The View from the Bridge

What will the "future" look like?

2009-07-12T20:06:00.010-05:00

Many of my friends keep asking me, "What will happen to your industry in the future?" Right now the answer is simple...we are too busy trying to survive to look too far into into the future. However, if homebuilding is going to have a future we will have to start embracing change. I believe that homebuilding will survive and ultimately thrive again. But I also believe we need to be progressive and lead the way to future economic prosperity rather than regressing to clinging to our old practices.

The world is changing. We can use this moment to reinvent ourselves or we can wait for the world to turn back to our favor. I believe that Americans still dream of owning a good home in a good neighborhood with good schools...but now they want a sustainable home that they can afford. These changes are good for all of us...and ultimately...they are good for our future.

Here is a video and a posting from the NAHB Green Building website. Small changes can make a huge difference. Our industry can (and must) recover and our future can be better and more sustainable than ever.

What is Green Building?

Green homes incorporate environmental considerations and resource efficiency into every step of the building and development process to minimize environmental impact. The design, construction, and operation of a home must focus on energy and water efficiency, resource efficient building design and materials, indoor environmental quality, and must take the home's overall impact on the environment into account. However, many of the processes and technologies that go into a green home happen behind the scenes and behind the walls. What can a homebuyer look for?

Look for an NAHB Research Center Certified certificate, the homeowner's guarantee that the home was built according to one of the levels of green outlined in either the ICC 700-2008 National Green Building Standard or the NAHB Model Green Home Building Guidelines. The NAHB Research Center is the sole certifier recognized by NAHB's National Green Building Program.

Other key components of a green home include:

Energy-Efficient Features

Many of the energy-efficient qualities of a green home are easy to spot. Appliances, windows, and water heating systems will likely have ENERGY STAR® ratings. The home should also include efficient lighting fixtures and bulbs. Renewable energy sources, such as photovoltaic electricity and water heating systems, further decrease the overall energy consumption within the home.

Water-Efficient Features

Fixtures and appliances such as low-flow showerheads, faucets, and toilets, and ENERGY STAR dishwashers and washing machines all conserve water. Programmed, low-volume irrigation systems, rainwater collection systems, wastewater treatment systems, and hot water recirculation systems also save water.

Resource-Efficient Features

These decisions—from home size, to orientation on the lot, to floor plan layout—are made in the design of your home and development of the lot. The house orientation and design should take advantage of natural daylight to reduce lighting needs, and should use strategies to reduce heat gain in the summer and heat loss in the winter. The home should contain renewable materials, including rapidly-renewable wood species such as bamboo, and recycled-content materials in carpets, tiles, and concrete formulations.

Indoor Air Quality Features

The heating, air conditioning and ventilation system (HVAC) must be appropriately sized for an efficient and properly ventilated home. Fans in the kitchen and bathrooms should cycle fresh air inside, and release stale air. Low-VOC paints and finishes and wall papers should be used as well.

Outside the Home

In a green home, care should be taken to preserve trees and other vegetation native to the area. Landscaping should contain plants that are appropriate for the climate, and grouped according to water needs. Driveways and other impervious surfaces should be reduced as much as possible, and may be composed of gravel, permeable block pavers, grids, or other permeable systems.

Here is a link to the NAHB Green Building Tax Rebates page.

Future of the Housing Market-Squawk on the Street

2009-07-07T13:04:00.006-05:00

This morning "Squawk on the Street" on CNBC had a segment with Stephen Kim, a homebuilder analyst at Alpine Woods Capital Investors. While there a many "lingering problems" with the broader economy, Kim believes we are nearing a "true bottom".

Here is the segment featuring Mark Haines and David Faber from CNBC.

Here is David Faber’s "Faber Report" on mortgage delinquencies referenced in the previous video clip.

Green Shoots, Red Ink, Black Hole

2009-07-06T14:03:00.003-05:00

Today on MSNBC’s “Morning Meeting” Dylan Ratigan hosted Eliot Spitzer-former New York Governor & Attorney General, Robert Shiller-Yale Economist, and Bill Fleckenstein-President of Fleckenstein Capital as they examined the current employment crisis. This is a continuation on the previous posting and I thought it would round out the discussion pretty well.

Primarily the panel was in agreement that we have some severe structural problems that must be addressed and that we are experiencing a transformation in our capitalist system. More needs to be done at a governmental level to promote a strong and vibrant recovery and rebirth.

Take a look…

Visit msnbc.com for Breaking News, World News, and News about the Economy

Housing Plan still facing obstacles

2009-06-29T11:35:00.008-05:00

Here is a post from The Huffington Post today that discusses the new housing plan implemented earlier this year. The primary goal was to help slow down and prevent foreclosures. This posting casts some doubt as to whether it is achieving the mission...yet.

Obama's Housing Plan Struggling In First Few Months

Earlier this month, we reported that President Obama's "Making Home Affordable" program, a government subsidized mortgage modification plan, was mired in red tape, delays and questionable benefits for homeowners. But that's not the only area of Obama's housing recovery plan that's struggling. Despite putting a total of $275 billion on housing recovery efforts, Obama's attempts to spur housing markets have sputtered.

Today, both the New York Times and Bloomberg have focused on the kinks in Obama's plan to stabilize the real estate market.

The New York Times zeroes in on Obama's plan to offer homeowners new mortgage deals. As of June, the New York Times reported that Obama's $75 billion homeowner bailout had succeeded in modifying only 100,000 loans nationwide. Under the plan, mortgage servicing companies are offered $1,000 for each loan they modify, plus an additional $1,000 for up to three years. The NYT takes a look inside some of the call centers that are charged with offering mortgage modifications to homeowners. Unfortunately, the results are typical of many call centers. Here's the NYT's assessment:

"...in the four months since the Treasury Department announced the program, millions of new homeowners have slipped into delinquency and foreclosure. For now, progress is constrained by the limited capacities of mortgage servicing companies, said Michael S. Barr, the assistant Treasury secretary for financial institutions. He offered the first signs of the administration's impatience with the institutions that control home loans.

"They need to do a much better job on the basic management and operational side of their firms," Mr. Barr said. "What we've been pushing the servicers to do is improve their infrastructure to make sure their call centers are doing a better job. The level of training is not there yet."

Obama's larger housing recovery plan has done little to boost home-buying, Bloomberg points out today. Banks are still skittish about offering loans to real estate investors, and mortgage lending is currently at a 13-year low. Bloomberg quotes Eric Belsky, executive director of Harvard University's Joint Center for Housing Studies as saying that Obama's $8,000 tax credit for first-time home buyers has failed to significantly help the market.

Undercutting any other signs of hope in the housing market, are some troubling fundamentals. Here's Bloomberg's round-up of the data:

"Personal bankruptcies rose 37 percent in May from a year earlier, according to the American Bankruptcy Institute, based in Alexandria, Virginia. Credit card defaults in the first quarter went to 7.79 percent from 4.83 percent a year ago, Federal Deposit Insurance Corp. data show. While the share of loans entering foreclosure moved to 1.37 percent, the highest ever, the first-quarter mortgage delinquency rate climbed to a record 9.12 percent, the Washington-based Mortgage Bankers Association said.

About 20.4 million of the 93 million houses, condos and co- ops in the U.S. were worth less than their loans as of March 31, according to Seattle-based real estate data service Zillow.com."

How Can Leadership Benefit from a Changing Environment?

2009-06-24T11:37:00.009-05:00

Here is another article I wanted to share with you. This piece on how leadership should adapt to a changing world also comes from BusinessWeek.com via Msnbc.com. I think many people are noting a change in their perception of what the future will look like for business. Like all manners of change...some people are excited and some people are anxious.

I recently had the opportunity to attend a seminar on Integral Thinking based on Spiral Dynamics. The common question seemed to be, "Change...from what to what?". While some leaders are convinced that the best way to get ahead is to "look back" others are "looking forward" to a new way.

This article offers some interesting principles leaders can use to re-think their goals as they work through this crisis. Integrity seems to be the common thread...

Winning at all costs is for losers
10 rules (and then some) for being an effective — and ethical — leader
By Bruce Weinstein
updated 12:15 p.m. CT, Tues., May 5, 2009

"Never underestimate the other guy's greed." This isn't just a classic line from the 1983 Brian De Palma film, Scarface (written by Oliver Stone). It also reflects the attitude that has caused the economic disaster we're now clawing ourselves out of.
Isn't it time for a new way of thinking?

I propose the following leadership guidelines for C-level executives, investment bankers, entrepreneurs, and everyone else whose decisions can affect the financial well being of other people.

1. What's good for the gander is good for the goose

At a time when companies are slashing their labor forces and freezing salary increases, and when some employees are being asked to take lower-paying positions, it is deeply unethical for leaders to retain their sky-high compensation and to expect enormous bonuses. They should follow the example of Michael Kneeland, CEO of United Rentals, who recently asked for, and was given, a 20 percent pay cut. Let's hear more reports like this one.

2. Know your product

According to a recent three-part story in The Wall Street Journal, the willingness of investors to buy and sell financial products whose complexity they didn't fully understand was one of the primary catalysts of the bust. From our current sober perspective, it seems unbelievable that self-identified experts could be involved in transactions with so much at stake and at the same time be ignorant about exactly what it is they were buying or selling, but this is what happened, and on a grand scale, no less.

Because money was being made in these deals, no one thought to question what was going on or had the strength of character to speak up about any suspicions. However, knowing your product isn't a nicety of doing business. It is an ethical obligation — to your company, your clients, and yourself.

3. Winning at all costs is for losers

Most of us were taught that we should treat people the way we'd like to be treated ourselves. However, too many business leaders have failed to take this seriously. Instead, the guideline seems to be, "Get all you can by any means necessary." Look at credit-card companies that charge exorbitant interest rates, changing customers' fees without telling them why. These companies defend such practices on the grounds that they will lose their competitive edge if they don't play hardball.

This kind of leadership is shortsighted, unfair, and ultimately bad for business, since the consequences will be more federal regulation and oversight. Good leaders know that if they don't regulate their businesses themselves, someone else will.

4. Tell the truth

A leader has an ethical obligation to be honest with stakeholders about issues that directly concern them. One of these issues is the leader's own health. Consider the recent 10 percent drop in Apple stock after CEO Steve Jobs announced that he was taking a five-month medical leave of absence. Because Jobs battled pancreatic cancer several years ago, there was speculation that his cancer had returned, even though Jobs had announced earlier that he was merely suffering from a "hormone imbalance." While stockholders may have punished Jobs for his announcement, he did the right thing in saying he was taking a leave for medical reasons. There is no shame in being ill, and true leadership involves being forthcoming about one's illness — and anything else that can affect the flourishing of the organization.

5. Prevent harm

When you can reasonably foresee that a decision is likely to hurt people and you make that decision anyway, you're being both irresponsible and stupid. For example, subprime mortgage lenders and brokers who lend money to people likely to default are enriching themselves at the expense of the rest of us, since the federal government may be called upon for financial rescue.

What such predators don't realize is that in the long run, their practices will come back to haunt them in the form of bankruptcy filings, bad PR, and perhaps even prison time for the worst offenders. The good leader recognizes that preventing harm to clients and company alike is both an ethical responsibility and a wise business policy.

6. Don't exploit

It is easy to take advantage of a situation for financial gain, but doing so isn't consistent with good leadership. After Hurricane Ike hit last year, the wholesale price of gasoline shot up, which was nothing more than price gouging.

In the short run, companies that exploited a natural tragedy may have profited financially, but the long-term negative consequences are real and significant: In New York State, for example, more than a dozen companies were fined more than $60,000 for unfair business practices following Hurricane Katrina. Of course, the reason to do the right thing is simply because it is the right thing to do. But it is also true that taking the low road can be harmful professionally and personally.

7. Don't make promises you can't keep and keep the promises you make.

There are rare circumstances in which we not only have a right but an ethical obligation to break a promise, but generally speaking, we have a strong duty to be true to our word. This is, after all, one of the primary ways that we show our respect to people. Recall that last March, Dr Pepper said it would give out free cans of soda to "everyone in America" if Chinese Democracy, the long-overdue album from Guns 'n' Roses, came out by the end of the year. When Axl Rose surprised the music world by releasing the album in November, the beverage company was unable to deliver a soft drinks to everyone who wanted one (Whether it's ethical for a band that has only one of its original members to call itself "Guns 'n' Roses" is another matter.) Good leaders are careful to make only those promises they are likely to keep and keep the promises they do make. When they are unable to keep those promises, they own up to it, which brings us to the next rule of good leadership:

8. Take responsibility for your mistakes

Transparency and accountability should be the new buzzwords. This means, in part, that business leaders who make mistakes should apologize to those they have let down and do whatever is necessary to make amends. In the wake of the toy industry's lead-paint scare in 2007, Mattel CEO Robert Eckert took the high road and told a Senate subcommittee that the company failed "by not closely overseeing subcontractors in China whose toys didn't meet U.S. safety standards," and that Mattel was working with the Consumer Product Safety Commission to ensure that these products would be safer. It must have been extraordinarily difficult for Eckert to apologize publicly, but by finding the courage to do so, he demonstrated ethical leadership.

9. People, not profits

We often recite — incorrectly — President Calvin Coolidge's statement, "The business of America is business." (What he actually said was, "The chief business of the American people is business.") But far more important is what followed that statement: "Of course the accumulation of wealth cannot be justified as the chief end of existence." Coolidge's policies are often blamed for bringing about the Great Depression, but if enough people had heeded the latter statement, perhaps our history would have been different. Money has no intrinsic value; it is good only for what it can get us. For the good leader, this means that the ultimate goal in business — and life — is not hoarding riches but making things better for all, especially the neediest.

10. Be kind, not king

The relentless quest to be No.1 can blind us to what's really valuable in life: being a decent human being. Yes, good leaders are enthusiastically devoted to accomplishing their mission, but this pursuit cannot be at the expense of the well being of others. For example, leaders with the unenviable task of letting people go will avoid taking the easy way out . No one likes being the bearer of bad news, but the good leader does so with the dignity that leadership of the highest order demands.

Bonus rule: You are not your career

It's admirable to be passionate about your job, but passion can easily become obsession, and that's where the danger starts. When your life's work becomes your life, it is time to take a step back and reevaluate your priorities. I've already shown why you ought to take vacations and stay home when you're sick. More critical than either of these is recognizing what's really important in life — and it's not your career, no matter how satisfying that may be. Good leaders not only make room for family, friends, and spirituality; they know these are the things that truly make life worth living.

It should be obvious by now that the above rules apply not just to those in the financial sector but to everyone else, too. They are, after all, based on the five fundamental principles of ethics: Do No Harm, Make Things Better, Respect Others, Be Fair , and Be Loving. As Peter Drucker pointed out, it is not enough to do things right; we must also do the right things. The good leader today is concerned not only with getting from A to B, but with deciding whether B is worth getting to in the first place.

Visit the original posting at http://www.msnbc.msn.com/id/30328338//.

BusinessWeek asks..."Where will housing be in 2012?"

2009-06-22T13:04:00.007-05:00

I came across a couple of pretty good articles from BusinessWeek.com via Msnbc.com. This article offers a pretty sober view of housing over the next few years. It offers a “personal” view of how this correction has impacted people and their homes…rather than merely focusing on the econometrics.

If you would like to visit the original link please go to…

http://www.msnbc.msn.com/id/31446244/ns/business-businessweekcom/

Where will housing be in 2012?
In 3 years, market will likely be governed by local issues, not credit crisis

Americans have not seen a boring housing market since the last millennium. You know — the average, ordinary kind of market where supply just about matches demand, prices are steady, and real estate ceases to be a topic of daily conversation. Instead, we've had six years of upside craziness followed by three years of downside terror. Now we're in a tug-of-war between those who think we've finally found a bottom and those who are convinced that the overhang of unsold homes is going to push prices considerably lower.

By 2012 we may finally get back to blissful boredom. With any luck, three years should be long enough for the U.S. economy to recover and for the nation's housing inventory to shrink to more normal levels. At that point, housing will return to its old ways, with prices governed not by national mood swings and global credit crises but by local issues ranging from zoning to immigration to job growth.

Prices? While they're likely to keep falling a while longer under the weight of foreclosures, the market is definitely closer to the bottom than the top. “We expect prices to drop for another year and then stabilize before starting to rise with incomes,” says Standard & Poor's chief economist David Wyss. Moody's Economy.com predicts the S&P/Case-Shiller U.S. National Home Price Index, maintained by data specialist Fiserv, will fall about 16 percent this year before regaining ground. Based on the National Association of Realtors national median home price of $180,000 for the fourth quarter of 2008, that would mean a median of $152,000 at the end of 2009 and then a rebound to $179,000 by the end of 2012.

All real estate is local

Of course, the national median price is an artificial construct, since there is no such place as National Median, U.S.A. Different trends can have a big impact on sales and prices across the U.S.

Local job growth is one of the most important factors to study when assessing a market's prospects. Omaha, for example, which has attracted employers such as Yahoo! and Google, missed out on the boom but is likewise dodging the bust. With the city adding jobs, the prospects for home prices look good. Detroit, where home prices fell by a third from 2003 through 2008, is likely to suffer even more in coming years as the auto sector continues to shrink. Demographic change, another trend examined here, is equally influential. For instance, Salt Lake City's youthful population is primed for house buying. While the bust left prices in once-bubbly Western markets such as Phoenix and Vegas lower in 2008 than in 2003, Salt Lake prices rose 51 percent over that period.

Other important factors are even more local than those, such as how far a house is from the nearest supermarket. You'll know we're back to an ordinary, boring real estate market when buyers focus less on the intricacies of foreclosures, short sales, and the like and go back to the things that used to matter most: What are the schools like? How quiet is the neighborhood? When am I going to have to replace that roof or cut down that diseased oak?

Sellers Mark and Maura Rampolla, who put their house in Oradell, N.J., on the market early this year, are coping with ultra-local issues such as their house being on a fairly busy road. They're also up against the national housing crisis angst. The Rampollas bought their house for $556,000 in 2004. Now they need to sell it because they're moving to the Los Angeles area to set up a West Coast distribution hub for their coconut-water sports-drink company, Zico. They listed the house for $599,000, which would represent a loss after factoring in closing costs and renovations. House hunters didn't even nibble on the property that the Rampollas and their two young daughters have grown to love. In mid-June the couple dropped the price to $559,000. “People say it's a beautiful house, but they're just very nervous right now,” says Maura.

The Rampollas will probably end up being the first owners to lose money on the Oradell home since it was built in 1925 — a phenomenon that's happening across the U.S. The classic American foursquare, with four bedrooms and original chestnut molding, was sold by the Bonavita family to the Riccio family for $47,000 in 1972, the first recorded transaction price. The Riccios made out by selling to the DeSouza family for $285,000 in 1997. The DeSouzas sold just seven years later to the Rampollas for $556,000. “We actually bought the house in a day,” laughs Maura. “Mark ran through the house in 10 minutes, I kid you not, because he had to get to a meeting in Queens. ... We had nothing to sell, and we just said: ‘Great!’ ”

The good news is that the Rampollas’ loss could wind up being some first-time home buyer’s gain. From now through 2012, lots of families that couldn't afford to buy when prices went through the roof will be able to get in on the ground floor. Based on today's household incomes and mortgage rates, the National Association of Realtors' Housing Affordability Index is bobbing around the highest level since recordkeeping began in 1970. “To generalize, yeah, it is a good time to buy a house. I don't think there's any urgency because I think it'll still be a great time to buy a house a year from now,” says economist Richard DeKaser of Woodley Park Research in Washington.

Homebuilders are helping by absorbing their share of the pain. In general, the U.S. needs about 1.5 million new homes a year to accommodate the growing population and the demolition of decayed properties. Builders exceeded that rate during the boom, but now they're building fewer than 500,000 homes per year. Their cutback should reduce the glut of homes and bring the market into better balance by 2012, if not sooner.

A still-murky picture

Most important, the economy should be growing briskly again by 2012, according to Moody's Economy.com. In May, the firm predicted gross domestic product would shrink 3 percent this year before growing 1.4 percent in 2010, 4.7 percent in 2011, and a robust 5.8 percent in 2012. It's also looking for home buying and building to return to their pre-bubble paces—no higher and no lower — by 2012.

Even if the economy performs as projected, there's still plenty that could go wrong in the housing market. Because conditions have been so unusual, “it's very hard for the model to extrapolate, based on past experiences, what's going to happen this time,” says Moody's Economy.com Senior Economist Celia Chen. In a study of global real estate markets, economists Kenneth Rogoff of Harvard University and Carmen Reinhart of the University of Maryland found that home prices fall for an average of six years after a major financial crisis. That would put the U.S. bottom in 2012, or later.

Another risk is that potential buyers will stay out of the housing market, no longer trusting in home appreciation to do their saving for them. Writes David Rosenberg, the former Merrill Lynch economist who is now chief economist at Toronto-based asset management firm Gluskin Sheff & Associates: “Baby boomers are still in the discovery process on oversized real estate being more of a ball and chain than a viable retirement investment asset.” Rosenberg also is concerned that an aging population won't need the kind of big houses erected during the boom. “The high end of the market will be in a bear phase,” Rosenberg says in an interview.

So much has gone wrong with housing lately that it's easy to imagine worst-case scenarios. But in the more likely case, the market will fall some more, bounce off its lows, then gradually start growing. By 2012, families like the Rampollas may even get a warm, fuzzy feeling about homeownership again.

Copyright © 2009 The McGraw-Hill Companies Inc. All rights reserved.

Hope for Housing? Nope...not yet.

2009-06-16T15:05:00.007-05:00

Today's housing starts number was met with the proper amount of cynicism on Wall Street. Sales are the most meaningful metric. Housing starts, particularly starts related to builder spec activity, are counter-productive to stability in pricing.

CNBC had a discussion about the housing numbers and "hope for housing". I think the assessment that the "usual suspects" are likely to continue dragging down the market is spot on. It gets tiring to repeat the "every market is different" mantra but it is true. Certain areas have not gone into recession, others are on their way back, and others have dark days ahead.

The health of the overall economy, the employment numbers, and sales of existing inventory are the "holy trinity" of housing recovery. Robert Shiller (of Case-Shiller index fame) and Nouriel Roubini (aka Dr. Doom) continue to be the "piss in the punchbowl" for all who are hoping for a return to the party days of 2005.

Here is what CNBC had to say earlier today...

Green Shoots or Green around the Gills?

2009-06-15T14:53:00.009-05:00

The stock markets were down over 2% today mostly due to increased pessimism about the near term economic prospects. Many are skeptical about the recent wave of "green shoots" sighted on the economic landscape. Today we had two interesting posts that show just how "murky" this bottom may be.

The first video and posting from "Tech Ticker" at Yahoo finance talks about positive news regarding housing...

Housing Is Recovering, Fast, Jeff Matthews Says
Posted Jun 15, 2009 03:27pm EDT by Aaron Task
Related: DHI, HOV, LEN, PHM, MAS, XHB, CTX

Home prices continue to tumble, and have further to go to get back to pre-bubble levels, according to the bears. Another wave of foreclosure is coming down the pike, especially as another big slug of Alt-A mortgages start resetting to higher rates in 2010 and 2011. Plus, inventories remain elevated and now rising mortgage are putting a crimp in refinancing activity.

But Jeff Matthews, founder of Ram Partners takes a variant view: "What's happening in the real world is this: the housing market is recovering, fast," the fund manager recently wrote on his blog.

Matthews' optimism on housing is based on the following factors, as discussed in the accompanying video:

• The inventory of unsold homes is coming down rapidly from the peak levels of last year. Hovnanian has even sited shortages in some previously saturated markets, Matthews notes.

• Housing affordability has improved dramatically from its all-time low levels in recent years.

• Buyers are emerging and markets are "clearing" in some of the hardest-hit areas, like Phoenix, Sacramento and Las Vegas. Don't dismiss these buyers as mere speculators looking to get back what they lost in 2008, Matthews says.

The current bottoming process may, indeed, prove to be the proverbial eye of the housing hurricane when all is said and done, Matthews says. Still, he believes it's a mistake to dismiss the improvements and says too many observers are busy looking in the rearview mirror vs. focusing on the reality in front of them.

Please note...the first comment on this posting as seen on Tech Ticker's blog was "BULLSHIT"...I guess every green shoot needs a little fertilizer.

The next indicator was the homebuilder sentiment index as posted by AP...I guess the only appropriate comment would be..."No rain, no rainbows"? I think we are still looking at a very unstable bottom.

Homebuilder sentiment index slips 1 pointHomebuilder sentiment index drops by 1 point in June

• Alex Veiga, AP Real Estate Writer
• On Monday June 15, 2009, 1:10 pm EDT

LOS ANGELES (AP) -- The National Association of Home Builders says its housing market index slipped by one point in June, reflecting many builders' uncertainty about when their business prospects might improve.

The Washington-based trade association said Monday the index fell to 15 -- the first decline since January, when the index dropped to an all-time low of 8.
Index readings lower than 50 indicate negative sentiment about the market.
The report reflects a survey of 548 residential developers nationwide, tracking builders' perceptions of market conditions.

The index readings for current sales conditions and traffic by prospective buyers remained unchanged from May. The reading on expectations for sales over the next six months dropped by a point.

How Will New Homes Change after "The Bottom"?

2009-06-14T14:23:00.006-05:00

Hanley Wood's website, HousingCrisis.com devoted an article to discussing how homebuilders were re-imagining the "value" of their product. It is obvious that most homebuilders are looking for a solution. Some are looking to go "back to basics" while others are looking at this crisis as an opportunity for a real "transformation". I believe that there is a business model that projects well into our unsure future. It is likely that we have not yet perfected that model however.

I had the opportunity to spend a couple of days in Omaha last week to meet with Hearthstone Homes, one of the builders mentioned in the article. They are a real success story in the midst of this housing collapse. I get a sense that they may very well be on the path to leading the way toward that "transformation". Keep your eyes on them!

Home builders rework how they offer value

Home building’s leading business executives have a message for the public. The message is this: We’ll meet you there, where you can feel confident in a new-home purchase right now.

Several dozen of those executives met this week in Chicago for the annual Builder 100 conference. If any of them had spent time in the fetal position during any part of the last two-plus years, you would never have been able to tell. A resilient bunch, although one whose ranks are sorely diminished and still shrinking.

For those who were at the conference, a shining, if symbolic, moment of resilience was Pulte chief executive officer Richard Dugas braving a public appearance as Builder’s Executive of the Year despite an angry crowd of labor union protestors clamoring on the street outside the conference venue. Protesters brought their signature oversized inflatable pig and stood it among them as they picketed the hotel on East Superior Street. Dugas stood tall and talked of the determination of his company’s people to weather the balance of the economic storm and emerge an even stronger firm.

For those who were unable to attend the conference, it should be noted the mood was realistic; the consensus was that traffic and sales are up; there’s lots more work to do; and bigger opportunities are beginning to reveal themselves.

For two solid days, they talked about their message to the public: “We’ll meet you a good part of the way there.” They talked about what they want–mostly good headlines–and what they’re going to do about it next, give new meaning to the word “value.”
Value has been the missing link in the real economy and the housing economy. Loan-to-value. Cost value. Time value. Never missing a beat, however, has been the value of people. People, home building’s thought and practice leaders refrained over and over, are where you get value. It’s the one and only way to get home builders’ house offerings a good part of the way there for the public to feel confident about buying right now.

Builder 100 executives talked over and over about people, about ones they’ve lost, and ones they have fought to keep. People are where smarter processes and better margins and more persuasive selling occur. People are positive cash flow versus the incessant erosion of hard assets like land and invested capital. People are the only difference between sheer price reductions and value.

Every home builder there was talking about offering value. It’s practically a euphemism for offering lower cost products to home buyers who are stuck in a Catch-22 credit environment. The industry’s most dramatic gesture to date–the Pulte acquisition of Centex–is strategically a play for value. Pulte’s acknowledging, in part, that it needs a value brand in its portfolio, not just for now, but especially now as a ramp to recovery.

Pulte’s not alone. We’re seeing practically every company, from KB Home, to Meritage, to D.R. Horton, to Jagoe Homes, put greater emphasis on value. This means killing frills, figuring out smarter ways to buy materials and manufactured goods to put in the homes, and building faster yet with higher quality to cut down both on trades time and warranty issues.

The third key part of the new value proposition home building executives were focused on at Builder 100 is green. Clearly though, green as a business issue versus green as an altruistic motivation. More and more home builders, most of the bigger enterprises and an increasing number of regional and local companies including Artistic Homes in Albuquerque, and Hearthstone Homes of Omaha, are building energy efficiency beyond code into their homes.

There are a couple of reasons for this right now, and they’re related business objectives. One is the struggle to find any possible point of difference from competitors in their marketplace, and the other is to strike potential home buyers with a money-saving and emotional reason to buy, and get them to regard the “total cost of homeownership”–mortgage payments plus payments for utilities and other regular maintenance costs–as a new-home benefit. We learn at the Builder 100, of course, that the mortgage finance sector has apparently never heard of or been regardful of the “total cost of homeownership.” So when a buyer can get approved for a $200,000 home, but pays through the nose for utilities and other costs, the bank is unaware. But the same lender would scarcely approve that same buyer for a $250,000 loan for a new home that would save more than $50,000 in utility and maintenance costs during the term of the loan.

People, value, and green. These are the issues we’ll continue to focus on in the months ahead. Cracking the code of value–which home builders have begun to do with their new entry-level and other segment offerings–is how home builders can be confident in their simple message to the public: We’ll meet you there.

To read this article and more, please be sure to visit http://www.HousingCrisis.com to view Hanley Wood's website on the "Construction Pulse".

Budget Deficits and the Debt

2009-06-12T16:21:00.005-05:00

The Charlie Rose show on Wednesday had a fantastic round-table discussion on the impact of our budget deficits and the national debt. I encourage all of my readers to take a look. Charlie talks about the source of the problems, the impact for the future, and the likely solutions with David Leonhardt, Alan Blinder, Alan Auerbach and Richard Posner.

To view this clip and other highlights from the The Charlie Rose Show please go to http://www.charlierose.com/view/clip/10381 .

It's Murky on the Bottom

2009-06-11T22:45:00.004-05:00

With interest rates climbing over the past month, many analysts are concerned that a housing recovery will be delayed. Today we saw a strong sale of 30 year treasury bonds that seemed to offer a hint that perhaps we were seeing a leveling off on mortgage rates. The jobless rate remains the single largest obstacle to recovery in housing and the economy overall.

Here is a discussion from earlier today on CNBC that discusses the foreclosure activity and how interest rates may impact future activity.

What do you expect?

2009-06-06T13:13:00.005-05:00

The growing sense of optimism in a housing market "bottom" needs to be balanced with a realization that more challenges are ahead of us. There is a growing fear that the market will see a "glut" of new inventory as we appear to stabilize. Sellers who have been waiting for a "glimmer of hope" will rush to unload...after holding out during the past eighteen months. We have already seen a new wave of foreclosure inventory released into the market. We seem to be stuck at 10 to 12 months of inventory. It will be a necessary but not sufficient condition for "recovery" when we see inventory under six months supply. Inventory levels can drop through sales or through an increased demand.

Jobs will drive a housing recovery. Until we see the unemployment rate start to decline, we are likely going to see additional erosion in home value and housing demand.

Diana Olick at RealtyCheck and CNBC had an interesting perspective on seller expectations. The fact that the buying market seems to be "bottom feeding" on distressed inventory and driving pricing down for "organic" sales...all point to more discomfort for home sales.

Here is Diana Olick talking about falling prices on CNBC Friday...

Real Estate Investment Market Analysis

2009-06-04T16:56:00.005-05:00

While some are calling a "bottom" to residential real estate, others are not so sure. Here is a sober analysis from Barry Sternlight, CEO Starwood Capital. He sees residential nearing a bottom while commercial real estate still has some trouble ahead.

Here was his interview on CNBC earlier today...

Cramer Calls "Housing Bottom"

2009-06-03T13:07:00.004-05:00

While I believe the assertion that we have "the best affordability on record" is over-hyped, I agree that halting the constant value depreciation is the ultimate rainbow after the storm...Mr. Cramer has been predicting a mid 2009 housing bottom for a while. This video from TheStreet.com gives you Jim's "state of the market" view on housing.

Pending Recovery?

2009-06-02T12:36:00.004-05:00

Today we received the April "Pending Home Sales" index results from the National Association of Realtors (NAR). The index saw its third straight monthly increase in the data and the greatest monthly increase in over seven years. This index is often less reliable than new home sales or existing home sales numbers but it can show a trend pretty well. The greatest increase in pending sales was found in the northeast and midwest.

Here is CNBC's take on the data this morning...

Construction Spending in April Surprises Economists

2009-06-01T11:32:00.005-05:00

AP reporting on the April construction spending data. I guess we can't say that housing is flying high but as Buzz Lightyear might say...we are "falling with style".

US construction spending posts surprising gain

US construction spending posts surprising 0.8 pct gain in April; spending on home building up

• Jeannine Aversa, AP Economics Writer
• On Monday June 1, 2009, 10:28 am EDT

WASHINGTON (AP) -- Construction spending in the U.S. rose 0.8 percent in April, defying economists' forecasts for a decline.

The unexpected gain -- the most since August -- marked the second straight month that builders boosted spending on construction projects around the country, the Commerce Department reported Monday. Economists were bracing for a 1.2 percent drop in construction spending for April.

Before March's uptick, construction spending had fallen for five straight months.
In an encouraging note, private builders increased spending on housing projects by 0.7 percent, contributing to the overall improvement in April. It marked the first time since August that private home builders boosted such spending. At that time, they increased it 5.5 percent.

Private spending on all other construction projects other than residential ones went up a strong 1.8 percent in April, following a 2.6 percent gain in March. Builders increased spending in April on projects including hotels and motels, factories, power plants and health care facilities. That more than offset reductions in spending on office buildings, amusement and recreation projects and on other projects.

Spending by the government, however, dipped 0.6 percent in April. That refected spending cuts on schools, hospitals and other health-care buildings, and sewer and water-supply projects.

A collapse in the housing market, a credit crunch and a financial crisis helped push the U.S. into a recession.

Federal Reserve Chairman Ben Bernanke has said he hopes the recession, which started in December 2007 and is now the longest since World War II, will end later this year.
Builders have been hard hit. They slashed spending on residential projects in the first quarter at an annualized rate of 38.7 percent, the most since the spring of 1980. Spending on commercial projects was slashed, too.

Economists are hopeful that cutbacks by business in the current April-to-June quarter won't be as deep as they have been. If they are right, the economy shouldn't shrink nearly as much during this quarter as it had in the last six months, analysts say.

The Good, The Bad & The Ugly...again.

2009-05-27T12:39:00.005-05:00

More housing numbers came out today. As with most of the information coming out recently, today’s market news was a mix of “good”, “bad” and “ugly”.

First time buyers are accounting for more than 50% of the recent sales activity and “move up” buyers have virtually disappeared. The “move up” buyer will only re-enter the market once prices have stabilized on their resale and job security increases.

Words like “shadow inventory”, “long term rate increases”, and “fed actions” all point to a real lack of confidence that the market will be able to bounce back to 2006 levels any time soon. However, the increase in sales and the increased affordability are pointing toward a “bottoming out”. In my opinion, this market will begin a “healthy” recovery when distressed/foreclosed/short-sale inventory returns to a 2006-2007 level.

Here is the grim analysis from CNBC this morning…

Here is a link to a Fox Business Channel video featuring Alexis Glick talking to Coldwell Banker CEO Jim Gillespie talking about the new housing figures.

“Has Housing Hit Bottom?”

The View from the Bridge...I still can't see the bottom but I'm still looking!

Consumer Confidence Soars in May...Housing still lagging.

2009-05-26T10:45:00.006-05:00

Todays consumer confidence report surprised economists as the index saw a double-digit increase over last months measurement...still no strong silver lining for housing as sentiment there is not improving as quickly as hoped. This is the report from Reuters this morning.

Update: Added a CNBC segment that talks about housing price declines, consumer confidence index, and market impact.

NEW YORK (Reuters) – U.S. consumer confidence soared in May to its highest level in eight months as severe strains in the labor market showed some signs of easing, though Americans' moods remained depressed by historical standards.

The Conference Board, an industry group, said on Tuesday its index of consumer attitudes jumped to 54.9 in May from a revised 40.8 in April, the biggest one-month jump since April 2003. Economists had been looking for a much smaller rise to 42.0.

Fewer Americans said jobs were "hard to get," the survey found, with that measure slipping to 44.7 percent from 46.6 percent. Those saying jobs were plentiful climbed to a still meager 5.7 percent, but that was still higher than April's 4.9 percent.

"Consumers are considerably less pessimistic than they were earlier this year," said Lynn Franco, director of The Conference Board's Consumer Research Center.

The data was in line with other evidence suggesting that, while the economy continues to contract in the current quarter, the pace of deterioration has abated somewhat.

U.S. stocks extended their rally after the data, with the Dow Jones industrial average up 120 points or 1.5 percent.

The survey offered mixed messages regarding Americans' propensity to spend money. The proportion of those who said they planned on buying a car over the next six months rose to 5.5 percent, its highest in at least a year.

But fewer intended to buy homes -- only 2.3 percent, a tough break for one of the hardest hit sectors in the country's economic crisis. A separate report on Tuesday revealed U.S. home prices dropped 18.7 percent in March compared to a year earlier.

(Reporting by Pedro Nicolaci da Costa, Editing by Chizu Nomiyama)

CNBC Report...

NAHB Article on "Sentiment Surveys"

2009-05-23T16:25:00.003-05:00

This posting from the NAHB online newsletter summarizes the latest reports on homebuilder sentiment and overall consumer sentiment. Jim Cramer, on CNBC's "Mad Money", has been predicting a July 2009 housing "bottom" for a long time...he may not be so "mad" after all.

Surveys of Consumers and Builders Signal Revival of Home Buyer Demand

The stunning improvements in major measures of housing affordability, along with temporary federal and state tax incentives for first-time buyers and new-home buyers, have served to stabilize housing demand and to encourage the beginnings of recovery. This revival has occurred despite the persistence of extremely weak economic conditions and serious tightening of lending standards in major components of the home mortgage market.

The University of Michigan’s survey of consumer sentiment showed that 79% of households had a favorable view of home buying conditions in the early part of May — up substantially from the cyclical low in early-2006 and the highest reading since early-2004. The revival primarily reflects the major price reductions that have accumulated since 2005, and historically low mortgage interest rates have also caught the fancy of consumers in recent months.

NAHB’s proprietary survey of large public and private single-family builders provides concrete evidence of recent stabilization and improvement in both gross home sales (new orders) and net sales (accounting for cancellations) — on a seasonally adjusted basis.

Gross sales hit bottom in February and registered significant improvement in both March and April. Net sales actually bottomed out late last year and have shown substantial improvement in recent months, particularly in April.

NAHB’s broad-based single-family Housing market Index (HMI) had been mired in a narrow record-low range from November of last year through March of this year. However, the HMI broke out of this range with a decisive move in April — from 9 to 14 — and registered further improvement when it rose to 16 in May.

While the HMI level still is quite low, the recent turnaround has been broad based, showing up in all major regions of the country and in all HMI components — present sales, expected sales and buyer traffic.

Mixed Signals on Housing

2009-05-19T15:53:00.011-05:00

The market reacted to some lower than expected data on housing starts. While many were expecting a modest increase, few were expecting such a double-digit drop. I believe that this is good news for the future health of the housing market. Sales are the key...we need existing inventory to be absorbed BEFORE we start adding to inventory. Sales should be the leading indicator...not starts.

Tech Ticker tells the story of supply equilibrium in this link. April housing starts.

Here is the AP story on housing data and the impact on stocks.

I have also included some insight from CNBC this morning. This was taped shortly after the data was released.

Builder Sentiment Improves

2009-05-18T14:59:00.003-05:00

Latest news from Reuters via Yahoo.com. Perhaps we are ready to call a "bottom".

U.S. home builder sentiment rises in May
On Monday May 18, 2009, 1:01 pm EDT

WASHINGTON (Reuters) - U.S. homebuilder sentiment jumped to its highest level in eight months in May, a private survey showed on Monday, supporting views that the three-year housing slump might be close to an end.

The National Association of Home Builders/Wells Fargo Housing Market Index rose to 16 from 14 in April, in line with market expectations.

The NAHB attributed the second consecutive monthly increase in the gauge -- which measures builder confidence in the market for newly built, single family homes -- to "the best home buying conditions of a lifetime."

"This continued increase indicates that home builders feel we're at or near the bottom of the market and that positive signs lie ahead for builders and potential home buyers, provided that builder access to production credit significantly improves," said NAHB chief economist David Crowe.

Other housing indicators have recently shown a sharp slowing in the pace of the market's decline, raising optimism a bottom was not too far away.

The collapse of domestic house prices and the subsequent global credit crisis were the main catalysts for the U.S. recession, now in its 17th month.

The report also showed two out of three subindexes of the Housing Market Index rising in May. The current sales conditions gauge climbed two points to 14, while the sales expectations measure for the next six months rose three points to 27. The traffic of prospective buyers index was unchanged at 13 in May.

A Step in the Right Direction

2009-01-13T10:38:00.005-06:00

Here is a story from the NAHB that gives me some hope. As I first posted on June 26th and then expanded on with my December 3rd post, Housing can be one of the quickest means of improving our nation's energy efficiency. I also recommended an increase in the tax credit from $2000 to $5000...

Great minds think alike!

Senators Recommend Expanding Energy Tax Incentives

As part of the federal government’s efforts to stimulate the lagging U.S. economy, Sens. Olympia Snowe (R-Maine) and Dianne Feinstein (D-Calif.) recommended in a Jan. 6 letter to President-elect Barack Obama significant expansions in two important energy tax incentives that promote energy-efficient construction.

“It is paramount that stimulus funding be utilized for capital improvements,” the legislators wrote, “and our nation’s building stock offers one of the greatest opportunities to see an immediate and long-term return on this investment.”

Among other energy tax incentives, the present tax code provides a $2,000 credit to builders of qualified energy-efficient homes and a $1.80-per-square-foot deduction for installation of certain energy-efficient features in commercial buildings, including multifamily properties four or more stories above grade. The former — the Section 45L new energy-efficient home tax credit — expires at the end of 2009, while the latter — the Section 179D energy-efficient commercial building deduction — sunsets at the end of 2013.

The senators propose to increase the impact of these incentives by extending the tax credit for three years and increasing the credit amount to $5,000. They also propose increasing the deduction from $1.80 per square foot to $3 per square foot through the end of 2011.

“By investing in highly efficient homes, the U.S. can lower home owners’ monthly energy bills for the life of the home and allow them to invest in their own and their children’s future,” the lawmakers argue.

NAHB has supported extending and expanding these important incentives to improve the energy efficiency of the nation’s housing stock and applauds the senators’ recommendations and leadership on this issue.

Housing Can Lead the Way to Recovery...Again

2008-12-03T22:28:00.001-06:00

I have worked in the housing industry for more than twenty years. My company is in Chicago where we are known as "The American Dream Builder". We have repeatedly won customer satisfaction awards from JD Power & Associates and others. We are highly respected both within and outside the homebuilding industry.

Over the past two years I have watched our company shrink from over 250 full-time employees to less than fifty. I have seen competitors who were once strong and vibrant...whither away...taking good people with them. Our neighborhoods stand half completed and our homeowners are suffering in a market where their new homes are worth as much as 20% less than what they paid for them a few years ago.

The collapse of the housing market has been at the center of our current economic crisis. While it is a matter of conjecture as to what caused the collapse, it cannot be argued that housing must be stabilized before (or while) we address the systematic issues that caused such a massive failure.

Our government does not serve us well by ignoring the economic impact that housing and homebuilding have on our economy. According to a report by the Sacramento Regional Research Institute (SRRI) in 2007, new housing construction contributed nearly $40 billion a year to the state of California’s economy and it supported in excess of a quarter million jobs. As impressive as those numbers are…they are nearly 40% less than those measured in 2005.

When related activities were included into the equation, new home construction generated over $350 billion in economic output, supported approximately 1.2 million jobs and was the single largest industry in California accounting for 11 percent of all economic activity.

While this study deals only with our largest state economy, one can imagine that the impact is proportional throughout the United States. This study only measures new construction and does not measure other housing related industries that are affected by the collapsed market.

It can be argued that no recovery will be possible without a housing solution. The home builders are proposing a package at www.fixhousingfirst.com . While I believe there are worthwhile ideas presented in that proposal I do not believe it is going to aid in repairing the systemic issues that led us into the over-supply that proved to be a housing bubble. We need to stimulate the market while not creating an incentive to fuel speculative building. We need to bolster a sagging market without creating a reward for risky business practices. Housing must be fixed if we are to create jobs, preserve household financial stability, and create a better economic future for our country. The old economic aphorism…Housing leads the economy to recovery…may be proven true again.

My suggestions are simple and are a hybrid of several policy ideas being floated around right now. My proposal will focus on:

• Saving homeowners from foreclosure.
• Stimulating the housing market so as to decrease existing inventory.
• Rewarding “Green Building” and sustainability from both the producer and the consumer side.
• Putting skilled workers to work on “Green” initiatives that will create employment now and energy efficiency for years to come.

Number One:
I suggest that the Housing Stimulus bill of 2008 needs to be revised in order to address the inadequacy of the $7500 first time buyer tax credit. This credit should be increased to $10,000 and not paid back annually. The $7500 credit was inadequate to stimulate first time buyer activity and the annual repayment actually became a disincentive for many potential buyers.

Instead the repayment should be required when the purchaser sells the home or transfers title. This mechanism already exists in the current bill. It should be the solitary means for recapture. This would prove to be a disincentive to “flipping” a property while mitigating the impact on buyers who are looking to settle into a neighborhood for the long term.

This action alone would greatly improve the efficacy of the Housing Stimulus bill already approved by Congress. I would go one step further by extending a $5000 tax credit to all purchasers using the same repayment proposal. This change would have the benefit of allowing a liquidity cushion for homebuyers who have become too accustomed to HELOC’s and Home Equity Loans as a means for furnishing their home or paying for unexpected emergencies. The government would simply issue the equivalency of a HELOC or Home Equity Loan and it would be repaid when the property is sold.

I would also monetize the tax credits. I would put that money directly into the purchasers account at closing. This would have the greatest single impact on driving demand. This immediate stimulus would certainly be felt on Main Street and would have a far greater impact than mailing stimulus checks to households who are inclined not to spend them.

Lastly, I would make these credits available for homes that are currently built. I would not allow these credits to directly fuel a new housing boom. I would use this stimulus to whittle away the existing inventory. Homes with a certificate of occupancy dated no later than April 1, 2009 could qualify for this program. Reducing the existing housing stock to a more manageable level would have the greatest single impact on future housing growth.

These revisions to the existing Housing Stimulus Bill would certainly improve its impact and get stimulus directly into the economy while strengthening the housing market almost immediately. It would also focus the stimulus on decreasing housing inventory which would prove to stabilize neighborhoods and likely reduce the pressure of households on the brink of foreclosure.

Number Two:
I would provide stronger incentives for “Green Building” practices for new home construction moving forward. LEED certification is one metric which could be adapted for evaluation the energy efficiency of a new building. Energy Star or NAHB Certified Green are two more means of measuring “Green Building”.

As we emerge from this housing collapse and start building homes again we should take this opportunity to transform the way we build our homes. The homes built today are 30% more efficient than homes built 30 years ago. We could increase the average efficiency of a new home by 50% more by simply requiring certification and rewarding compliance.

A federal tax credit of $2000 is already available to home builders who build homes (including both site-built and manufactured homes) projected to save at least 50% of the heating and cooling energy of a comparable home that meets the standards of the 2003 International Energy Conservation Code, including supplements. A $1000 credit is available to manufactured home producers for homes that save 30% or that qualify for the federal Energy Star Homes program. These credits are already available for buildings or systems placed into service from January 1, 2006, through December 31, 2009.

I propose that we need to increase this tax credit and extend it through 2011. We need to increase the amount of the credit to help offset some of the cost associated with greater energy efficiency. In a healthy market these costs could be passed on to the consumer more directly but today the costs would simply make high efficiency a costly choice for builders. Without greater support, more costly energy efficient home building would likely be abandoned as builders struggle to reduce costs in order to compete.

The federal tax credit should be increased to $5000 for two years and then phased out over three more years. This would allow enough time for stabilization in the housing market and allow for greater access to the technologies and products that will create sustainable energy efficient building practices. These green building materials, technologies and products will also add to the green industry demand of the future.

This stimulus would be aligned with President-Elect Obama’s stated policy to put people to work and to increase our nation’s energy independence. It would create green jobs and it would increase the demand for green technology. It would decrease our energy consumption today and for the future. It would revolutionize the way we build homes and it would be the new American Green Dream.

Number Three:
I would improve the implementation of the “New Hope for Homeowner’s” program already available through the FHA. I would untangle the process and make the application and acceptance process more streamlined. This program has real merit and thus far it has been underutilized. This program, in conjunction, with the initiatives outlined earlier should stem the tide of foreclosure.

One possible modification would include Governmental approval of revisions to appraisal rules for refinancing. It seems fairly simple to allow refinancing to homeowners who are in trouble. One obstacle is the declining market status for appraising home values. A homeowner who purchased with 5% down three years ago would certainly have a negative equity position in most markets today. I propose an allowance to give owner occupied properties the ability to refinance to 110% LTV. at 30 year fixed rates equal to the prime rate or 3.99% whichever is less. (Note: The Treasury Department is already considering an option to create a new source for funding Fannie & Freddie loans at 4.5% using a Treasury Bond offering to create the funding…great move!) I would treat this as a “Rate Buy Down” and I would have the IRS recapture up to $10,000 from the proceeds of any future sale as compensation for this rate reduction.

This would offer immediate relief for homeowners in trouble. It would also allow for a recapture of tax payer funds.

Number Four:
I would invite home builders and remodeling contractors to work as energy efficiency contractors on public housing, public buildings, foreclosed properties, schools, libraries and hospitals. Any stimulus package will need to have employment opportunities and sustainable energy policy at the forefront.

The housing industry has seen employment drop by more than 50 percent in certain regions. This underutilized capacity could be part of a private sector/public sector partnership to improve energy efficiency in public spaces. This partnership could stabilize a very vulnerable industry in our economy while helping to improve our energy independence as move to a stronger future.

These programs would work best through a grant program that focuses on using the private sector to keep people working and viable business afloat while the greater economy becomes stronger.

My proposals are not revolutionary. They are pragmatic. The government cannot solve the problems but they should stimulate the market and allow it to heal itself. The proposals do not create future problems while addressing the past problems. Housing is likely where this crisis began and housing will have to be healed in order to cure the systemic problems our economy now faces.

I would estimate that these changes alone would halt the quarterly reduction in construction payrolls. Over time these changes would likely result in at least a few hundred thousand new jobs at the very least. Most importantly we could stabilize this critical segment of our national economy and the single largest source of personal wealth in our economy. I have confidence that our government will act swiftly, decisively and effectively. We have new leadership and a mandate for decisive action. We are anxious to get back to work.

Housing Market...Signs of Improvement?

2008-11-26T16:36:00.000-06:00

This is an article from "Real Money by TheStreet.com". I don't know about you but for me...any glimmer of improvement is worth taking a look at!

RealMoney by TheStreet.com
Housing Could Bottom Sooner Than You Think
Tuesday November 25, 10:00 am ET
ByDavid Sterman, RealMoney Contributor

If you took a snapshot of the current housing market, you would find little reason for cheer. A flood of "for sale" signs blight many a front yard in neighborhoods all across America, and buyers looking for foreclosed properties seem to be the only visible signs of support. Also, as Jim Cramer recently noted, it is not helpful that homebuilders keep adding to supply.

Nevertheless, the total supply of unsold homes is steadily dropping. As Tony Crescenzi points out, the rate of new household formation handily exceeds the amount of genuinely new homes on the market. (Some construction is the result of tear-downs or storm-damaged properties.)

Importantly, a number of indicators suggest that the worst of the housing slump may have passed. For starters, the steady drop in home prices is beginning to moderate. Home prices had been slumping 2% sequentially for a good portion of 2007, but those drops are now in the 0.50% to 1.00% range. While home prices may fall a bit more over the next few months, they may finally flatten later this winter.

In addition, mortgage rates are on the decline. After hitting 6.63% last July, the average 30-year mortgage has fallen to around 6%, and rates could head yet lower: 10-year T-bill yields have plunged to around 3.15% (at the time of this writing), which implies that 30-year mortgage rates could fall toward the 5% mark.

More telling is the historical relationship between owning and renting a home. From 1975 to 2000, that ratio was fairly constant, but in recent years, it has been far cheaper to rent than buy a home in many markets, as home prices shot up and rental costs rose only modestly. Now, the stunning drop in home prices has pricked a hole that bubble.

As recently as 18 months ago, the cost of owning was far above historical trends (more than 20%) in 16 out of the 20 cities surveyed by Case-Shiller. Now, only four out of the 20 markets surveyed show a 20%-plus gap. In the other 16 markets, the cost to own has reverted back toward the historical mean and, in some cases, is even below the cost of renting.

So many people insist that there are no buyers out there ready to pounce, but that's not the problem. There are plenty of potential homeowners waiting in the wings, most of whom simply want to see some stabilization in housing prices. When sentiment turns among these folks, the housing market will show real signs of life. We do not need to wait for the glut of unsold homes to fall to zero; we just need buyers' confidence to return.

To be sure, rising unemployment does not instill confidence, and this thesis may not play out until unemployment appears to have peaked, which may not happen until later in 2009. Before then, however, the combination of low mortgage rates and a continuing increase in the economic merit of owning vs. renting is bound to start bringing some buyers back into the housing market.

Of course, the latest read on existing home sales wasn't exactly encouraging, and that's likely to be the case for the next couple of months. That being said, investors should closely scrutinize subsequent readings for clues that this ultra-important segment of the economy begins to show signs of getting off the mat.
Following the old saying "it's always darkest before the dawn," sector share prices have been hitting new lows. The S&P Homebuilders Index hit new lows last week after having fallen more than 75% in the past three years. Many of the stocks in the index are selling not far above tangible book value at this point. For example, Pulte Homes sports a market value of about $2.2 billion yet has tangible book value in excess of $3 billion.

The question for many investors is whether that book value will erode further. That may happen if real estate carried on the books needs to get written down even further, which, again, relies on home prices finding a bottom. As a result, a floor in home prices may bring this sector back into the spotlight in the context of impressive price-to-book-value ratios.

Net-net: While many think that the housing bottom is several years away, it could come within the next two to three quarters.

Fix Housing First?

2008-11-17T11:58:00.001-06:00

The economy is on everyone's mind. It is the universal challenge we all are forced to confront right now. The banking industry...the insurance giant "AIG"...the investment banks...now the auto industry...everyone is being crushed by this recession and they are looking for government to lead.

While economists will be arguing for decades as to the root cause(s)of this economic crisis, right now we should be focused on stimulating growth. The housing industry is pushing for a "fix housing first" initiative that is focused on stabilizing the housing industry and the real estate markets.

I believe the general premise is valid and potentially viable...if we can bring stability to the housing market, we can provide a base from which growth could begin. I do not know if this proposal is the best way or the only way to achieve that goal. Take a look at the website "Fix Housing First". I would love to get some feedback or even some better ideas!

We're gonna need a bigger boat...

2008-09-29T22:57:00.000-05:00

The past week has been akin to being in a slow speed ship wreck. We have been sitting on the deck of the Titanic arguing over whether or not we should bail out the first class cabins. Meanwhile the band played on...

Do I endorse a $700,000,000,000.00 government welfare program for Investment Bankers and Corporate Fat-Cats? Of course not... Do I endorse free markets where the risk of loss is the ultimate means of keeping the system honest? Of course I do. However, we are not dealing with a "zero sum game" in this case. Nothing in life is ever as simple as "yes or no".

We can argue about blame and credit...regulation and deregulation...until we are blue in the face. The essential truth is more nuanced and ultimately less satisfying. We need to decide whether or not we will save ourselves to "fight" another day. The ship is sinking...let's save the ship before we fire the crew.

$700,000,000.00 is an incomprehensible amount. 25% unemployment is an unfathomable possibility. If we can save the ship before we all drown...I promise we can go back to fighting over taxes, guns, religion, culture, proximity to Russia, flag pins, and war. Until then...let's grab a bucket and start bailing.

The American Dream: The Green Solution?

2008-06-26T15:31:00.003-05:00

American automakers are suspending production on low mileage vehicles. Inventory levels of SUV’s and Light Trucks exceed four months. Gas is selling at $4.25 a gallon. Americans have reduced their mileage driven by over one billion miles per month. Meanwhile hybrid cars are selling above list.

Americans want to do what is right for society, the environment, the trees…but more importantly they want to save energy and energy costs. It makes good sense. But in the new home building business we simply trudge onward…reducing prices, increasing incentives, hoping to find the bottom of the market.

Take a look at this video...it spells out the challenges and the opportunities pretty clearly.

We need a new building boom but a sustainable and responsible boom. We need the American Dream business to be part of the American Green Solution.

I would like to propose that Senator Obama suggest an enhancement to the federal tax credits for energy efficient new homes as is contained in the federal Energy Policy Act of 2005. I would suggest that this program could also be combined with a tax incentive for consumers that purchase an energy efficient new home as well.

Currently the 2005 Energy Policy Act limits the tax credit to builders at $2000. It is estimated that making a new home “energy efficient” enough to qualify for the tax credit would require as much as a 4% to 7% increase in direct cost. This cost would be passed on to the consumer and would have a direct and negative effect on the pricing elasticity relative to less efficient new homes. I propose increasing this credit to a maximum of $5000 per home. The credit could be targeted to new homes under $500,000 for maximum impact. We would then increase the likelihood that builders will build more homes that would qualify for this sort of tax advantage.

The consumer should also be rewarded for purchasing a more energy efficient new home as well. The tax incentives should be immediate and worthwhile. A $500 tax rebate would be a reasonable target as it would not be a budget buster but it would provide real tangible benefits directly to the consumer. We need to address both the supply and demand pressures for adopting green building technology.

The homebuilding industry is not only a major employer but it is also a driving force for our economy as a whole. We are currently experiencing the worst housing downturn in over 19 years. We need to stimulate responsible growth in this industry. We also need to increase the focus on energy efficiency in our homes as well as our automobiles. Rather than constantly focusing on gas prices, we can save energy and reduce harmful by products just by changing the way we build our new homes. It is estimated that new homes may be as much as 20% to 30% more efficient than homes of thirty years ago.

Right now programs like Energy Star and LEED are delivering homes that are between 25% and 50% more energy efficient than other new homes. Why not encourage that? It would be the equivalent of taking a car that currently gets 25 miles per gallon and improving that to 31-37 with no new technology!

A program that targets energy consumption and green house gas reduction while stimulating the housing industry would be a great way to get America building again!

Another View...How to keep your sanity in an insane market.

2008-05-08T16:13:00.001-05:00

Editors Note: I am always looking to share other people's views and insights as well as my own. As many of you know, the people who work in the Real Estate market are trying to make sense of what they are going through. This week I am posting the thoughts of a special guest writer. Nicole Abele is a Sales Manager with Lakewood Homes. She shares her insight on how she is coping with this dysfunctional housing market without becoming dysfunctional. RB

2002-Control it
2003-Work for it
2004-I think I am working for it (But it seems too easy)
2005-Now I think I have it
2006-Got it
2007-Trying to hold on to it
2008-Lost it

I just realized today I am the youngest person still employed by my company. Funny, I am 28 (what is considered a seasoned age at some companies) and it drives me nuts when people play the age game with me. My dad always said that you will graduate college thinking you know everything and will enter your thirties knowing you know nothing. I know nothing!

“Growing up” professionally in this industry has been such an experience. I went from being a nursing student to being part of prosperous company that sold 1,800 homes in a year. It was all about timing. I was a successful sales person mostly because I was here at the right time. For most of us (from 2002-2006) in the new home industry all we had to do is show up and know how to work fast. By doing that, we were successful.

Reality, however, kicked us in the ass in June 2006. I was just promoted to a sales manager. Lucky for me, just in time to maintain my old salary as the market took a hard hit. Unlucky for me, I had no idea what was to lie ahead.

I went from literally taking orders to “what the hell is wrong with me? I have not sold anything for a month.” All the skills I had (working quick, being efficient and creating urgency) were rendered obsolete by our housing recession. I resisted at first, thinking that this was a fluke and that if I kept doing what I did so well in the past everything would fall back into place. WRONG!

Then something happened. I sat last Saturday and listened to a client say that she was buying here because of my partner. She said and I quote “I loved his personality and his selling style. That is why I am here”. Shit, I almost fell out of my chair! “It works” I thought. Being there, being present and willing to try new things got us a sale! If I would have heard this in 2006 I would have thought “Oh how sweet”. But for all of us out there selling now…know that this kind of occurrence could just be our tipping point.

I have to say my mindset has completely changed. I always was looking at what can this market do for me. Now I am thinking… “what opportunities do I have in this market?” People, more than ever, are looking for guidance during this “housing crisis”. People still want to move, they want a new home and a safe community to raise their family. What they are lacking is the security to do so. They listen to all the negative talk on the news about the declining market. Yet, they still get in their cars and drive to our communities in hope of finding answers. What we need to do is have the right mindset and be there to give them the answers they need. Hell, we are all scared right now and our lives reflect that. This market has affected our paychecks, lifestyles and attitude. Yet we are still here and so is our opportunity. Helping people get into the home they want and can afford is still a strong desire for most people in our line of work. For us, sales people that love their jobs, we can still do this.

Making 150 to 200K a year is long gone…for now. Making 70K is a challenge but still realistic. You can choose to bail out right now…this an option. If you do not love what you do then you should probably go. If you love what you do…then stay. Try crazy things, do what you never thought you would do and for god-sake have some fun! Try it, it just might work. What you do right now may not bring immediate results (sales), but it will position you and your company for a great future.

An aside…

This past month has inspired me. Like golf, you can play so poorly for so long and think you suck. However, all you need is that one good hit (the right swing, mindset and contact with the ball) to keep you in the game. Despite layoffs, confusion and uncertainty I find myself drawn back. I feel something is happening. I do not know what it is, but I know that it is good. Take me off your list of people to worry about. One thing about me…I am always ok. I may float between extremes but it is the only way I find common ground. I like that about me (because it works for me)!

Here are some inspirational quotes and words of wisdom that Nicole likes to remember:

Terra firma ain’t so firma.

All structures are unstable.

Wisdom is knowing that I am nothing…Love is knowing that I am everything…and in between my life moves.

This too shall pass.

Whatever you resist…persists.

Chin up, shoulders back, strut a little. Don’t lick your wounds. Celebrate your scars. You are in a lion’s war. Just because you did not win doesn’t mean you don’t know how to roar. (Ok, it is from Grey’s Anatomy but I liked it. LOSER)

When you do not know what to do…do nothing.
The answer will come at the time when you have to make a decision. (That’s from Grandma got to love her)

Final Note: In the future I will be trying to strong-arm more of my friends, family, and colleagues into sharing their views. If you have some thoughts to share on leadership, life, motivation, self-improvement, sales, real estate, politics or any other worthwhile topic please let me know!

The Truth about Housing Cycles

2008-05-01T13:27:00.000-05:00

Here is an easy to understand and informative explanation of the current housing market. I thought you might appreciate a calm and coherent antidote to all the hysteria and panic.

This cycle reminds me of a long family vacation...screaming from the back of the station wagon..."Are we there yet?" My Dad, sounding a little like John Wayne, would simply say..."No and if you ask me again...you might not make it there at all!"

Sit back and enjoy the movie...we'll be there soon!

What type are you?

2008-02-27T21:48:00.003-06:00

Sunday morning as I was shoveling down the last bites of my breakfast, I was rapidly thumbing through the Sunday Sun-Times before heading into the office. I was half-reading...reading headlines and pretending to absorb the whole story. I landed on a story that made me stop skimming and start reading. It was titled, "The Supervisor vs. The Champion" and it featured a picture of a smiling Barack Obama next to a smiling Hillary Clinton. It was written by Emily Yoffe from slate.com.

The subtitle pulled me in..."What personality tests reveal about Dem candidates." As I read the article I recalled the test the author was referencing. The Myers-Briggs Type Indicator test was a test I had taken a few times. The test uses sixteen different classifications to typecast people. The sixteen classifications are also sorted by psychologist David Kiersey into four sub-groups: Idealists, Artisans, Guardians, Rationals. The different personality types draw heavily from the work of the famous psychologist Carl Jung.

I read that according to Yoffe, Hillary Clinton was an "ESTJ" (Guardian/Supervisor) and Obama was an "ENFP" (Idealist/Champion). The following day in a Monday morning article Yoffe postulated that John McCain was an "ESTP" (Artisan/Promoter). Yoffe proceeded to use these "typecasts" to outline her view of the strengths and weakness of the three Presidential candidates. While it is unlikely that John, Hillary or Barack actually tested their MBTI with Miss Yoffe present, her typecasting seemed to be plausible and accurate on at least a surface level.

As I read the article, it seemed to explain my attraction to Obama's message of hope and change while also explaining my hesitancy to embrace Hillary's message of experience and competency. You see, I am an Idealist like Obama is...in other words Barack is most similar to my type and I seem to connect with his message more readily than I do with Hillary's. I am classified as an "ENFJ" (Idealist/Teacher). David Kiersey's and Typelogic's analysis of my type seemed to be fairly accurate...plus it didn't hurt that it was really cool to be psychologically similar to people like Abraham Lincoln, Ronald Reagan, King David of Israel, Michael Jordan, Oprah Winfrey, and Johnny Depp.

I don't really know if the MBTI test is much more than a HR department equivalent of a horoscope or if it is akin to a rigorous Wunderlic test administered to NFL rookie prospects prior to the draft. However, I do know that I enjoy the journey of understanding. Tests like the Myers-Briggs test, IQ tests and other silly tests like the ones you can find on Tickle.com have always been interesting to me. Perhaps it is the competitive part of my personality...I like testing myself and I enjoy the self-evaluation.

MBTI probably isn't the best way to pick a Presidential candidate but it can be helpful in understanding more about yourself. Self-discovery is always a worthwhile journey. Stephen R. Covey said it best in his book "Seven Habits of Highly Successful People". "Seek first to understand, then to be understood." If you want people to understand you, you need to understand yourself. Take some time and look inward. If you take the time to become more aware of your "self" you will likely be able to become more aware of others. So if you have some time, you can go to Humanmetrics.com to find your personality type using their short-cut MBTI test. Give it a try...

How can figure out where you are going if you don't know where you are?

Facing the challenge and rising above it.

2008-02-18T00:17:00.001-06:00

"Life is without meaning. You bring the meaning to it. The meaning of life is whatever you ascribe it to be. Being alive is the meaning."

"We must let go of the life we have planned, so as to accept the one that is waiting for us."

Those two quotes from Joseph Campbell are worth remembering while those of us in the Real Estate industry struggle to find a silver lining in all of the turmoil we currently face. As we read the morning paper and find more harbingers of bad news in the business section, we have a challenge broader than the sub-prime mortgage "crisis". We are forced to ask ourselves, "Is this what I want to do for the rest of my career?"

I think the answer depends on our goals. If we are looking for a quick and easy path to fortune and prestige, we might want to update our Monster.com profiles. However, if we are motivated by the quest for a meaningful life...now is the time to rise up. We get the chance to re-examine and maybe even reinvent our career goals.

I remember the day I first sold a new home. It was a Camden. A three bedroom, two and one half bath home on a slab. I sold it to a single guy named Tom. It was 1988. Interest rates were just dipping into the 10% range. I was a cocky "salesman" looking to make my first new home sale. To be honest, Tom would have likely purchased that home even if Pee Wee Herman was his salesman. It was the right home at the right price at the right time. Initially I was radiant in my own self-projected glory. Three days on the job and I slammed a sale! I was certain that I was destined for greatness.

As my intoxication started to wear off, I began to see things a little differently. Slowly at first. The meaning started to sink in. I just helped a complete stranger find his home...not a cell phone, a new car, a new suit, or a new bag of golf clubs...his home. I realized that this new job somehow meant a little more than just selling "stuff". I was participating in another persons life. That was an awesome revelation. And I mean awesome as in full of awe.

Like the Wizard of Oz...I was helping to grant wishes that my buyers could very well realize without my help. I was merely there to help guide them through the process. I wan't selling anything. I was helping them to change more than their address. I was helping them to find their home. Thankfully, I had this revelation early.

Without that revelation, the recession of the early ninties would have likely forced me to go get a job selling "stuff" in some other industry. Without that revelation, working weekends would have likely become intolerable. Without that revelation, making follow up calls when I should be home eating dinner would probably have become too laborous to endure.

Understanding that this career was more than just the sales process has helped me through this challenging market. Don't get me wrong. Sales awards, bonuses, and nice paychecks all make the journey more enjoyable. Closing a sale still brings a thrill that has never grown old to this day. But the awesome feeling of seeing a family find their home thanks to your guidance is the real bonus in our career. The paycheck just makes the intangible benefit into a tangible bonus.

When I am asked my opinion on the future of our industry I find myself thinking back to Joseph Campbell's quote..."Life is without meaning. You bring the meaning to it." These challenges will subside and new ones will replace them. The ability to find meaning is purely personal. This market is testing my stamina but not my committment. As long as there are people like Tom looking to find their home...I want to be there to help them find what they seek.

If you enjoy what you do and you strive to do it better every day the reward will find you. It may not be what we have grown accustomed to but as Mr. Campbell said, "We must let go of the life we have planned, so as to accept the one that is waiting for us."

Change on the horizon?

2008-02-13T21:47:00.001-06:00

I never knew making dreams come true could be such a nightmare!

Buying a new home seems to be such a risky proposition these days that people are actually likening it to purchasing junk bonds or penny stocks. Too many people are caught in the "I don't want to make a stupid investment"mentality to actually examine the reasons why owning your own home is such a fundamental part of the American dream. If you watch the news you are led to believe that the folks at Enron got out of the energy business just in time to enter the home building business.

As a twenty year veteran of the American dream industry I can tell you that we are suffering a crisis of confidence and not an end to the dream. Most people I encounter, both prospective buyers and people in my social circle, feel that the economics are now more important than the emotion. That change in the buying process is certainly understandable but it is likely not sustainable.

Since I began my sales career, one of the axioms of new home sales was "justify with logic...close on emotions". For most people the decision to purchase a new home is more than an economic decision. It is usually a discretionary choice that we justify with a logical rationale. Does anyone really need a 4000 square foot home for a family of four? Of course not. But our homes are often a projection of our own self-image. Perhaps this industry correction will change the parameters but it will not change our desire for better homes, neighborhoods, and schools for our children.

When you examine what prospective buyers are saying these days you hear the same comments and objections. "It's not a good time." "I am afraid." "It's gonna get worse." "I don't want to make a bad decision." And the most insidious..."How big is your discount?" Are they really looking to buy their family home from the "clearance rack"? The answer is no. They are looking for reassurance and perhaps even some gentle persuasion. Given what we have witnessed in the past two years, who could blame them?

Maybe 2008 will be the beginning of a change. Maybe people will finally say, "It is time". Maybe the sales axiom will change this year..."justify with emotion and close on logic." The prospective buyers will need to be reminded of the unique non-economic/emotional benefits of purchasing a new home. The easy battle will be waged as skeptical buyers attempt to time the market. Simply put, there has not been a better time to purchase a new home in the past twenty plus years. Interest rates are at historically low levels. Prices have adjusted down almost 20% in some markets. There remains a year's worth of unsold inventory in most markets. Builders are fighting for each sale with amenities-enticements-incentives.

If a buyer has sufficient income, good credit, a modest down payment, and no home to sell...this is the buyer's market of all buyer's markets. Now is the time. My Econ 101 professor put it this way, "While markets can act irrationally in the short term. Over time, all free markets will act rationally. Consumers will know a good deal when they see one." My prediction is simply this: Change is on the horizon. The buyers will be back. Pent-up demand will lead to some rational buying behavior in 2008. We will not be seeing a return to the output levels of 2005 or perhaps even 1995 but we will see the Real Estate market shake off the standing eight count and return to the fight.

Owning a good home in a good neighborhood where your kids can go to a good school is still the American dream. While double digit growth in appreciation, homes that sell above list price, bidding wars, and speculative buyers are "so 2005"...

Most people will feel better about chasing their American dream in 2008.

What is a hero?

2008-02-06T18:37:00.001-06:00

As I contemplate the theme of my site I am reminded of the words of Joseph Campbell. The sound of his words still echo in me. "Follow your bliss" he said. The simplicity of those words and that philosophy still captivate me. The road map for any hero on a quest was simple...the hero was always following his or her "bliss". I laugh now at how elusive that road map is to find in our everyday lives.

We are often looking at the world without a map to follow. Instead we usually focus on landmarks and familiar sites to help guide us on our journey. For many people leaders, mentors, teachers, parents, politicians, or even celebraties serve as their guides. For me, a hero is the most reliable guide to follow.

But what then is a hero? What makes a hero so enduring and transformational?

I look at my world. I look at my community and I see heroes every day. I believe we are all capable of being a hero. A hero is, as Joseph Campbell puts it, someone who "follows (his or her) bliss". Despite all the obstacles...the hero continues to follow the path that leads them to their "bliss".

I have always yearned to understand heroes...John Wayne to John Kennedy...Thomas Jefferson to Martin Luther King...Mother Theresa to my mom...Moses to Jesus to Buddha to Muhammed. I seek stories of heroes as a way to find my way on my journey. They serve as my landmarks. I may not know my own bliss as clearly as I should but if I can understand other heroes and their quests perhaps I will stumble toward my ultimate destination.

I may not be a hero but I'll know one when I see one...I'll let you know what I find on my journey.