Print-All Page: October 24, 2005

Frustrated that steadily increasing the federal funds rate in quarter-percentage-point increments hasn’t driven up the low long-term mortgage rates that have helped fire up the housing market in recent years, the Federal Reserve will continue tightening into early 2006, when housing activity should start flattening out below this year’s torrid levels, according to economists at the NAHB Construction Forecast Conference in Washington, D.C. on Oct. 19.

“The housing market is seeking out a peak,” said NAHB Chief Economist David Seiders, and while it is still too early to conclude that it has found one — with housing starts increasing 3.4% in September and third-quarter performance exceeding expectations — there is growing evidence that the Fed has started to hit its mark and housing will begin losing some of its exuberance in the period ahead.

“The power of long-term interest rates for housing is incredible,” said Seiders, and key to the housing outlook is where those rates are headed. The rates on 30-year fixed-rate mortgages reported weekly by Freddie Mac have been moving up over the past month, he pointed out, and are now above 6%.

In his housing forecast, Seiders is predicting that long-term mortgage rates will rise by another 60 basis points by the third quarter of next year, bringing them to about 6.6%.

The Federal Reserve will decide to boost its federal funds rate by one-quarter of a percentage point at each of its next three meetings, he predicted, bringing it to 4.5% at the end of January when Fed Chairman Alan Greenspan's term runs out. Most likely, that will be the rate at which the central bank decides that its policies have reached neutrality, neither stimulating nor slowing down the economy.

Greenspan has discovered that it’s no longer as easy to slow down housing as it used to be, and the Fed has run into difficulty in taking some of the steam out of a boom that it believes has been running too hot and cannot be sustained.

The proliferation of “exotic” adjustable rate mortgages (ARMs) such as interest-only and payment-option loans, along with a rise in speculative buying that has been boosting home purchases and prices in hot markets, has strengthened the Fed’s determination to gain control over the housing sector, he said.

Monetary policy may already be starting to work. The Mortgage Bankers Association's weekly index of mortgage applications to buy homes has for the past 10 weeks shown “fundamental flatness hovering around a high level,” Seiders said. However, initial interest rates on ARMs have remained at attractive levels despite increasing market rates because lenders are discounting the initial rates, “holding the actual initial rate 2% below what could be charged."

NAHB is forecasting a decline in total housing starts from 2.032 million this year to 1.94 million in 2006 and a further drop to 1.883 million in 2007. After that, the annual production of new housing units (including manufactured homes) should settle around 2 million units, which is within the 1.9 million to 2.1 million rate that is sustainable on average for the 2003-2013 period, he said.

“We have been running a tad above that,” Seiders said, “but the comedown shouldn’t be all that dramatic.”

Single-family construction is projected by NAHB to decline from 1.683 million starts this year to 1.590 million in 2006 and 1.533 million in 2007. Multifamily output, however, should remain close to the 349,000 level expected for this year through 2007.

With rental vacancy rates falling and condominiums becoming oversupplied in some markets, the composition of the multifamily market should shift a bit away from condos and back to market-rate rentals, he said.

In general agreement with his co-panelists about the outlook for the nation’s economy — with growth declining from about the 3.5%-3.6% range this year increasingly towards 3% in 2006 and 2007; unemployment leveling off at about 5%; and inflation moving up some but remaining mild — David Wyss, chief economist for Standard & Poor’s, cited a further spurt in oil prices as one of the things that could go wrong for the economy in the short run.

Oil prices are coming down in the medium term,” Wyss said. “There is a lot of oil that can be brought in at the $35-$45 range” once energy companies make the investment in increasing the supply, but that is a process that will take a few years.

However, as a result of a temporary shutdown of 20% of the country’s refining capacity from Hurricane Katrina, which was already running at 99% utilization before the storm, the availability of natural gas for heating could be a problem. “We can get by with existing supplies if this is a normal winter,” he said. “Otherwise, stock up on sweaters. They make a nice gift.”

Over the longer range, Wyss expressed pessimism about energy prices, with demand for fossil fuel expected to leap 50% over the next two decades, with 80% of the increase coming from China and India.

While the U.S. budget deficits should be heading back to balance at a time when the economy doesn’t need any fiscal stimulus, Wyss said that the deficits nevertheless “are not quite the disaster” that some economists say they are, with the 2004 deficit equivalent to less than 3% of GDP, the lowest among industrialized countries.

But there will be a crisis when baby boomers begin retiring and collecting Social Security and Medicare benefits, pushing U.S. debt from 65% of GDP this year to 239% by 2005 — unless Congress finds a way to address the problem.

Just short of 6% of GDP, the U.S. trade deficit is another potential problem, but foreign nations are relying on trade surpluses to help keep their economies growing and favor intervention by central banks to keep the value of the dollar propped up, and the U.S. is doing little to discourage this policy because it needs the money, he said.

“The U.S. is spending money like a drunken sailor, but fortunately we have this Japanese girlfriend who keeps slinging cash at us,” Wyss said.

Wyss said that he foresees no housing bubble even though the ratio of the average home price is running at 3.2 times the average household disposable income, compared to a more normal ratio of 2.6 times.

Today’s home price would only be three times the housing price if homes were being built to the same size and with the same amenities as 10 years ago, he said.

“In the pure sense of the word, there is no housing bubble,” he said. Home owners measure the price of their house as the monthly payment, “and those are still low; housing is affordable.”

As mortgage rates head slowly upward, reaching 7% over the next couple of years, Wyss expects home prices to stabilize for four to five years, giving incomes a chance to catch up.

Looking at prospects for local bubbles, Wyss cited San Diego, with a 9.68 house price to income ratio, followed by San Francisco, 9.19; Los Angeles-Long Beach, 9.14; Orange County, Calif., 9.04; New York, 8.62; Honolulu, 7.78; Miami, 6.84; West Palm Beach-Boca Raton, Fla., 6.15; Boston, 6.11; and Providence-Warwick-Pawtucket, R.I., 6.05.

At the other end of the spectrum, the cost of a home is running at less than two times income in Wichita, Kan., he said, and beyond the West and East Coasts, there’s “not much evidence of excessive house prices elsewhere in the country.”

As interest rates do rise, the majority of mortgage borrowers won’t be affected in this country, he added, because 65% of all mortgages are fixed for terms of 15 years or more and only 10% are adjustable within two years.

Low mortgage interest rates are responsible for today’s higher than normal home price to income ratio, said Maury Harris, chief U.S. economist and managing director for UBS, and the impact of rising mortgage interest rates in the period ahead will be largely offset by better growth in household income so that home prices are unlikely to decline on a national basis despite some regional weakness.

The market perception of the fair value of housing has changed, he noted, because of more favorable capital gains treatment in the tax act of the late 1990s, the ease of extracting equity and the public disaffection with the stock market.

The impact of speculation in the housing market has been overstated, Harris indicated. UBS research has found that investors have accounted for roughly 10% of mortgages to purchase homes in the current market, compared to 5% previously, a level that is significantly below a finding by the National Association of Realtors® that investors accounted for one in four homes sold last year.

By region, the investor share of purchases has been up in hot markets, he said, “but a lot of these have good population growth.”

“There’s a lot more rationality than irrationality behind what’s going on with home prices,” Harris said. “They’re going to slow down, but they aren’t going to crash.”

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Remodeling Activity Continues Trending Upward

For years housing analysts have been predicting that the day was nearing when the nation’s volume of remodeling activity would surpass new construction, but home building has been doing so well in recent years that the gap for remodelers has actually widened instead of narrowing even as business has proceeded at a healthy clip, Kermit Baker, senior research fellow at Harvard University’s Joint Center for Housing Studies, told the NAHB Construction Forecast Conference in Washington last week.

Over the past decade, remodeling’s contribution to the annual $450 billion in new construction that accounts for 4% of Gross Domestic Product has declined from under 50% to 38%, Baker said, with average annual growth of 6% trailing behind a 10.2% yearly average for new housing production.

Improvements by home owners, which constitute the largest share of the remodeling market, reached an annual rate of $139.1 billion in the third quarter, according to the Housing Center’s Remodeling Activity Indicator (RAI), and appear to be leveling off at an annual growth rate of about 5%.

“Key drivers of home improvement spending — home sales, employment increases and income growth — remain steady, so remodeling spending should continue growing modestly over the coming quarters.”

NAHB Chief Economist David Seiders said that the overall remodeling market should post “real” annual growth in the 2%-3% range going forth even as housing production flattens out following a modest decline.

Ordinarily, Seiders said, remodeling could be expected to follow in the direction of new construction but home owners are sitting on record amounts of equity that can be readily used to make improvements and the recovery from Hurricane Katrina has bolstered demand, as well.

The renter component of the remodeling market, about 25% of activity, “has been pretty darn flat,” he said.

Slicing up 2003’s $138.1 billion home owner improvement pie, Baker said that remodels and additions accounted for $59 billion, or roughly 40%; interior and exterior replacements and replacements and upgrades of systems and equipment took a 35% share, at $54.1 billion; and $25 billion worth of improvements to the property equaled a 20% share.

As home owners take a growing interest in backyard and outside amenities, the latter category accounts for a growing share of the market, Baker said.

Growth at the upper end of the remodeling market has been especially pronounced, Baker said. High-ticket projects in 2003 costing $10,000 or more accounted for a 52% market share, up from 37% in 1995, adjusted for inflation; and households spending $25,000 or more were responsible for a 31% share, up from 16%.

Tracking 63.5 million owner-occupied homes from 1994 through 2003, using 1995 home values, Baker said that major improvements greater than 50% of the home’s value were made to 6.7% of the stock; significant improvements of 10%-50% of home value were made to 39.1%; and modest upgrades of less than 10% but more than $1,000 accounted for 44.1%.

More than 10% of the home owners made no improvements over the 10-year period, “and when these homes turn over, they will likely undergo some significant improvements to make up for the work that hasn’t been done,” he said.

Owner households are typically spending about $2,000 a year on home improvements, he said.

While most major remodeling markets continue to be located in the Northeast and Midwest, where the housing stock is older, top growth markets are emerging in the Sunbelt, Baker said. Among the fastest growers there are Los Angeles and Dallas-Ft. Worth.

“The Remodelers’ Cost of Doing Business Study,” just released at BuilderBooks.com, provides a statistically accurate analysis of the remodeling industry in terms of size, profitability, time in the business, business organization and staffing. To view or purchase this publication online, click here, or call 800-223-2665.

Where a Slump Would Hurt Most

If the economy heads south, the hardest hit areas would be those whose job growth is tightly tied to construction. The most vulnerable spots according to a new analysis by BusinessWeek would be Riverside-San Bernadino, Calif.; San Diego, Phoenix and Las Vegas. All are places where new jobs in construction accounted for more than 20% of total payroll growth in the past year, compared to 10% nationwide. In the East, locations include Tampa-St. Petersburg, Fla.; Baltimore and Newark, N.J. “In the face of a slowdown, it’s hard to say which other sectors of the economy would step up to maintain current employment levels” in Newark and wealthy New Jersey suburbs of New York, where growth in construction jobs is masking a decline in other kinds of jobs, according to Patrick O’Keefe, CEO of the New Jersey Builders Association. NAHB estimates that building 100 single-family homes generates about 350 jobs for a year, 280 of which are local. (www.businessweek.com)
BusinessWeek (10/24/05); Peter Coy, Paul Magnusson, Christopher Palmeri

Gulf States Brace for Real Estate Storm

The short-term effects of Hurricane Katrina are being felt in rising property values in devastated areas of the Gulf Coast. Even damaged properties fetch premiums in some areas, and undamaged homes are priced about 20% higher than pre-storm levels, says Dan Triplett, owner and president of Gulf Coast House Buyers in Gulfport, Miss. In New Orleans, the only home sales occurring are on a cash basis and the recorder’s office has not yet opened, so prices are difficult to assess. The one certainty, according to Michael Haddad, editor of New Orleans Real Estate News, is the spiraling cost of rental properties, which have spiked 40%, 50% and even 60% in some cases. As for home values, “I see them going up, but it’s hard to say by how much,” he said. “Things haven’t stabilized here yet. (www.csmonitor)
Christian Science Monitor (10/17/05); Erik Spanberg

Architect Builds on to His Takoma Park Home With Straw

An architect in Takoma Park, Md., is transforming his 600-square-foot Craftsman bungalow with a 2,100-square-foot rear addition of straw bales and wood. Before the first frost of the season, workers have to plaster the outside of the bales with a lime and sand mixture that will harden. Metal harnesses, or laths, connect the wood and straw so the plaster will hold. Inside, the bales will be smeared with earthen plaster — a mix of sand, clay and straw — and natural pigments, creating a softer texture. The architect estimates that his addition, using roughly 275 bales of straw, will cost about $150 a square foot, compared to the average cost of building a home in the Northeast of just under $107 a square foot last year, according to NAHB. He plans to start making up the difference in lower energy costs this winter, when he expects to heat the home with about $400 worth of corn. (www.baltimoresun.com)
Baltimore Sun (10/19/05); Dorcas Taylor

Remodeling That Makes Sense

The average payback in recent years for remodeling jobs has ranged between 79% and 86% when the home was sold, according to Remodeling magazine, with the best returns coming from bathrooms and kitchens, which recover 90%-93% of their costs. But Sal Alfano, the magazine’s editorial director, says that well-done projects can pay for themselves immediately if home prices are rising rapidly, and the return on a project can exceed 100% if it brings the house up to the standards of the neighborhood. Among the items that home buyers prize the most, according to experts, are: granite or quartz-based synthetic kitchen countertops; stainless-steel appliances; stone or real wood floors, not vinyl; mud rooms; and decks and patios. Updated flooring, all things being equal, can increase a home’s value by 5%-11%, according to a study by G. Stacy Sirmans, a professor of real estate at Florida State University. (www.kiplinger.com)
Kiplinger (11/05) Elizabeth Razzi, Pat Mertz Esswein, Amanda Friedman

Home Sweet Home

Age-restricted housing communities are a national trend, according to Jeff Jenkins, assistant director of NAHB’s 50+ Housing Council. “It’s really hot in the mid-Atlantic states and New England,” he said. “In the past, a lot of people retired to the Sunbelt states,” but there has been a shift in the trend. In 1995, 78% of all retirement communities were built in the Sunbelt. Today, 60% are being built outside the Sunbelt. “People now want to retire close to home, where they can be near their children and grandchildren,” Jenkins said. “A lot of them still work part-time or full-time or offer consulting services.” Many active adults also want to be near metropolitan areas. In the 2000 Census, Pennsylvania was among the top five states with a growing population of people between 55 and 74. The state had 2.1 million people in that age bracket, or 17.1% of its total population. (www.ldnews.com)
Lebanon Daily News (10/17/05); Chris Sholly

Baghdad Real Estate Market Is Booming Despite Escalating Violence

A five-bedroom river-view house in Baghdad that sold three years ago for $45,000 is now selling for $300,000 as the war-torn city’s housing market booms. Enough money has been flowing into Iraq that home values in some parts of town have increased by almost 1,000% in three years. Fixer-uppers — houses or business properties that have suffered extensive bomb or bullet damage — are particularly hot properties. A typical house in Baghdad is two stories high, with tiled floors, a tennis court-sized front yard, large rooms with high ceilings and large windows, second-story outdoor patios in front of and behind the house and a third patio on the roof for sleeping during the hot summer. Real estate agents rarely advertise sales, and many places sell without “for sale” signs. Selling homes can be dangerous. “I liked the business more back before the war,” says Abu Mohammed. “Maybe there wasn’t as much money then, but I know 10 men who owned agencies who have been murdered.” (www.rismedia.com)
RISMedia (10/17/05); Beth Bresnahan

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September Home Starts Rebound From Katrina

Rebounding from the disruption of Hurricanes Katrina and Rita, new-home construction maintained a vigorous pace in September, the U.S. Commerce Department reported on Oct. 19, increasing 3.4% to a seasonally adjusted annual rate of 2.108 million units following upward revisions for July and August.

The September construction pace was running 10.3% above a year earlier and remained above 2 million units for the sixth consecutive month.

Single-family home construction rose 2.6% to a near-record pace of 1.747 million units in September, 12.3% above one year earlier.

“Builders are operating at a very healthy pace and see little letup in the months ahead, despite the initial shock and economic uncertainties immediately following Hurricanes Katrina and Rita,” said NAHB Presidents Dave Wilson.

“All the fundamentals remain in place and the overall housing market continues to exhibit ongoing strength,” said NAHB Chief Economist David Seiders. “Favorable mortgage rates as well as strong household income and job growth continue to bolster housing demand.”

Regionally, construction of new homes and apartments last month rose 1.9% in the Midwest and 6.9% in the South, despite adverse weather effects along the Gulf, while the housing starts rate remained unchanged in the Northeast and West.

Multifamily housing starts increased by 7.8% last month to a seasonally adjusted yearly rate of 361,000 units, which was 1.1% above September of last year.

The number of building permits issued in September increased 2.4% to a seasonably adjusted rate of 2.189 million units. Single-family permits were up 4.4%, reaching a record annual rate of 1.749 million. Multifamily permits were down 4.8%.

“HousingEconomics.com,” the online publication from the NAHB Economics Group, is your single source for market analysis, forecasts, housing statistics and more. The Housing Activity provides a monthly review of national production, sales, and prices for both the single-family and multifamily housing markets. Click here to review a previous housing cctivity. To learn more or subscribe to “HousingEconomics.com”, visit www.housingeconomics.com.

Rapid Home Price Gains to Start Winding Down

Double-digit annual increases in housing prices are unsustainable, David Berson, vice president and chief economist for Fannie Mae, told the NAHB Construction Forecast Conference in Washington, D.C. last week, and markets overall may be approaching a point where price gains will decelerate, with declines in real prices possible in some hot spots where there has been a heavy amount of home buying by investors.

“It feels like we’re teetering on some sort of edge” and activity may be in the process of moving down from peak levels, while remaining relatively high, Berson said, although there is still little hard evidence to suggest that the housing price boom is nearing an end.

House prices rose 13.4% during this year’s second quarter from the same period a year earlier, according to the Office of Federal Housing Enterprise Oversight (OFHEO), the sharpest rise in 25 years, and Berson said he expected to see little slippage from this fast pace when figures for the third quarter are released.

However, there has been some near-term evidence from Realtor® boards of jumps in the inventory of homes for sale, particularly in Northern Virginia and Broward County, Fla., that may be precursors of a slowdown in prices, he said.

Up until about two years ago, Berson noted, the growth rates of home prices and incomes were moving pretty much in tandem. Now income gains have been outstripped by home price rises, “and unless interest rates continue to decline, that can’t last.”

For the 12-month period through the end of the second quarter, home prices grew in excess of 20% in 29 of the nation’s 100 largest metropolitan areas, and no markets experienced a decline, an unusual circumstance, he said.

In the meantime, housing affordability has been edging down, to some extent because mortgage rates have been edging up, but primarily because home prices appreciation has been so aggressive, Berson said.

Affordability is now at its lowest level since 1991 on a national basis, and in some locations — such as Las Vegas and Los Angeles — it has plummeted to its lowest point since the mid-1980s, despite very low mortgage rates, he said, and there has even been a recent downward tick in the homeownership rate, that may or may not be an indication of a future trend.

Recent home sales have been above trend, he said, and the positive impact of aging baby boomers on demand for both primary and vacation homes, along with other demographic factors such as household formation rates and immigration, have strengthened demand.

But a significant pickup in investor home buying has also been a major demand factor, and housing markets with the highest investor share of mortgages tend to also have been experiencing the most rapid price appreciation, according to Berson. Overall, investors account for about a 12.5% share of today’s new and resale housing market, he estimated.

Many of these investors are using adjustable-rate mortgages such as interest-only and more exotic ARMs, often with negative amortization, to minimize the impact of a negative cash flow before they sell them.

Areas where the home inventory is increasing rapidly most likely would indicate a big increase in supply, he said, and the source could be more homes being put on the market by investors who are starting to look at other assets and taking some dollars out of housing.

Berson said that investors are the most volatile source of housing demand, and where they have been accounting for 25%-30% of sales, there could be an impact on prices when they decide to pull out of the market. While economic downturns have always been a prerequisite for local or regional downturns in home prices, it is now possible that a retreat of investors could pull home prices down even with the economy growing, he added.

An average annual rate of home price appreciation in the 3%-5% range is a reasonable estimate for the next five years, Berson said, but it is too early to tell if the winding down process has yet begun.

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

Panelists Provide Welcome News on Materials Prices

With many commodity prices rising sharply during the past two years and surging even more in the aftermath of Hurricanes Katrina and Rita, experts at NAHB’s Fall Construction Forecast Conference offered some welcome news to builders who are suffering sticker shock over the cost of building materials.

“The worst is over,” said Michele Halickman, an economist for Global Insight's Industry Practice.

The supply-side shock from Katrina is destined to be short-lived, Halickman noted, with higher prices stimulating added production of key construction materials.

“Residential construction will cool in 2006 and demand will move down, which will help alleviate upward pressure on prices,” she said.

On the steel front, with new mines expected to come online in Australia and Brazil next year and Chinese consumption beginning to ease, imports are expected to become more accessible in the coming year.

“Supply lines have adjusted to ensure more availability, which will allow prices to fall,” said Halickman, who predicted that builders will not have to “budget as much for steel buying in 2006 as in 2005.”

Relief from soaring plywood and oriented strand board (OSB) prices, which spiked more than 50% in the weeks following Hurricane Katrina, may also be in the offing, according to Henry Spelter, an economist for the U.S. Forest Products Laboratory in Madison, Wis.

“There will be an additional billion square feet of OSB capacity in 2006 and another 2 billion in 2007,” said Spelter.

The capacity utilization rate for plywood and OSB is currently running above 90%, with the U.S. expected to consume 17 billion board feet of plywood this year and 26.2 billion square feet of OSB.

With production running at full tilt, panel prices could be buffeted by volatility through the early part of next year. But by the end of the decade, Spelter said that OSB production is expected to jump by an additional 10 billion board feet, while market demand minus import growth will amount to 4.2 billion board feet over the same time period.

With cement shortages still being reported in parts of more than 30 states and as the Gulf Coast begins its post-Katrina rebuilding efforts in 2006, Halickman cautioned that prices for this key commodity will continue to rise next year, albeit at a slower pace than in 2005.

“Availability of imports will be key to supply,” she said, noting that imports grew from 17% of total market share in 2004 to more than 20% by mid-2005.

“With no new significant domestic capacity until 2007, imports will play a large role. Ocean-going freight rates are coming down and imports from China are up as growth slows there.”

The Commerce Department is currently considering lowering the anti-dumping rate on imports of Mexican cement from 54% to 40% beginning in December.

In light of tight supplies and strong demand well before Katrina devastated the Gulf Coast, NAHB continues to urge the Commerce Department to suspend the entire duty on Mexican imports.

An ample supply of softwood lumber could exert downward pressure on prices in the coming year. A mountain pine beetle epidemic in British Columbia that destroyed 283 million cubic meters of forestland in 2004 presents the opportunity to harvest a large volume of timber in the coming years. In addition, billions of board feet of timber blown down from Hurricane Katrina will also need to be salvaged in the coming months.

However, this could be offset somewhat by a strong Canadian dollar and duties of more than 20% that continue to be levied on Canadian softwood shipments. Although Canada has won numerous definitive decisions from several North American Free Trade Agreement panels calling for the rescission of the tariffs, the legal process could still easily drag out well into next year.

Some Local Housing Markets Losing Strength

While economists at last week’s NAHB Construction Forecast Conference agreed that the incredible ongoing strength of the nation’s housing industry will eventually start to fade, some markets will invariably fare better than others and Economy.com Chief Economist Mark Zandi and NAHB Director of Forecasting Bernard Markstein weighed the relative strengths and weaknesses of metro areas across the country to determine their prospects in the months ahead.

Home sales and production have reached a peak nationally, according to Zandi, and in many markets “home sales will weaken first, followed by slower house price growth and finally, a decline in housing starts.”

“No consistent weakening has shown up yet,” Zandi said, but home sales have probably reached a level “as strong as we’re likely to see” in the current cycle and home price gains are likely to slow next year and flatten out in the year 2007.

“Housing is increasingly overvalued,” Zandi warned, particularly in cities across California and Florida and in “juiced up” markets such as Washington, D.C. and Boston. And not all of the overvalued markets are in high-growth areas; hit hard by job losses, Lansing, Mich. is also on his watch list.

States where home owners have withdrawn the greatest amount of equity as a share of disposable income are particularly vulnerable to the potential financial ramifications of a housing market slowdown, he said. Californians have extracted home equity equivalent to 15% of their disposable income, more than any other state in the union; and at 22% of disposable income, Stockton, Calif.’s equity withdrawal is the highest of any U.S. city.

Also at risk for sizeable economic impacts in a housing slowdown are localities where a larger than average share of jobs are related to housing, including Florida, California and Virginia.

Strong household formations are unlikely to forestall against the declining strength of housing markets, according to Zandi. “My concern is that the demographic underpinnings of the hot housing markets are starting to erode,” he said, and in places where home-price appreciation has outpaced family incomes, out-migration has resulted. “Places where affordability is collapsing are now seeing significant outflows of migration,” he said, especially in California.

A final risk factor is the proliferation of exotic mortgage loans, which are being embraced the most in places where buyers are finding that this financing is the only way they can afford high house prices. The interest-only loan share of adjustable rate mortgage originations is highest in San Diego; the San Francisco Bay Area; Denver; Sacramento; Los Angeles; Modesto, Calif.; Riverside, Calif.; Atlanta and Las Vegas, in that order.

“These are the markets I think are in trouble,” Zandi concluded, “although I don’t think housing construction is going to fall nearly as sharply in California as it is in other areas,” in part because that state is far from overbuilt. He is also flying a red flag over Seattle and Tacoma, Wash.; Portland and Salem. Ore.; a handful of cities across Florida, Michigan and Wisconsin; Charleston, S.C.; Chicago; Phoenix and Tucson, Ariz.; and the Washington, D.C. region.

On a more upbeat note, NAHB’s Markstein noted that regional housing market patterns are converging, with low-performing sectors expected to start doing better while high-performing sectors “do less well than in the past.”

“In terms of our overall forecast and where we think the nation’s housing markets currently are headed, we’re essentially in agreement [on a projected leveling-off period] for 2005 and 2006, but for 2007, Mark is a little more pessimistic than our national forecast,” he said.

“2004 was pretty good for housing, and in 2005 we expected a slowdown, but interest rates continued to stay nice and low” and kept the momentum in housing markets much stronger than anticipated, Markstein said. “In 2006, we are seeing the first indications of a bit of a slowdown in some places, but it’s still a very solid market overall.”

States with the highest number of housing starts per capita next year should include: Florida, Georgia, South Carolina, North Carolina, Delaware, Idaho, Nevada, Arizona, Utah and Colorado, he predicted.

Auguring favorably for housing, states recording significant employment growth of 2%-4% over the past year include: Florida, Arizona, New Mexico, Nevada, Kansas, Colorado, Utah, Idaho, Montana, Washington, Oregon, New Hampshire, New Jersey and Delaware. States with the highest projected employment growth for next year are Nevada, Arizona, New Mexico, Colorado and Delaware.

Also propitious for housing are states with projected unemployment rates next year under 4.6%: Nevada, Montana, Wyoming, North and South Dakota, Nebraska, Minnesota, Oklahoma, Georgia, Florida, Kentucky, Virginia, Maryland, Delaware, New Jersey, Rhode Island, Maine, New Hampshire and Vermont.

NAHB expects to see more than a 10% gain in total housing starts next year in Montana, New York and Massachusetts, he said.

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

Air Force to Privatize Military Housing in Colorado, California

The U.S. Air Force Space Command is seeking to privatize the development, renovation and management of military family housing at three bases in Colorado and California and will be providing information for companies interested in participating during a forum in Colorado Springs, Colo. on Nov. 9-10. The forum is open to developers, financiers, home builders and property managers.

Approximately 1,564 housing units will be privatized under the Air Force Housing Privatization Program. The project is still in the planning stages and the number of units under consideration has not been finalized.

Information about the location and scope of the bases’ housing privatization projects will be provided at the forum. In addition, there will be opportunities for vendors of housing-related materials and services to network with project developers.

The Air Force Housing Privatization Program was established to improve the quality of housing and life for active military personnel and their families, while reducing the Department of Defense's cost of providing housing.

To register or for more information, contact Jones Lang LaSalle, privatization support contractor, the Air Force selection contractor for these projects, at www.jllpsc.com.

Eye on the Economy

By David F. Seiders, NAHB Chief Economist
Economic growth may stumble but the economy will regain balance before long

Incoming data suggest that annualized growth of real gross domestic product (GDP) was heading toward a robust pace of about 4.5% in the third quarter before Hurricane Katrina hit the Gulf Coast on Aug. 29. We estimate that Katrina took nearly a percentage point out of third-quarter GDP growth (dropping it to an estimated 3.6%) and that the one-two punch from Katrina and Rita will hold fourth-quarter growth to 3.2% — still a trend-like performance that displays the resilience of the U.S. economy to serious shocks.

GDP growth should accelerate in the first half of 2006 as rebuilding activities gear up in the wake of this year’s unprecedented hurricane damage. A bit further out, GDP growth should settle down to a sustainable trend pace (around 3.25%), reflecting minimal remaining slack in labor markets and maintenance of solid growth in labor productivity.

The employment report for September contained upward revisions to payroll employment for both July and August, bringing the average monthly gain to a robust 244,000. The preliminary estimate of net job losses in September came to only 35,000, much less than the consensus expectations, although data collection problems in the Gulf region definitely created a wide range of uncertainty.

For now, the Labor Department suggests that, in the absence of Katrina, employment growth probably would have followed its recent trend (an average gain of 194,000 for the previous 12 months), meaning that Katrina probably subtracted around 230,000 jobs from the national numbers in September. It’s also worth noting that strikes subtracted 22,000 from the September payroll employment numbers, implying that, ex-Katrina and ex-strikes, payroll employment increased by about 225,000 — in line with the strong July-August performance.

The hurricanes have seriously complicated the inflation picture, boosting energy prices and headline inflation in the near term and putting some upward pressure on core inflation down the line as energy prices inevitably seep into the business cost structure.

We’re currently assuming that the spot price of WTI crude oil averages a record $65 per barrel in the fourth quarter and gradually recedes to about $45 per barrel by late 2007. We expect the retail price of gasoline to continue to recede gradually from the post-Katrina peak (above $3.00 per gallon) but remain historically high across the forecast horizon. We also assume that persistently higher prices for natural gas will make their way into the prices for residential gas and electric service as utilities gain regulatory approval to raise their rates.

We expect core inflation to firm up to some degree, particularly in 2006, reflecting tight labor markets and stronger growth of hourly compensation as well as some pass-through of high energy prices. Core consumer price inflation is likely to rise from year-over-year rates of slightly below 2% in the third quarter of this year to about 2.5% by 2007. That pace may be around the upper end of the Federal Reserves “comfort zone.”

The apparent strong forward momentum of the U.S. economy, along with the prospects for higher headline and core inflation, apparently have steeled Federal Reserve resolve to keep the inflation situation under control and have sent long-term rates upward.

In recent weeks, various Fed spokespersons have stressed the evolving inflation threat, and another quarter-point rate hike at the next Federal Open Market Committee (FOMC) meeting on Nov. 1 seems a foregone conclusion. Furthermore, we’re assuming additional rate hikes at the Dec. 13 and Jan. 31 meetings, as Fed Chairman Alan Greenspan’s term runs out. We’re assuming the 4.5% funds rate will be considered “neutral” and that monetary policy will hold steady for some time.

The bond markets apparently share the Fed’s perspectives on economic growth and inflation, and market expectations for monetary policy are essentially the same as ours. As a result, long-term interest rates have backed up considerably from their post-Katrina lows and the long-term home mortgage rate edged over 6.0% in the second week of October. Our forecast shows some additional increase in long-term rates in coming quarters — with the home mortgage rate reaching 6.6% by the fourth quarter of 2006.

Housing market indicators painted a fundamentally positive picture through the pre-Katrina period (essentially through August). For the post-Katrina period, NAHB’s single-family Housing Market Index fell by two points in September but regained that loss in October, leaving the index somewhat below the cyclical peak in June. The weekly index of applications for mortgages to buy homes (Mortgage Bankers Association series) was essentially flat throughout August, September and early October (four-week moving average basis).

Everything considered, it seems fair to say that single-family housing activity has been toying with a cyclical peak and is poised to show some fade before long. Measures of home-buying affordability have been eroding in the face of ongoing rapid increases in house prices in many areas, and the recent upshift in short- and long-term interest rates figures to take some toll as well. Furthermore, there’s a good chance that those “exotic” forms of adjustable-rate mortgages are losing some luster under the public scrutiny of federal financial regulators and the rating agencies. Finally, there’s some tentative evidence of decline in the investor shares of purchases of single-family homes and condo units, and this component of demand can be quite fragile.

NAHB’s forecast shows a slight decline in total housing starts in the fourth quarter of this year, partly because of hurricane effects in the Gulf region, and we expect total starts to be down moderately in both 2006 and 2007, despite hurricane-related additions.

Our forecast for 2006-2007 shows a cumulative decline of 9% in single-family starts from the 2005 record. The multifamily sector is essentially flat in this forecast, thanks primarily to a good performance by the rental sector. We expect manufactured home shipments to pick up significantly in coming quarters, reaching 150,000 units in 2006 before settling back toward a pre-Katrina pace. Residential remodeling should post solid growth (in both nominal and real terms) throughout the forecast period, supported by a massive amount of home owner equity and swollen repair/improvement needs in the wake of the hurricanes.

Everything included, the residential fixed investment (RFI) component of GDP should soon move out of the strong “growth engine” category occupied since the 2001 recession, although the real value of RFI should remain within a few percentage points of the record high reached in the third quarter of this year.

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

Anticipate the trends, make better decisions and improve your bottom line. "HousingEconomics.com," the online publication from NAHB Economics Group, is your single source for market analysis, forecasts, housing statistics and more. In-depth analysis and detailed Excel tables and overviews are available for all the state and metro forecasts.

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

Give your economics perspective to NAHB Chief Economist Dave Seiders on NAHB's new economics blog, "Seiders on Housing." The NAHB blog is an informal Internet-based discussion forum dealing with topical economic issues, housing trends, survey research and other topics affecting the housing sector of the economy.

Log onto the blog at http://nahbblog.blogs.com for direct access to Seider's expert opinions, projections and responses to your comments. Or find the blog on the NAHB Web site, www.nahb.org.

Builders’ Tip: Moving Strike Plates

When I am hanging or adjusting doors, I sometimes find that the strike plate isn’t ideally located and causes the door latch to have play at the strike or, if too tight, makes it difficult to latch without slamming or pushing hard.

Some carpenters remove the strike plate, plug the screw holes with small-diameter dowels (matchsticks are a time-honored plug) and then drill new holes for the strike-plate screws.

As a longtime professional residential carpenter, I’ve used another method that is a lot simpler and works just as well.

If a 5d nail isn’t available, use a 4d. The smaller-gauge nail works better than the next size up.

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

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

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

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

Subscribe your employees to Nation's Building News and they will begin receiving timely, valuable industry and business news at their desktops beginning with the very next issue. Inside each issue, they'll find the latest lumber prices, industry news, builders' tips, lumber prices, problem-solving floor plans, sales and marketing tips and more.

FHA No-Downpayment Loans Available to Hurricane Victims

Victims of Hurricanes Katrina and Rita whose homes need to be reconstructed or replaced can use the Federal Housing Administration's Section 203(h) program to obtain no-downpayment mortgages that can be used anywhere in the U.S.

The Department of Housing and Urban Development recently began publicizing the program, which provides FHA-insured loans for affected residents in Presidentially-declared disaster areas.

Borrowers must be able to qualify for FHA mortgages, HUD said, and the mortgage amount is limited to no more than $312,895, depending on the average sales prices in the area.

Borrowers who use the 203(h) program customarily finance the up-front mortgage insurance premium as part of the loan.

The Section 203(h) program resembles Section 203(b), the primary FHA mortgage insurance program, except for the no-downpayment provision. Among other features of the loan program:

More information on 203(h) can be obtained from the HUD National Servicing Center Hotline at 888-297-8685.

Affordability, Practicality Weighed in Code Changes

Taking an active role in supporting and defending several hundred proposed code changes in the code revision process of the International Code Council (ICC), members of NAHB's Construction Codes and Standards staff returned from final action hearings early this month in Detroit able to report significant victories on behalf of home builders and owners across the country.

Through its proposals, collaboration with industry representatives, lobbying efforts and informed testimony at the hearings, NAHB kept affordability and practicality at the forefront of the deliberations and gained the support of code officials on a number of key issues.

The final actions of the ICC will be included in the 2006 editions of its building codes — including the International Residential Code (IRC) and the International Building Code (IBC).

Significant wins for housing affordability included the defeat of several proposed amendments that would have required:

Though overwhelmingly successful, NAHB was unable to prevent code officials from approving several amendments it opposed.

Chief among them is the inclusion of a residential sprinkler appendix in the IRC and a new requirement for window sills to be a minimum of 24 inches above the finished floor if the sill is 72 inches or more above the exterior grade or surface and no window guard is provided to protect children from falling.

Despite NAHB’s sound arguments that current sprinkler technology is not cost-effective in one- and two-family construction and that there is no credible justification for the minimum window sill height, code officials voted in favor of these proposals.

The new sprinkler appendix, while not mandatory, does make it easier for jurisdictions considering mandatory sprinkler requirements to use it to adopt them. NAHB will continue to work with home builders associations to keep this from happening.

For additional information on the ICC Final Action Hearings, e-mail Larry Brown at NAHB, or call him at 800-368-5242 x8565.

Contract Addendum: A Tool to Discourage Investors

Speculative buying has been cause for concern among builders, particularly in “hot” markets, and builders have begun pre-screening by sales staff and included addenda to sales contracts as ways to discourage real estate investors in their communities.

An NAHB nationwide survey of 500 home builders conducted earlier this year looked at the depth of the problem. Respondents indicated that only 4% of single-family homes were sold to investors during the first half of the year, rather than for primary residences or vacation homes. However, investors accounted for 11% of purchases in "hot" markets.

One of the concerns NAHB economic forecasters have warned builders about is that speculative buying can generate a substantial “hidden supply” if house price appreciation begins to falter. Sales of new units would then be disrupted severely.

Another concern, “For Rent” signs or completed homes in communities sitting dark and empty, is more than cosmetic. If houses are not owner occupied, there is a much greater risk of property prices heading downward.

A contract addendum, coupled with a deed restriction, can be an effective deterrent to speculative buying.

However, David Crump, NAHB’s director of legal research, warns that a deed restriction of ownership should specifically state a justifiable public purpose, for example, "a stabilized community of affordable housing." Such a goal is in the public — as well as the builder’s — interest.

The parties specifically agree that in order to maintain a stabilized community of affordable housing it is in the public interest to discourage unbridled real estate speculation, and to discourage the "flipping" of recently purchased residential properties. In furtherance of this goal, it is agreed that the purchaser (grantee) shall hold title to and shall not re-convey the above-described property for a period of at least (one year† ) from the date of this contract (deed). Any contract for sale, or grant by deed, of this property within this stated period shall be void, and the seller (grantor) shall have the right, at its option, to reacquire possession and title from the purchaser (grantee) at the original contract price between the parties hereto.

In order to avoid hardships that might result from restrictions on an early re-conveyance unrelated to real estate speculation purposes, the following transactions and occurrences shall not be subject to the above-stated resale restrictions:

Note to Builders: It is suggested that the restricted period be limited to a reasonable length of time to avoid a negative assessment in any balancing test.

This information is provided as a service to you as a member of the National Association of Home Builders. It represents legal research only and in no way constitutes an opinion of law. The materials provided herein are intended to familiarize you with the law in this area, and should not be regarded as an exhaustive presentation of information on this particular subject. An attorney must review this information to determine how it applies to a particular situation.

This suggested Anti-Speculation Provision can be adapted to your particular sales contract the assistance of a qualified attorney.

For more information, e-mail Natalie Holmes at NAHB, or call her at 800-368-5242 x8461.

The symposium features industry-specific education and networking opportunities for custom home builders, remodelers, architects, developers and other industry professionals and will take place on Nov. 11-13 at the Sheraton Atlanta.

The symposium features 15 concurrent sessions and four advanced sessions. Click here for a list of titles, speakers and descriptions for all educational sessions.

In addition, pre-symposium Certified Graduate Builder (CGB) and Graduate Master Builder (GMB) designation courses will be offered on Saturday and Sunday at no additional charge. These courses include Estimating for Builders and Remodelers (approved for CGB, CGR and CGA designation credit) and Diversification (approved for GMB designation credit).

Keynote speaker Rodney Miller, of Walt Disney World, will discuss, "What your passion can do for you." Prior to joining Walt Disney World, Miller was an executive facilitator for companies including Westinghouse, AT&T, Sears, PepsiCo. and NASA.

The symposium features the Anderson Home Tour of custom, high style homes with a Southern flair. The homes on tour will be in various stages of completion — from framing to fully-furnished models.

Two social events are planned: Experience Atlanta, featuring fun and entertainment in some of Atlanta's most popular hot spots, including the Historic Virginia Highlands; and a golf outing at the Atlanta National Golf Course.

Go to www.nahb.org/custom to register online or for more information, or call 800-368-5242 x8338.

NAHB Has More Than 170 Resources to Help You Run Your Business More Profitably

Go to NAHB's Business Management Tools Web pages (available to members only) for instant access to more than 170 timesaving, moneymaking and cost-cutting business resources to help you run your business more profitably. Get guidance on accounting and financial management, business strategy, computers and information technology, customer service, human resources and more.

Resources are added weekly, so bookmark www.nahb.org/biztools to go directly to these vital business management resources.

Local and state home builders associations can link directly to www.nahb.org/biztools from their Web site and give their members instant access to these resources. It will make your HBA's Web site the place to go for the information and guidance that members need to succeed.

'Residential Performance Guidelines' Available From BuilderBooks.com

The contractor's and consumer's references of the "Residential Performance Guidelines, Third Edition" are now available through BuilderBooks.com. With almost 300 guidelines in 12 major construction categories, including 50 new guidelines on cabinets, cement board siding, concrete, countertops, drainage, driveways, drywall, landscaping water infiltration and more, these references were created to help builders and remodelers create and manage customer expectations while delivering high-performance homes and protecting their bottom lines. Click here to order both the contractor and consumer references online. For the contractor's performance guidelines reference only, click here.

NAHB’s Business of Building e/Source is your monthly electronic guide to the hot issues and emerging trends in home building business management. You’ll find practical advice, tricks of the trade and sound business guidance — all delivered monthly, straight to your desktop, in a quick and easy-to-read format. Business of Building e/Source is available free to NAHB members and their employees. To subscribe, visit www.nahb.org/BoB on the Members Only side of the NAHB Web site.

Stop by the BuilderBooks Bookstore at the Custom Builders Symposium for books you need to build your business, great savings and giveaways. BuilderBooks.com Reward participants, show your Rewards card to receive an additional 5% off your purchase.

Boomers Are Comfortable With Financing Last Homes

By Jack L. Haynes, Countrywide Home Loans
Our parents have taught us many lessons over the years, but one that may not stick involves how to buy our last home.

With past generations, most older buyers cashed out the equity from the family home and bought something smaller with the proceeds. If they actually did take out a mortgage, they plopped down a substantial cash downpayment to make their monthly payments less than a monthly apartment rental.

It’s not surprising that the first wave of 50+ boomer home buyers has abandoned this approach. They have rewritten the rules of consumer behavior at every life stage and they are doing it once again.

While there are no hard statistics yet — we’re only in the initial years of this generation’s long march toward retirement — day-to-day reconnaissance has shown that this group is all over the board in terms of financing. Boomers, who are not known for their frugality, are far more comfortable with financing and are sophisticated enough to understand what it can do for them.

One practical reason is concern about the unknown. With Social Security possibly changing and health care costs continuing to soar, boomers are telling us that they would rather hold onto their cash. Additionally, they want the means to help their children or grandchildren attend college or finance their first homes.

A second reason is lifestyle — members of the “me” generation see no reason to deny themselves at this life stage. These buyers aren’t downsizing the same way their parents did. For some, a new home represents the culmination of a lifetime of success, and they want to live in a home with all of the bells and whistles.

Others want their home to be the center of family life, with ample room for boomerang children, visiting grandchildren or elderly parents who might need care. Or, they may anticipate a time when a live-in caretaker will be necessary as they age in place. In fact, a new home may require financing since it may not be smaller and could include more options and upgrades.

Finally, boomers have ridden all sorts of real estate and economic cycles over their lifetime and have become very sophisticated consumers of financing. Unlike their parents, they’re not afraid of debt, particularly when mortgage rates continue at historic lows. Nor are they intimidated by finance.

A significant addendum is that many boomers may not even retire for years to come. While they may leave a longtime job, they might trade it in for independent consulting work or the pursuit of some other passion. And, this generation of consumers stands to inherit more from their predecessors than any other generation.

In addition, these buyers have impressive equity in their current homes, leading some to believe boomers will have more cash to buy a house and that the vast majority will be putting down large cash amounts to make the purchase.

However, this trend is not as prevalent as you might expect. So far, these buyers are pursuing mortgages of all types.

As sophisticated consumers, boomers expect and demand choices. They don’t want to be limited to a targeted product like reverse mortgages, which may be premature for them at this point of their lives.

Savvy financial institutions interested in serving these customers are now doing a lot of research and development, looking at the demand and trying to understand how to meet it through a variety of new programs. Along the way, we’re finding that boomers prefer programs with options that target their changing financial and personal needs. For example, payment option loans, which weren’t developed with boomers in mind, have become highly popular.

Payment option loans initially were geared toward consumers with variable incomes (i.e., sales people on full commission). As it turns out, the flexibility also appeals to older customers since they may have investments that kick in at certain times of the year, or they are waiting for Social Security payments to begin. The product essentially is an adjustable rate mortgage that offers several monthly payment choices.

Depending on the customer’s financial situation that month, the customer can pay the following:

Lenders will continue to develop a wide range of flexible products that boomers can use to maximize their purchasing power while still retaining cash.

Because understanding the types of financing this age group prefers is so vital, lenders make good strategic partners with home builders interested in attracting boomer home buyers. This is particularly true for geographic markets that previously did not have much 50+ activity.

As more boomers choose to buy homes in cities where they’ve reared their families and where children and grandchildren live, home builders will need more information about what these buyers want. Full-service lenders can help builders meet the unique needs of the boomer market.

Jack L. Haynes is executive vice president of Countrywide Home Loans’ National Builder Division based in Plano, Texas. His responsibilities include managing the business unit, which serves the financing needs of home builders and their customers. In 2004, Countrywide funded more than $14 billion of mortgage loans with customers purchasing new homes from home builders nationwide. Haynes has more than 25 years of mortgage industry experience and has held executive positions in the national builder business units of Weyerhaeuser Mortgage and GMAC Mortgage. For more information, e-mail Haynes, or call him at 800-262-4214.

The article appeared in the Fall 2005 issue of Seniors’ Housing News (soon to be 50+ Housing Magazine), the official quarterly magazine of the NAHB 50+ Housing Council.

Lay the Groundwork for an Active Adult Community

Builders entering the active adult market frequently want to know what crucial steps need to be completed prior to opening an active adult community.

To help them determine what these steps are, my company conducted a survey of many of the nation’s premier developers and builders of active adult communities. The first question on the survey asked “What steps do you take prior to entering a new market?”

The results were presented at the Seniors Housing Symposium outside Washington, D.C. earlier this year and may prove beneficial when planning your next active adult community.

Here are the findings — what's truly important to accomplish before beginning a new community — according to some of the more successful developers of active adult communities:

First, the respondents were in agreement on the need to conduct in-depth research on everything from what services would be available to demographics, market trends, local politics and more.

If the above factors prove acceptable for a potential community, the respondents said, they then would conduct a definitive market research study in order to identify the potential product they would offer and the features and specifications they would need to include.

The market research would examine potential pricing scenarios and include absorption/demand analysis.

Many respondents said they engage full focus groups to determine consumer preferences. In addition they all evaluate the competitive resale market for both average price and duration of listings on the market, as these homes often provide formidable alternatives for the active adult home buyer.

Once the entitlements are complete, the respondents said, they begin pioneer pre-selling to gain momentum. Those already building within the same market area indicated that they also contact their existing customer base to pursue potential referrals.

Much of the early focus for these builders of active adult housing is no different than for traditional communities — with one exception. They uniformly agreed that, unlike more traditional home buyers, active adult home buyers look first for a community and lifestyle, and only after that do they shop for a home that will satisfy their needs and desires.

The knowledge gained through research and market studies should converge into a total program specifically geared toward this buyer profile in order to ensure success. This buyer profile first buys what they want ― the lifestyle — then they buy what they need ― the home.

Manny Schatz, MIRM, is founder and principal of Professional Builder Services, Inc. (PBS) in Danville, Calif, which trains and guides home builders in marketing, sales, sales management and construction management activities. Schatz has been involved in nearly every aspect of home building for more than 30 years. He holds a general contractor license, a brokers license and is a member of the Institute of Residential Marketing (MIRM) and has been a featured speaker at the Urban Land Institute, PCBC, the International Builders’ Show, the Sales and Marketing Council (SMC) and other industry events. Schatz is a life director of the California Building Industry Association (CBIA), past chairman of the National Sales and Marketing Council (NSMC) and a trustee of the IRM and the NSMC. He has served as president of his local HBA and SMC as well as PCBC.

This article has been condensed from its previously published version in BUILDER DIGEST of California magazine, for which Manny Schatz writes an ongoing column.

Save 15% when you purchase “The 50+ Housing Publication Set,” through BuilderBooks.com. Receive one copy of “Boomers on the Horizon: Housing Preferences of the 55+ Market,” “Marketing Seniors Housing” and the “Best of Seniors’ Housing News.” This publication set is a must-have for anyone serving the 50+ market. To view or purchase this publication set online, click here, or call 800-223-2665.

Some Simple Steps to Help You Take Control of Your Time

Ours is a world of constant business meetings. Of clients wanting more of our time, phones that don’t stop ringing, inboxes brimming with e-mails that need answering, snail mail that keeps piling up and steady streams of calls from advertisers and marketers who want our attention…and our money.

I have learned that we feel out of balance if we give our time away and if we don’t learn how to properly manage and balance it between our professional and personal lives. What’s more, it can take months, even years, to regain the balance we desire in order to live productive lives.

Achieving that balance is a never-ending exploration. However, one area that I believe can assist you in this pursuit is to start setting realistic boundaries.

You control your own time, sometimes effectively, sometimes not so effectively. To control your time more effectively, you must prioritize.

I prioritize using simple, color-coded “time zones” that help me lay out what’s truly important to my business and profits. I divide my days, weeks and months using different colors to visually show me which time is most important.

I set aside “Gold Time” in my calendar. This is the time for appointments with clients, current and new. This is the time that is making me money.

“Silver Time” on my calendar is the time I devote to the important — but not immediate ― tasks that need to be done. Silver Time, in my calendar, is the time that feeds my pipeline to my Gold Time.

By setting aside Gold Time and Silver Time in my calendar and sticking to it, I know I am in better control of all my time and moving my business forward.

You must realize that you are the “owner” of your time and spend quality time planning your business at all levels. This can mean strategic planning sessions with your business partners or planning work sessions with your managers and team leaders.

I suggest doing your major planning in November or early December. This will eliminate not knowing what do to in January, normally a slower time.

With your plan in place, you will know what you need to do and your time will be spent more effectively working your plan and accomplishing your newly-set goals.

Many businesses make plans but then don’t continually “check in” to see if they are accomplishing what they spent time working on.

This is where I believe a business coach, or someone who can make you accountable to your plan, is invaluable to obtain success. If you don’t have a business coach, find one. Or create a board of directors that will meet on a quarterly basis to “check in” on the set goals.

All these steps — prioritizing and setting Gold and Silver time in your calendar, developing realistic business plans and holding yourself accountable to those plans ― will help you gain control of your time and obtain balance in your life.

VirtualBoss Construction Scheduling Software Available from BuilderBooks.com

VirtualBoss, available through BuilderBooks.com, is an easy-to-use job scheduling and task management software package. You can track your service and punch list items, e-mail, fax and mail work orders to an unlimited number of subs, suppliers or employees. This software streamlines your scheduling and project management functions without wasting anytime with set-up. To view or purchase this DVD online, click here, or call 800-223-2665.

How Does Your Remodeling Business Measure Up?


The latest 'Cost of Doing Business Study' is available now.

The “Remodelers’ Cost of Doing Business Study,” available through BuilderBooks.com, is comprehensive assessment of the growth and viability of the remodeling industry that enables remodelers to see how their businesses stack up against the competition.

Conducted by the NAHB Economics Group and the Remodelors™ Council, the study provides a statistically accurate analysis of the remodeling industry in terms of size, profitability, time in the business, business organization and staffing.

The results allow remodelers to compare key business statistics, such as gross and net profit margins, against a national benchmark to see how the business practices of the most successful remodelers.

The study breaks down the results by total revenue and number of employees, so remodelers can easily compare their performance against those in the top 25% of the industry in terms of profitability as well as those in the bottom 25%.

To order the “Remodelers’ Cost of Doing Business Study” online click here, or call 800-223-2665.

Builders Cement Working Alliance With OSHA

An ongoing working alliance between NAHB and the Occupational Safety and Health Administration (OSHA) was formalized in a re-signing ceremony attended by leaders of both organizations on Oct. 18. This alliance was first initiated in May of 2003.

“Training and education are by far the best way to promote worker safety on construction sites,” said NAHB President David Wilson. “This agreement is another illustration of the private sector working jointly with the government to identify and eliminate hazards that are responsible for the majority of serious injuries on home building job sites.”

Doing the honors for the federal agency was Jonathan Snare, deputy assistant secretary of labor for occupational safety and health, and signing for the home builders was Andy Anderson, 2005 chairman of the NAHB Construction Safety and Health Committee.

A particular focus of the alliance this year will be identifying and abating major work site hazards that cause the lion’s share of injuries, and on improving the information that employers and employees are given to help avoid such incidents. This will entail the further development of safety training materials for non-English speakers and employees with limited English reading and speaking abilities.

“This is an outstanding example of the kind of voluntary, cooperative relationship between industry and government that just makes sense from any point of view,” said Wilson.

For more information, e-mail Rob Matuga at NAHB, or call him at 800-368-5242 x8507.

Attend the 2005 SHOWCASE in Louisville

The 2005 Building Systems Councils SHOWCASE — the annual networking, education, and trade show event for all facets of the systems-built housing industry — has been relocated from New Orleans to Louisville, Ky.

Advance registration online is closed. Onsite registration is available beginning Sunday, Nov. 6, the first day of the show.

For more information about SHOWCASE or systems-built housing, contact the Building Systems Councils at 800-368-5242 x8576.

Knowledge Is the Key to More Profitable Sales

On-site sales consultants need to be helpful, courteous, compassionate, sensitive, friendly, intelligent, considerate, assertive, aggressive, kind, empathetic, sympathetic, personable, self-confident, believable, earnest, caring ― and knowledgeable. Every day they must be ready to handle new challenges and help solve the concerns of prospective purchasers.

Preparation is the key ingredient for a salesperson’s success. A friendly personality helps, but just as importantly, you need to blend it with knowledge.

In order to be at the top of the professional sales list, it is necessary to research the market.

There are 12 areas of consideration in which salespeople need to stay abreast of consumer wants and needs. Staying knowlegeable involves examing existing neighborhoods and the competition and contacting the industry professionals involved in new home construction, sales and lending:

Salespeople are in the know. It is their job. If they don’t stay informed, they will not be able to compete. The more you learn to adapt and implement new knowledge, the better your product will be. Armed with this knowledge, you’ll be amazed at how quickly your homes will sell.

S. Robert August, MIRM, is president and founder of S.Robert August & Company, Inc., a national marketing and public relations firm based in Denver that specializes in providing home builders, developers, Realtors®, manufacturers and lenders marketing/management consultation and sales training. August is an owner of Colorado-based RealtyWorks, Inc. a real estate brokerage company. He is also past chairman of NAHB’s National Sales and Marketing Council and the only person to receive the prestigious Bill Molester Award twice. For more information, contact August by phone at 303-220-8480 or via e-mail.

For additional cutting-edge sales and marketing information, subscribe to NAHB’s www.smimagazine.com. Click here to learn about membership benefits of the National Sales and Marketing Council and the Institute of Residential Marketing.

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

BuilderBooks.com offers a variety of sales and marketing publications online. To view or purchase these publications, click here.

Education Gets a Free Head Start at the Remodeling Show

Joe Mingioni, of Mingioni Construction Company, Edgemont, Pa., started his Certified Graduate Remodelor (CGR) education at the Remodeling Show three years ago. “CGR is a great program that allows you to separate yourself from the competition as well as further your education,” said Mingioni.

CGR is an exclusive, professional designation that emphasizes business management skills as a key to a professional remodeling operation. A CGR designation enables remodelers to gain recognition as an industry leader and stand out in a crowded marketplace.

This year, 31 lucky attendees of the Remodeling Show in Baltimore began their CGR education by taking their PREP, the first step in attaining a CGR designation, for free by successfully completing an interactive puzzle at the show.

The PREP measures a CGR candidate’s knowledge in five core areas of remodeling business management — sales and marketing; business administration; design, estimating and job costing; contracts, liability and risk management; and project management.

John W. Bratton, CGR, CAPS, of J.W. Bratton Design/Build, LLC in Renton, Wash., said that more than 30% of his business is for customers who want to age in place, a growing segment of the remodeling market.

NAHB offers a designation — Certified Aging in Place Specialist (CAPS) — geared towards those older adults and their families seeking this type of remodeling. Bratton noticed an increasing number of aging-in-place products on the exhibition floor of the Remodeling Show and predicted that the trend will continue in the years ahead.

Bratton also said he came to the show because he wanted to educate the public and make people aware of aging in place and staying in their homes longer.

“The biggest thing about keeping people in their homes is the piece of mind it gives the next generation. People who are 50 and have parents in their 70s want to know that they’re safe in their house,” said Bratton.

Education Calendar

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

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

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

Make your connection to the latest housing industry news and information with www.nahb.org — the official public and members-only Web site of NAHB.

Home Equity a Dilemma for Housing Programs

Decision makers involved in setting up affordable housing programs for low- and moderate-income home buyers face the dilemma of allowing families to benefit fully from the accumulation of equity in their home, which can appreciate quickly, or tapping that money when the home is sold so that it can be put back into programs to help fund homeownership opportunities for more households, according to speakers at a recent conference on inclusionary housing.

Those who focus on the affordable housing issue must address “whether you’re in a wealth-building strategy or a permanent affordability strategy, and whether those two can be reconciled,” said Raymond L. Kuniansky, Jr., chief operating officer of the Atlanta Neighborhood Development Partnership.

“You have to make a choice,” said Brad Lander, director of the Pratt Center for Community Development in New York. “You can have a limited equity program, so the family gets an affordable home but very modest wealth creation through equity. Or you can let the family accrue a larger share of the equity so the family enjoys more wealth creation [but the housing becomes less affordable.]"

“We have a whacked-out notion of public housing,” added Doug Shoemaker, deputy director of NPH, a non-profit housing advocacy organization in San Francisco. “We don’t want to ghettoize the poor. But I don’t see how putting families making $70,000 around other middle-income families is ghettoizing anything.”

The conference was designed to help communities that do not have an inclusionary housing program or ordinance create one, and to help those communities that do have such programs to make them more effective. Lander, Kunianski and Shoemaker were part of a panel discussion on building support for inclusionary housing.

“The conference took for granted the notion that inclusionary zoning programs are effective in adequately addressing affordable housing needs, and we disagree with that assumption,” said Debra Bassert, assistant staff vice president for land development policy NAHB.

“Too many local governments are passing inclusionary zoning ordinances that address the housing needs of just a small fraction of their citizens,” Bassert said. “They really need to respond to the housing affordability problem with a much broader array of policy options.”

For more information, e-mail Blake Smith at NAHB, or call him at 800-368-5242 x8583.

Students Tour Job Sites in Juneau

On the third stop of the “Day at the Job Site” circuit sponsored by Freddie Mac, 25 students from the NAHB Student Chapter at Juneau-Douglas High School in Alaska toured five active or recent job sites, including affordable housing construction sites, a major remodel, a multifamily condominium and a construction materials testing lab.

“This is a really a wonderful opportunity for us to introduce future members of our industry to the variety of housing types and the endless opportunities in home building,” said Jeff DeSmet, proprietor, J. DeSmet Construction and president of the builders association.

The tour began at a construction site where representatives from Young Alaskans Building Affordable Housing discussed the building techniques they were using in two single-family homes.

Continuing on to a major remodel by DeSmet, students learned of the importance of quality construction and weather protection in the extreme temperate rainforest climate of Juneau. Some students were able to work with the contractors setting drywall, while others discussed crawl-space construction.

The group also visited a finished affordable housing development built by the Tlingit-Haida Regional Housing Authority. Craig Moore, development and construction maintenance manager for the authority, and Pua Maunu, project coordinator, described their approach to building and selling the condominiums.

At his condominium development, Richard Harris, owner of R.H. Development L.L.C., explained to students and faculty how he was successfully able to work with limited construction space that required many of the forms to be built off-site.

To conclude the day, students traveled to the University of Alaska Southeast for a presentation of its Mobile Test Lab by Marquam George, department head, Construction Technology Career Education. The lab is being used to assess the moisture resistance of different types of wall sections; it was established through a partnership between the university and the Cold Climate Housing Research Center of Fairbanks.

“This event was beneficial to everyone involved,” said Jill Herrick, executive officer of the BIA. “It was a chance to network with our student chapter members and give them valuable on-site experience.”

Previous “Day at the Job Site” events were held in Colonial Heights, Va. and Pittsburgh.

The NAHB Student Chapters program is administered by the Home Builders Institute, the workforce development arm of NAHB. Established in 1971, the program helps enrich the educational experiences of students enrolled in construction-related studies and training.

The program enables more than 3,000 students at 150 high schools, technical schools, colleges, universities and Job Corps campuses across the country to enjoy the benefits of membership in NAHB.

For more information on “Day at the Job Site” or NAHB Student Chapters, e-mail Joseph Krinock or call him at 800-795-7955 x8928.

Builders Show to Launch Slide-In Ranges

Jenn-Air is unveiling its new slide-in range models at January’s International Builders’ Show in Orlando, Fla. The new models combine high-performance features with exclusive styling, including the manufacturer’s popular floating glass finish.

Jenn-Air is a division of Maytag Appliances, which is headquartered in Newton, Iowa and is a member of the National Council of the Housing Industry — the Supplier 100 of NAHB.

The new ranges feature the industry’s largest slide-in oven capacities, while convection models include an exclusive system that the manufacturer says is ideal for baking, roasting, drying or thawing. Jenn-Air’s new “butterfly convection element uses patented technology to improve heat distribution and airflow.

Gas and dual-fuel models boast a new triple-flame burner, with two rings surrounding a 15,000-BTU, high-output burner, and all-electric model cooktops feature a dual radiant element that provides precise heat control comparable to gas.

With a high-end, built-in look, Jenn-Air’s slide-in ranges have been completely re-styled to reflect the newest kitchen trends, with sleek, curbed black or white glass oven doors.

Stainless steel finishes are available in a Pro-Style featuring commercial-quality grates and knobs and rugged diamond-etched handles and in a Euro-Style with softer, more subtle visual elements, such as a towel-bar style of handle and sleek all-stainless controls.

The ranges will be available beginning in January and are expected to retail from $1,399 to $2,449, depending on the model.

NAHB Programs on HGTV & DIY This Week

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

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

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

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

Make your connection to the latest housing industry news and information with www.nahb.org — the official public and members-only Web site of NAHB.

Endowment Supports Minority Training Programs in Kentucky

The Home Builders Association of Northern Kentucky recently began a 16-week pre-apprenticeship program in carpentry for 20 African American students as part of its effort to support skills training for minority students looking to enter the trades.

Through the program, which began on Oct. 15, the students will receive basic carpentry training to prepare them for entry-level careers. They will also receive the tools necessary for start-up on the job, increased access to on-the-job training opportunities, and avenues for permanent job placement through the HBA’s network of regional contractors. The students were chosen from a pool of applicants who, in many cases, lacked the skills and initial financial resources to begin careers in home building.

The National Housing Endowment provided seed money for the Kentucky training program through its Challenge/Build/Grow Matching Grant Initiative. This is the second training program targeting minority students that was initiated by the Kentucky association and supported by the endowment in recent years.

Last year, 18 Hispanic students, including five women, participated in the HBA’s Latino Trades Training Program, a 20-week pre-apprenticeship carpentry program. Eight of the graduates went on to find job placements with association contractors, while others have continued in its Evening Trades Program, a two-year apprenticeship training program with classes two nights a week.

“My fellow trustees and I are very proud of the Challenge/Build/Grow Matching Grant Initiative,” said Gary Garcyznski, chairman of the National Housing Endowment. “This is a great opportunity for the endowment to support the work being done by local and state home builders associations such as the Northern Kentucky home builders association.”

The Challenge/Build/Grow Initiative was started by the endowment’s board of trustees to promote NAHB’s highest priority areas of land use, worker training and education.

To date, more than $80,000 has been awarded to local and state home builders associations across the country to implement partnerships in their communities that address these issues. Each year, the endowment distributes $20,000 to worthy programs, but because of the increased popularity of the Challenge/Build/Grow Initiative, the trustees have approved an additional $40,000 for the initiative.

NAHB Awards to Recognize Philanthropic Work — Enter Now

To recognize the enormous philanthropic work of home builders associations and their members, NAHB and the National Housing Endowment, the philanthropic arm of NAHB, are sponsoring two awards programs that honor the generosity of the home building industry:

Complete award descriptions and entry forms for both competitions are available on the NAHB Web site at www.nahb.org.

November Is Spike Appreciation Month

November is Spike Appreciation Month and time to make a special effort to thank Spikes for their contributions to NAHB and your local home builders association.

Spikes are the association recruiters, ambassadors, mentors and spokespeople. Each member they recruit or retain adds to NAHB’s strength in numbers, offers more rewarding networking opportunities and better represents our industry interests to locally and nationally elected officials — all factors that are vital to sustaining a healthy association and better serving the home building industry at all levels.

It is not too late to plan or conduct events and activities for Spike Appreciation Month. Resources are available in the 3-in-1 Membership Planning Kit and at www.nahb.org/spikeappreciation.

For more information, e-mail Abbey Weiss at NAHB, or call her at800-368-5242 x8337.

Double Discounts on Dell Computer Products Through October

Dell, the world's leading computer systems company, is offering double discounts to NAHB members on an array of products designed to meet the technology needs of your company through the end of October.

That means the normal discounts of 3%-5% will double to 6%-10% on essential small business technology, including business-class desktops and cutting-edge notebooks. The offer ends Oct. 31.

When you are ready to purchase, contact the Dell association sales representative at 888-577-3355, Monday-Friday, 7:00 a.m.-8:00 p.m. (CST) and Saturday, 8:00 a.m.-5:00 p.m. (CST).

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

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

Make your connection to the latest housing industry news and information with www.nahb.org — the official public and members-only Web site of NAHB.

Bill Polley/BUILD-PAC Award Nominations Extended to Oct. 28

The deadline to submit nominations for the Associates Bill Polley/BUILD-PAC Award has been extended to Friday, Oct. 28.

Named in honor of the late Bill Polley, a past NAHB Associate BUILD-PAC subcommittee chairman and Associate Members Committee member, the award acknowledges the associate member who epitomizes Polley's loyalty and diligent fundraising efforts for BUILD-PAC.

Save More With BuilderBooks.com Rewards

BuilderBooks.com is offering it's first-ever Rewards program to provide privileges, savings and rewards to its loyal customers.

Launched at the 2005 International Builders’ Show, the program is available for a $9.95 annual fee.

Join the Rewards program today and save on the very books and services that build your business. Click here to start saving.

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

Make your connection to the latest housing industry news and information with www.nahb.org — the official public and members-only Web site of NAHB.

Calendar of Events

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

Make your connection to the latest housing industry news and information with www.nahb.org — the official public and members-only Web site of NAHB.

Nation's Building News Online: October 24, 2005

Housing Poised to Recede From Peak Levels

Subscribe Your Employees — You Could Win a Digital Camera

Remodeling Activity Continues Trending Upward

Where a Slump Would Hurt Most

Gulf States Brace for Real Estate Storm

Architect Builds on to His Takoma Park Home With Straw

Remodeling That Makes Sense

Home Sweet Home

Baghdad Real Estate Market Is Booming Despite Escalating Violence

Attend Upcoming Government Affairs Conference in Phoenix

September Home Starts Rebound From Katrina

Rapid Home Price Gains to Start Winding Down

Panelists Provide Welcome News on Materials Prices

Some Local Housing Markets Losing Strength

Air Force to Privatize Military Housing in Colorado, California

Eye on the Economy

Builders’ Tip: Moving Strike Plates

FHA No-Downpayment Loans Available to Hurricane Victims

Affordability, Practicality Weighed in Code Changes

Contract Addendum: A Tool to Discourage Investors

Register Now for Custom Builder Symposium in Atlanta

Boomers Are Comfortable With Financing Last Homes

Lay the Groundwork for an Active Adult Community

Some Simple Steps to Help You Take Control of Your Time

How Does Your Remodeling Business Measure Up?

Builders Cement Working Alliance With OSHA

Attend the 2005 SHOWCASE in Louisville

Knowledge Is the Key to More Profitable Sales

Education Gets a Free Head Start at the Remodeling Show

Education Calendar

Home Equity a Dilemma for Housing Programs

Students Tour Job Sites in Juneau

Builders Show to Launch Slide-In Ranges

NAHB Programs on HGTV & DIY This Week

Endowment Supports Minority Training Programs in Kentucky

NAHB Awards to Recognize Philanthropic Work — Enter Now

November Is Spike Appreciation Month

Double Discounts on Dell Computer Products Through October

Bill Polley/BUILD-PAC Award Nominations Extended to Oct. 28

Save More With BuilderBooks.com Rewards

Calendar of Events