/29/07); Christina Salerno
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A Cautious Path for Builders (Forced to Adjust Pace and Pricing in New Home Construction)
The downturn in residential real estate has prompted builders of conventional subdivisions in Massachusetts to cut prices and offer financial incentives to entice increasingly selective buyers. The developers of the Zain Ridge condo development in Milford recently offered free Toyota Camrys to purchasers. Builders are also cutting back on starting new construction, with new home permits in the state down 25% from last year so far and possibly headed for a 28-year low, according to the Center for Urban and Regional Planning at Northeastern University. Some builders have adapted to the new realities by focusing on the upper end of the market, which is less affected by the subprime mortgage meltdown and where many buyers don’t have to sell a home before they can buy another. “If you have a very special location and a high-end project, you can achieve extraordinary sales results even in a down market,” said Hingham developer Tom Hastings. His firm, the Hasting Companies, has built a range of projects over the years, including manufactured home parks and conventional subdivisions. Its main housing development now is a luxury project on the Back River in Hingham with 45 homes ranging in price from $825,000 to $1.4 million. While the market slump has prompted nearly all of the state’s builders to slow the pace of construction, and they are especially cautious about speculative projects, residential real estate in Massachusetts does not appear as troubled as it is in other parts of the country. Restrictive zoning, scarce buildable land and conservative lending practices have prevented a huge oversupply of new homes. “We haven’t built enough to keep up with demand,” said Judy Jenkins, who is senior vice president of the Home Builders Association of Massachusetts. “We don’t have the big empty subdivisions we’re seeing in other parts of the country.” (www.boston.com)
Boston Globe (10/28/07); Robert Preer
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As Housing in Florida Plummets, the Top Tier of the Market Just Dips
Despite a record number of foreclosures and a raft of public auctions of unwanted houses, the upper tier of the real estate market in Florida remains relatively immune to the spreading disaster. Houses and condominiums with price tags of $1 million or more are changing hands robustly in some of the most exclusive areas, though at a pace less brisk than a year ago. The glistening waterfront glass towers on Miami Beach, the sprawling estates set in manicured gardens in Palm Beach and the clustered mansions in Naples are attracting buyers, both domestic and foreign. “The very, very high end of markets in communities such as the Bay Area, Los Angeles, Manhattan and Miami and to a lesser degree Chicago, Seattle and Washington that have global appeal have held up much better than the rest of the housing market,” said Mark Zandi, chief economist at Moody’s Economy.com. “A recession would certainly not help the high end, but it would not undermine it. And much of their buying is done with cash and not affected by the global financial turmoil and its impact on the availability of mortgages.” (www.nytimes.com)
New York Times (10/27/07); Geraldine Fabrikant
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Area Home Owners on Solid Ground in Housing Market
A recent study of housing prices in the country’s 50 largest metropolitan areas shows, on average, a 32.9% chance that home prices will decline in the next two years. But in the Fort Worth-Arlington, Texas market, the chance of a decline is 8.9%, putting the area next to the bottom among the 50 areas, according to PMI Mortgage Insurance, the U.S. subsidiary of PMI Group. The chance of a decline in the Dallas-Plano-Irving area is 9.5%, also among the country’s lowest. The hardest-hit areas are likely to be Nevada, California, Arizona and Florida, where the chances of home prices falling in the next two years are better than 50%, PMI found. In Texas, home prices have been gaining about 4% annually, and could stay that way for the foreseeable future, experts say. In North Texas in September, the median selling price of homes rose 3% to $147,500 from a year earlier, although selling a home is taking longer. Homes now stay on the market for an average of 74 days before closing. “We did not have the bubble,” said Jim Gaines, a real estate economist at Texas A&M University’s Real Estate Center. “We didn’t have the inflated prices. Those high prices made no sense. People just couldn’t afford to keep paying those kinds of prices. It’s all coming home to roost now.” In recent weeks, the country’s largest home builders have announced plans to construct far fewer homes. Fort Worth-based D.R. Horton said it has already greatly improved its cash flow because of building reductions. “I really don’t see our inventories being that out of whack,” said Ted Wilson, a partner with Dallas-based Residential Strategies, a market research firm. “With the lack of new starts, we’re hopeful the housing inventory gets mopped up. If anything, what we’ve seen in new home prices is that they’re edging higher.” (www.star-telegram.com)
Fort Worth Star-Telegram (10/29/07); Sandra Baker
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Lenders Curb Mortgages in Weaker Areas
Mortgage lenders are cutting the maximum amount some borrowers can finance in counties or states where home prices are declining, and they are also taking a tougher look at appraisals. Among the areas being hit by the tougher standards are California, Florida and Michigan. The sharper focus on soft housing markets comes after mortgage lenders have tightened their standards for all borrowers amid a slowing housing market, a widespread credit crunch and rising delinquencies. New national data from Equifax Inc. and Moody’s Economy.com show that the mortgage delinquency rate jumped to 3.3% in the third quarter from 2.3% a year earlier. With house prices falling, lenders are looking to control their risk, says Doug Duncan, chief economist of the Mortgage Bankers Association. But “there’s a little bit of a self-fulfilling prophecy,” he adds. “If you tighten standards, fewer people can qualify [for a mortgage]. Effective demand is going to be lower, resulting in lower house prices." Thornburg Mortgage Inc. in Santa Fe, N.M., which specializes in larger loans, has begun looking at median home prices in specific markets when it assesses a particular loan. “If we’re making a $2 million loan in Manhattan, we’re a lot more comfortable with it than a $2 million loan in Dearborn, Mich.,” where prices tend to be much lower, says Thornburg President Larry Goldstone. (http://online.wsj.com)
Wall Street Journal Online (10/23/07); Ruth Simon
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