What will the "future" look like?

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

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.

Housing Plan still facing obstacles

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."

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

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.

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?

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"?

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".

It's Murky on the Bottom

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?

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

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"

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?

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

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.

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.

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"

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

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

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

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

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.