MHN Blog

Green Building Grows In California—And The Multifamily Market

Last week, California became the first U.S. state to issue a mandatory green building code that will require energy efficiency and less water consumption. Regulations for single-family, multifamily and commercial structures are also part of the new code.

It was a big move for the golden state, and a popular one--the California Building Standards Commission voted unanimously for the green building code, which was designed to reduce greenhouse gas emissions.

As MHN reported Monday, the new code will improve water usage in both commercial and residential plumbing fixtures and aim for a 50 percent landscape water conservation reduction.

• Builders will also be encouraged to reduce energy use by 15 percent more than today’s current standards.

• The code also emphasizes using recycled content in building materials and carpets and suggests site improvements like hybrid vehicle parking and stronger storm water plans.

• Until 2010, the code regulations are optional; after 2010, they’re mandatory.

(Other areas are embracing green building, too. In Seattle, the mayor recently suggested changes to the multifamily building code that included adding green roofs and less--or no--parking in developments that are close to mass-transit, according to the Seattle Times.)   

California Building Standards Commission Chair Rosario Marin praised the commission for uniting construction and building industry representatives, environmental groups and labor organizations. 

It’s certainly something to be proud of—by taking a decidedly sustainable stand, California is working to reduce the environmental impact of new construction.

And it’s a decision that the multifamily market can feel good about.

• It’s a strong marketing technique. It’s true, green building can produce some higher upfront costs--but it also offers long-term savings for owner/investors, and provides leasing agents with an added-value for renters.   

And--according to news on the single-home front--in a recent article about builders attempting to move unsold homes, the San Jose Mercury News pointed out that one major technique builders were using included "trying to woo customers with green building techniques and energy-saving features."

• Green urban areas—designed to negate car usage—are more popular. Energy costs are also persuading buyers to look in urban rather than suburban areas.

As gas stubbornly remains above the $4 mark—with little sign of dropping--they’re eager to avoid long commutes and trips to stores, restaurants and other locations.

"People are now saying affirmatively they want to live closer to town centers and have a shorter commute," Lawrence Yun, National Realtors Association economist, told U.S. News & World Report. "And smaller homes mean less energy consumption."

That’s more good news for the multifamily market.

It’s good news, too, for urban planners who have been trying for decades to get Americans to embrace a more compact geographical pattern, according to U.S. News & World Report.

"To be honest, I feel that rising gas prices...are going to do more for good, sustainable urban planning than the entire urban planning profession," says Thomas Campanella, an associate professor of city and regional planning at the University of North Carolina—Chapel Hill.

Space constraints in urban areas have typically meant multifamily buildings were the best, or only choice for development.

If more buyers are looking in downtown areas because high gas prices are making them reconsider long commutes and car-intensive lifestyles, it could be a huge boon for multifamily building.

(Sort of makes the hefty cost of filling your car up seem a little less painful, doesn’t it?)

Cost remains a concern, but the evidence is overwhelming: Green fever is spreading, and going green is becoming increasingly popular in the multifamily market.

And one day, apartment renters and buyers will simply expect it.

Green Building: Good For the Environment, Good for Sales

Green building has grown exponentially in the past few years. Since 2003, the number of cities with green building programs has increased 418 percent, according to the American Institute of Architects.

And green building is about to grow even more: The green home market is forecast to increase from $2 billion to possibly $20 billion over the next five years, according to a recent report that was co-sponsored by the National Association of Home Builders.

Across the U.S., the frenzy is growing in states such as:

• North Carolina: Between June 2007 and January 2008, the number of certified and completed homes built in western North Carolina as part of the NC HealthyBuilt Homes program--a voluntary, statewide green building certification program--more than doubled, according to the Western North Carolina Green Building Council. Almost 668 are currently in development.

• Indiana: About 60 members of the Builders Association of Greater Indianapolis have joined its new green building committee, Indy Green Build, which is a local branch of the National Association of Home Builders' National Green Building Program.

Roughly 141 Indiana residents have attended a two-day workshop and earned the programs' new Certified Green Professional designation since February, according to the Indianapolis Star.

The Price Is Right

Feeling like the home you bought or built could help save the world is one thing. But there's another reason green building is picking up steam: People are looking to cut costs.

"Everything [green] is going through the roof and shows no sign of stopping," Stephens Farrell of Stephens Smith Farrell Architecture in Asheville, N.C. told the Ashville Citizen-Times. "The thought of owning a 4,500-square-foot, poorly conceived and insulated house 45 minutes from work send shivers down people’s spines when they think about $4.50 gas."

Green building's energy-saving advantage also has helped it gain industry approval.

• A National Association of Home Builders study found that 90 percent of homebuilders were using green ideas in 2007, according to an article in the Economist.

• Even banks are getting in on the action. As we discussed in September, lenders like Bank of America have created financing packages for green building.

Its popularity is growing in part because it is cheaper to build green these days. It used to cost 15 percent more at least, according to Christi Graham, president of West Coast Green. Now building green ads just 5 percent or less to a project, according to estimates from industry leaders like the World Business Council for Sustainable Development.

A Reason To Buy

As residential building continues to slow--according to the most recent government report, single-family home starts hit a 17-year low in May--homebuilders are finding that energy efficiency can be a big selling point because it can help homeowners save on housing expenses over time.

However, it's important to distinguish between greater energy efficiency and green, says Phoenix-area remodeler Philip Beere, who owns the Ecofresh Planet cleaning business and formed eco-friendly development company Green Street Development in 2007.

"I think it's great that the big builders are getting on board to make a better home," Beere told the Arizona Republic. "However, it should be advertised for what it is, which is an efficient home, not a green home."

Some builders-like Shea Homes, headquartered in San Diego--have made sweeping efforts to go green.

The company--which is one of the largest U.S. homebuilders--kicked off an initiative in January to cut the carbon footprint of each new home by 20 to 30 percent in its Trilogy communities, which have water conservation features and use less lumber, the Republic said.

And--even though the homes don't quite meet LEED standards--it's important not to get caught up in classification and remember that they're helping the environment, right?

Shea's Area President of Shea Homes Active Lifestyle Communities Hal Looney thinks so.

"We're building a couple of thousand homes, so the [environmental] impact will be a lot greater than four or five custom homes," Looney said.

He has a point. The company predicts that its Shea Green Certified Home program will save it from using more than 8.5 million gallons of gasoline and have the same effect as planting 1.9 million trees over the next 10 years.

It's Time To Build Green

However, even with noble efforts like Shea Homes' program, we still have (green) work to do: According to a report by Bethesda, Md.-based investment company The Calvert Group that studied the 13 biggest publicly traded homebuilding companies, most still could add more green offerings, the Gazette reported earlier this month.

According to the report, "while every major homebuilder has incorporated some environmental and efficiency programs and products into some of their new homes, none has fully embraced the emerging market of sustainable building design and construction."

The economy is down, and green certification takes time and money; getting LEED certification on a project does, too.

But as new home sales continue to be rocky--the amount of signed contracts increased 6.3 percent in April, according to the National Association of Realtors, but the National Association of Home Builders/Wells Fargo builder confidence index reached a low point for the second time in the past 12 months in June--builders need to be looking for any sales hook they can find.

And the truth is, saving homeowners money is probably sustainable building's biggest sales advantage.

Which is why, as energy costs rise, to developers, builders, real estate agents and--most importantly--buyers, green homes can look decidedly golden.

Isn't that reason enough to go green?

Builders Struggle to Work With Higher Energy Costs

Higher gas costs are driving up prices for a number of things--airfare, pharmaceuticals, even golf balls--and they're taking a toll on builders, too.

Soaring energy prices have raised construction material prices for both commercial and residential builders, the Dallas Morning News said Friday.

In fact, construction costs are rising at more than twice the level of overall consumer prices, according to the Associated General Contractors of America--and costs for some building materials, like steel, concrete and roofing materials, have increased even faster.

The higher energy costs translate into higher production prices for building materials, Federal Reserve Bank of Dallas economist D'Ann Petersen told the Morning News.

Raw material prices are also on the rise, which doesn't help.

Unfortunately, higher concrete costs aren't the only price challenges homebuilders are dealing with.
Suppliers--who are also struggling--are in some cases trying to make up for losses by adding fuel surcharges onto delivery costs.

Andy Haymaker, president and co-owner of HM Homebuilders in Lexington, Ky., told Business Lexington he has been getting three or more notifications of new surcharges each week from his suppliers.

"All my deliveries from lumber companies are now charging, and they never used to. The cost is being passed on to the consumer," Peter Oakley, owner of Oakley Construction in East Bridgewater, Mass., told the East Bridgewater Express.

The charges can add $25 to $50 per delivery; for a construction project averaging 10 deliveries of essential building materials like brick, lumber and shingles, that can add up, Haymaker said.

Which is something to be aware of when calculating--and quoting--job estimates.

• Confirming whether or not fuel surcharges will be added to delivery costs before you place orders can help.

• Locking in prices for building materials with suppliers as early as possible when you start a project is also a good idea.

Passing the increase on to buyers is one way of buffering the cost.

But it's also important to recognize that homeowners and prospective buyers--who we are all hoping will stop thinking about buying, and start buying in big numbers--are concerned about rising energy costs, too. 

According to Chicago Tribune columnist Mary Umberger, energy discounts are one of the hottest new builder incentives.

Forget flat-screen TVs; free gas may sell your unsold homes.

That's what some builders--like Kimball Hill Homes, which is offering $50 gas cards to buyers who pre-qualify for a loan with its mortgage subsidiary--are banking on. Kimball Hill is also offering agents gas cards for bringing in clients.

New York-based Crescenzo Construction Inc. is offering free electricity to buyers at its Benck's Farm development. The developer will pay your electric bill--up to $150 a month--for 10 years.

Dealing with higher energy costs may be a challenge to your business--but it may also be a way to push unsold homes.

Incentives can be a great selling tool; but the economy is down, and frankly, people are less concerned with getting a luxury item than they are with being able to afford heat.

Provide potential buyers with a way to reduce their energy cost concerns--via a gas card or electricity discount--and the decision to purchase a home may seem a little bit easier. 

After all, if we're going to have to pay more because of increased energy costs, shouldn't we also be able to use them to make money?

What Builders Want To Sell Homes

The second largest homebuilder in the U.S., Lennar Corp., announced its fifth quarterly loss in a row today--which unfortunately wasn't the only the only sign this week that building industry stress is mounting.

Miami-based Lennar has had to cut prices to draw buyers, and as a result, its fiscal second quarter results were low: The company had a net loss of $121 million.

Revenue fell 61 percent. And even though there were some glimmers of hope in Lennar's report--its cancellation rate fell from 29 percent last year to 22 percent--Lennar's future looks anything but rosy because new orders declined 45 percent to just 4,396.

"The remainder of 2008 will likely see further deterioration in overall market conditions," Chief Executive Officer Stuart Miller said in a statement.

In California and Nevada, home deliveries dropped 56 percent. The number of homes sold fell 61 percent in Arizona, Colorado and Texas--and by 65 percent in Maryland, Florida, New Jersey and Virginia.

Lennar's situation is no isolated incident, which was clear at the Pacific Coast Builders Conference in San Francisco this week. The annual show--which drew 35,000 attendees two years ago--saw just 18,000 to 20,000 this year, according to the San Francisco Chronicle.

The lower attendance numbers aren't exactly a huge surprise--the National Association of Home Builders' International Builders' Show in February had just over 92,000 attendees, a decline from last year's more than 100,000, and building is slow in California--but that's no vote of confidence for the industry, either.

Which is why the Chronicle article also outlined some of the things builders are calling for in order to salvage the housing market:

• Builders want a tax credit for buyers to perk up market activity.

• Builders also want Congress to permanently increase the conforming loan limit--which will expire at the end of 2008--to lower the price of mortgages in high-cost markets like California.

• And California builders want state legislators to expand the time for builders to finish already-approved projects and to postpone fees so developers can pay them when homes are sold instead of when new home construction projects are approved.

We know the market mood is low: Last year, the National Association of Home Builders/Wells Fargo builder confidence index averaged around 27; in June, it hit 18--the second time the index has reached that low point (the first was in December).

Some changes from the local and federal government could have a huge impact on homebuilders' business; but do you think the changes the Chronicle mentioned are enough?

Will they be effective? As Bloomberg reported Tuesday, Freddie Mac is likely to purchase a much smaller amount of jumbo loans than had been originally predicted this year; Freddie Mac and Fannie Mae's involvement in the market has been sort of underwhelming. So will keeping the higher loan limits really make that much of a difference?

And a tax credit be enough to encourage buyers still nervous about the state of the market to buy homes?

What do you think?

As Gas Costs Rise, Buyers Look At Downtown Living

Urban multifamily developers, start your engines: Demand is about to increase, and we have the astronomically high gas prices to thank.

Americans are looking at homebuying in a new light, according to an Associated Press article reprinted in the San Jose Mercury News today. They don't want to commute--partially because of the time it takes, but more often, because it's just getting too expensive to drive far.

Gas has risen by more than a dollar this year; this week, it hit a new high of $4.08 per gallon on Monday.

As a result, Americans are driving less. Compared to April 2007, we drove 1.4 billion fewer highway miles this April, and 400 million fewer miles than we drove a year ago in March, according to the Transportation Department.

Prospective buyers are well aware of how expensive gas is. A recent survey of 900 Coldwell Banker agents found that 96 percent cited rising gas prices as a big client concern.  

And that's giving urban living a big boost.

Eighty-one percent of the agents in the Coldwell Banker survey said clients mentioned minimizing their work commute as a reason for being interested in urban living.

That's giving a boost to homes near "urban centers and subway, train and bus stops," AP says, which "are often selling faster and at better prices than those in the distant suburbs."

That's not necessarily true for all downtown areas. Smaller cities and burbs that are too far to offer a decent commute are suffering. An article in today's Boston Globe touches on the struggle cities like Franklin, Mass.--which is located more than 40 miles from Boston--are having to revitalize their downtown areas.

Mixed-use developments may offer Franklin residents the same quality of life and convenience a mixed-use development would offer a resident in a larger city like Boston--but it's also going to offer them a hefty drive of an hour or more to commute if they're working there.

This week, the Commerce Department said that multifamily starts fell 8 percent in May. However, multifamily permits increased 3.9 percent. Could urban demand be responsible for the rise?

It's possible. In large U.S. cities, the urban housing market has traditonaly been dominated by multifamily structures because of space constraints and design. It just makes sense: With a higher population, you need a bigger amount of smaller homes.

We know overall housing demand has been rocky for some time. But if we know that demand for one sector--urban multifamily properties--is beginning to vastly increase, how should the industry prepare?

Should we be planning more rental properties? Increasing the offerings in mixed-use condo projects--adding restaurants, coffee shops, gyms and other neighborhood-enhancing items that will let residents walk where they need to--to increase their draw?

Should the design of new downtown multifamily structures reflect some of the convenience suburbanites are used to--such as ample parking and open space?

Or will the location alone--and shorter or nonexistent commute--be enough to lure residents from the suburbs?

Keeping an Eye on Builder Confidence

How is the housing market doing? If you're hoping to hear that things are improving, don't ask builders.

At least, that's the picture painted by the National Association of Home Builders/Wells Fargo builder confidence index, released this week, which didn't offer much more industry hope.

And with good reason. Last year, the index averaged around 27; in June, it hit 18--the second time the index has reached that low point (the first was in December).

In May, the index measured builder confidence at 19.

Forecasts had placed the June index at about 19, according to Bloomberg--the surprise drop may not have been much, but it was more than had been expected.

But the confidence reading wasn't the only low. Builders' take on single-family home sales remained at 17, another all-time low; builder sentiment also declined in two of four U.S. regions:

• In the Northeast, the index fell to 12 from 18.

• In the West, it dropped to 16 from 20.

• The index rose from 12 to 17 in the Midwest.

• And in the South, the index remained the same, holding steady at 22.

That's all alarmingly low: Anything under 50 implies respondents don't feel great about the market.

But aside from not being very confident about the market, builders also said that buyer traffic--a key indication of future sales--also dropped in June, falling from 18 in May to 17 this month.

And it doesn't look like builders are being overly pessimistic. The government report released today found single-family home starts had hit a 17-year low in May--falling 1.3 percent from April.

Housing starts aren't--at least for now--likely to improve much in the coming months. Building permit applications fell last month to a seasonally adjusted annual rate of 969,000  from a revised 982,000 April rate--less permits; less plans to build.

Unlike consumer confidence, which can really influence and affect the market, builder confidence is more of a reflection: Knowing that developers and builders are down about the status of housing isn't likely to increase or decrease sales, but it provides a good snapshot of how the market is doing.

If people aren't looking for new homes--and, as Nancy Keates pointed out in yesterday's Wall Street Journal, there are reasons it makes sense to build one--builders are the first to know about it.

If we'd paid more attention to builder sentiment as demand began to drop off at the start of the housing slump, we might have been able to correct the amount of homes being built, reducing the housing supply and, in effect, shortening--or altogether preventing--the decline.

But we didn't. And now, as Bloomberg said, as foreclosures add more homes to the market and financing to buy housing becomes increasingly harder to get, demand is likely to shrink even more--making builders all the more wary.

Knowing that isn't going to do much for us now. But paying attention to builder confidence readings once the market does improve--and it will--is an absolute imperative.

But do you think the industry will? Tell us what you think by posting your take.

The City Cracks Down: Brooklyn Property Owner Charged With Manslaughter After Worker Dies

On Wednesday, a Brooklyn construction site owner was charged with manslaughter in connection with the death of a worker who was crushed by a wall, Newsday said.

William Lattarulo had hired a general contractor and an engineer to create plans to dig the foundation for the laundromat he was building--but he never used them, opting instead to cut about $90,000 off the budget by paying undocumented laborers, according to Kings County District Attorney Charles J. Hynes.

Hynes also said that Lattarulo didn't heed warnings from workers that the foundation of a residential building next door required additional support, Newsday said.

As a result, a worker died on March 12 underneath the rubble of a collapsed wall, and another worker was hurt.

The charge, according to authorities, should be a warning to contractors who are doing poor construction work in New York.

"Owners and developers, contractors, engineers and architects are on notice," acting Buildings Commissioner Robert LiMandri said. "Criminal prosecution is possible and it will happen when it needs to."

New York has seen 16 construction-related deaths this year. In March, a falling crane killed seven people in the city; in late May, a crane crashed onto a building, killing two construction workers.

The May crane accident received extensive media coverage and has prompted the city to re-examine its crane inspection system and overall construction site safety.

Last week, the New York City Building Department's acting chief inspector of cranes was arrested and charged with taking bribes from crane operators and companies, according to Manhattan District Attorney Robert Morgenthau.

James Delayo also was charged with doctoring business records, offering false instruments for filing and tampering with public records, Bloomberg said.

Although the charges weren't directly related to the recent crane accidents, the timing is key: New York is cracking down. And it doesn't want another fatal construction site accident to happen.

But will that be possible?

The New York Times published an editorial calling for increased construction site safety on Wednesday, suggesting more building inspectors and stricter penalties for unsafe work sites.

Is that enough?

What will it take to make New York construction sites significantly safer--before the accidents occur?

And should property owners, contractors and other in-charge construction project officials be held responsible for accidents? Do you think it's fair that William Lattarulo was charged with manslaughter because a worker died on his site?

Post your thoughts and suggestions below ...

Unemployment Numbers Mean Trouble for Housing

Yesterday, we talked about how the housing decline was costing Hispanics construction jobs--but, according to today's unemployment report, the whole industry is suffering.

That's not to say that Hispanic workers are any better off than they were earlier this week, as evident by the number of articles that have popped up in the past few days about the issue, including:

• One in the Washington Post, which features Javier Amurrio, a 38-year-old immigrant from Argentina who was unemployed for 7 months in 2007 and became one of the Hispanic homeowners discussed in our earlier blog who lost his home as a result;

• And an article in the Chicago Tribune, that mentioned that African-Americans also have struggled with a 9 percent unemployment rate in the first quarter;

But it is today's government report, showing that the unemployment rate rose 5.5 percent in May--which is the biggest increase in two decades--that is particularly worrisome. We knew various sectors were sagging; now, it looks like unemployment is become a harsh reality and risk for almost everybody.

According to the Bureau of Labor Statistics, employers cut 49,000 jobs last month: 49,000 jobs.

We've been on a job losing streak all year. And, not surprisingly, construction is one of the hardest hit sectors because of a declined demand. Construction employment sunk by 34,000--its 11th consecutive drop--The Wall Street Journal said.

The financial industry dropped 1,000 jobs; retail lost 27,100, its sixth-straight decline.

One small good point of news: Average hourly wages increased by $0.05--0.3 percent--to $17.94, a 3.5 percent increase from 2007, which the Journal said suggests that wage costs are remaining manageable.

But that's only good news, of course, if you still have a job. And judging by today's numbers, many don't.

The continued unemployment rate growth--if it does in fact increase again in June--is likely to have a huge effect on the already struggling U.S. economy. How are Americans going to cope with less (or no) income when necessities like food and gas prices keep rising?

Well, consumer spending is going to take a hit. We've already seen a drop-off this year in big-ticket item sales. And we've seen a decline in demand for new homes.

The bottom line: If unemployment keeps rising, Americans are going to hold on to what money--and property--they have, and we can kiss any hope of the housing slump turning around by early next year good bye.

Even if people want to move into a new home during these trying times--which we hope they will, since the bloated housing inventory needs to decline before home prices and construction demand significantly pick up--it's going to be tough.

Financing is hard enough to get if you have good credit these days--but apply for a home loan without a job? Forget it.

The housing market should be concerned that unemployment is rising--and not just because it's hit the construction sector hard.

The question is: How do we begin to turn this messy, troubled economy around?

Will it take more jobs? Less expenses? Incentives for Americans to buy homes, like the National Association of Home Builders and Toll Brothers CEO have suggested?

What do you think?

 

The Hispanic Community Is Important To The Housing Industry--In More Than One Way

Today's daily news contained an item about how the sinking construction market is hurting the Hispanic community--and while that effect is just now becoming apparent, it's likely to alter the industry for months to come.

What's happening:

A new study by the Pew Hispanic Center found that the seasonally adjusted Hispanic unemployment rate reached 6.5 percent in the first quarter.

By comparison, for non-Hispanics, the unemployment rate was just 4.7 percent, according to The Wall Street Journal.

In addition, Hispanics are making less: Weekly earnings have fallen from $512 a week in 2006 to $480 a week this year.

According to May New York Times article, they're also sending less money home: The amount of the almost 19 million U.S. Latino immigrants sending money to family members in Latin America dropped from three-fourths two years ago to about half, an Inter-American Development Bank survey found.

A few interesting caveats:

As the housing slump chipped away at the rest of the construction industry, Hispanic workers actually fared decently in its early stages: They were able to get 300,000 more new construction industry jobs in the first quarter of 2007.

But that's not the situation anymore--particularly for undocumented immigrant workers, who have been the target of recent government crackdowns.

The housing slump officially has reached Hispanic construction workers, the Journal says. The nonseasonally adjusted unemployment rate for foreign-born Hispanics--many of which lack citizenship--grew to 7.5 percent in the first quarter of the year, according to the Pew report.

In the first quarter of 2007, the unemployment rate for the same group increased 5.5 percent.

The difference for native-born Hispanics--Hispanic-Americans--was significant: Their unemployment rate was 6.9 percent in the first quarter.

In 2007, the unemployment rate for Hispanic-Americans was only a little bit lower--6.7 percent--indicating they saw less of an effect from the construction sector decline.

How it's going to affect the future:

The housing slump will end--it may feel far off, but at some point (many say early next year), the housing market will be in a clear state of recovery.

And when it is, we're going to need more workers again.

Which is going to be a problem, since Hispanics made up a huge portion of the construction industry--26 percent of the seven million U.S. construction workers are Hispanic, according to Labor Department statistics that many feel are actually far too low because of the probable amount of undocumented workers.

But many, according to the Journal, have sought jobs in other industries in the U.S. as the decline continued. Will we able to woo those workers back?

Yet filling open construction positions isn't the only concern.

Remember that New York Times article that said less money was being sent home to Latin America? It also said that the weak U.S. economy has hurt Hispanic homeownership in the U.S.--so much so that a long era of increased Latino homeownership may be reversed.

The rate of Hispanic homeownership grew from 41 percent to 50 percent from 1994 to 2006, census data showed; the pace was more than twice the increase among non-Hispanics.

But if Hispanic homeownership is declining, that means less homebuyers--for the same large amount of unsold homes--and more problems for the sluggish U.S. housing market. We need more buyers; not less buyers.

But if the economy keeps declining, we could lose more than just Hispanic homeowners--we could lose a good chunk of the Hispanic population. For now, displaced workers are finding jobs in other sectors: But rising unemployment could force many to leave the U.S. altogether.

Questions remain: What can we do now to ensure that when we need construction workers later, they'll be ready, willing and able?

How can we help Hispanic families save their homes so that the Hispanic homeownership trend doesn't end?

And--most importantly--what will we do if we find ourselves, in a year or so, with a solid demand for residential building ... but less workers and less people to buy the homes?

 

A Tough Week for New York's Rental, Construction Market

Two news stories this week showcased the New York apartment market's current troubles--both with building, and with renting.

Last week, we covered the sad news of yet another fatal crane collapse at a residential building site in New York--the city's second in recent weeks.

Not surprisingly, the city has reacted strongly: They've stopped use of the Kodiak cranes, and developers at five sites are losing thousands per day as a result, according to Crain's New York Business.

Temporary buildings commissioner Robert LiMandri issued stop-work orders for all seven of the Kodiak cranes operating in New York so that the city could inspect them.

The cranes were being used at five sites--most of them with a  multifamily component: the accident site, First Avenue at East 91st Street; a mixed-use development at 808 Columbus Ave.; a new W Hotel in the financial district; a luxury residential building located at 245 10th Ave.; The Laurel Condominiums at 400 E. 67th St.

Obviously, safety is a priority--but since city officials haven't given the developers a timeline for the inspections, they're forced to wait, and that's an expensive pause.

The delays could take weeks, Crain's said; although the crews have been mostly reconfigured to do work that doesn't involve the crane, that could make it very difficult for those projects to stay on budget.

And it's becoming a growing problem in the city: The amount of construction projects that the New York City Department of Buildings has stopped due to safety violations has increased 79 percent since January.

The most recent crane accident may also result in a new training requirement for entire crane crews--a 30-hour initial training and additional eight-hour course every three years, according to Crain's.

Construction delays can be costly for developers and cause big problems for the renters waiting to move into the new or rehabbed buildings--although, according to one recent news story, New York may have less renters to worry about.

Fox quoted the New York Post as saying rents are starting to decline in the Big Apple. A studio in York Avenue and the East 70s is running about $1,500 a month; a two bedroom in the West 170s is renting for the same amount, according to Manhattan Apartments, Inc.

The Financial District and Upper East Side are also offering deals, the Post said.

Move further away from the subway, and things get even cheaper.

The decline is an interesting turn of events for New York, which has largely avoided the giant real estate price declines that the national housing slump has caused in other cities.

However, last month, numbers indicated that the slump may finally have reached New York--as we recently reported, residential building permits have sunk 50 percent in the past year in New York City, which clearly indicates there's less of a demand for housing.

And now, according to Fox, desperate landlords are willing to pay a month's rent for new renters or foot the broker's fee.

You could argue that less demand for rental properties means more New Yorkers are buying apartments--but those lower building permit numbers indicate that may not be the case for long.

Could New York--which long withstood the housing slump--finally be feeling the effects? And is this an indication the national housing decline is nowhere near over--and in fact, spreading to claim new victims? What do you think?

Homebuilder Woes Have More Than One Cause--And More Than One Effect

Homeowners, of course, aren't the only ones who have suffered during the U.S. housing decline; and reports of builders struggling to make ends meet as residential construction dwindle are growing more frequent.

But lower community home prices and reduced sales of local homes aren't the only factors to blame.

Take, for example, Texas. The state withstood much of the housing decline and actually added construction jobs: 23,000 since the end of 2006.

But in the first three months of the year, builders broke ground on 5,218 homes in the Dallas-Fort Worth area. That's less than half of the construction starts in the second quarter of 2006, during the housing boom, according to Metrostudy.

As a result, several homebuilders in North Texas--including Goff Homes and Colonnade Homes--have gone out of business: No more marketing efforts, and the phones are disconnected, according to the Dallas Morning News.

Other builders are reducing jobs.

"Most of the builders I've talked to have reduced their overhead by 30 percent to 50 percent," Ted Wilson, an analyst with Dallas-based research and consulting firm Residential Strategies Inc. told the Morning News.

The bottom line: The housing slump's effect is widespread--and as it zooms through its second year, even states that fared decently have been affected.

And the local market isn't causing all of the problems Texas builders--and building-related industries--are facing. Silver Line Building Products LLC, a window-making unit of Andersen Co., announced recently that it would eliminate 250 jobs at its Garland, Texas plant. The job cuts aren't a result of the drop in local building; they're due to a reduced national demand for windows.

Lower building material demand isn't the only ripple effect coming out of the building sector's problems. A New York Times article published today on the auto industry's woes--which directly tie in to the housing market's decline--further illustrates that it's tough times for builders.

Vehicle repossessions, the Times said, are increasing in markets where the housing slump has been most severe, like Florida.

The most recent repossessions, according to Fort Meyers, Fla. repo man Bill Glover? Cars owned by builders.

“Lately what we’re picking up is crew-cab pickup trucks,” Glover told the Times, “and anything having to do with construction.”

And as repossessions increase, new auto loans are decreasing because of the risk--more of the same vicious cycle.

California and Florida have lost more than 80,000 construction jobs each since 2006, according to Department of Labor statistics; some were due to the housing decline. But others may be directly tied to the housing market's growth years, according to the San Diego Union-Tribune.

Paul Tryon, chief executive officer of San Diego County's Building Industry Association, expects fewer than 4,000 home-building permits to be issued this year.

Yes, home starts are down in the area. And yes, many of the area residential builders are scaling back.

“Centex, KB Home, K. Hovnanian, William Lyon, Richmond American, Pulte--all have closed local offices, and pretty much every other builder has reduced staff,” real estate analyst Peter Dennehy told the Union-Tribune.

But an additional reason for the decline may surprise you. According to the Union-Tribune, lower home sales are only partly to blame.

The other issue: The county used up much of its residential development-designated land during the boom years.

And the outcome? An industry shift from single-family, suburban tract homes to vertical, mixed-use projects, says real estate economist Gary London.

The recent Commerce Department results that showed multifamily units helped push new home construction up 8.2 percent in April would seem to support that--but is it feasible that buyers who once favored single-family homes, will embrace multifamily options?

Maybe. After two years (and possibly more, if the slump keeps going) of watching home equity decline, it's entirely possible that buyers may be a bit gun shy about spending. Multifamily units are likely--depending on the market, of course--to be priced lower than single-family homes, and they require less upkeep.

But what do you think about the proposed shift London predicted? Do you think builders--and buyers--in markets like San Diego are going to decrease single-family starts and gear up to build more multifamily properties? Tell us what you think by posting below.

 

Switching Gears From a Residential For-Sale Property to a Rental: Part Two

On Friday, we touched on why some new condos are transforming into rental buildings. Can single-family homes make a similar switch?

Yes--and no. If a new single-family home doesn't sell, turning it into a rental can be difficult. They're just not quite as versatile, for a number of reasons:

• It could be costly, thanks to extra fees. Single-family homeowners don't want a large number of rental properties on their street because rentals often aren't maintained as well as owned homes--which can drive property values down for an entire area.

Yet the foreclosure rate has caused that to happen in a number of U.S. neighborhoods.

Some cities are responding to the change. In February, Minneapolis instituted a $1,000 fee when a home is changed into a rental property, the Minneapolis Star-Tribune reports.

• And renters may not want to live in a single-family home. Phoenix, for example, is suffering from an oversupply of single-family homes, according to MSNBC; the city received roughly twice the amount of new homes it could accommodate between 2005 and 2007, many of which were bought as investment properties.

But home values in the area are down--and those homes aren't selling.

To cover the monthly mortgage payment, many owners are renting their investment properties out, a practice that has created a "shadow market" that is competing with the city's apartment rentals, MSNBC said.

Yet the costs for renting a single-family home or an apartment just don't match up.

Given today's 5.72 percent average 30-year fixed mortgage rate, for a buyer taking out a $165,000 loan, the monthly payments would be $959.75, Bankrate says.

Or more--the National Association of Realtors' March median single-family home price was $200,700. Depending on how much of a down payment the buyer put down, the monthly payments easily could be higher than $959.

Rents have risen, too--but they're still at more affordable levels.

Because of bankruptcies and other issues, U.S renter households grew by almost 1 million last year--four times the pace of renter growth from 2003 to 2006, according to a recent Harvard University's Joint Center for Housing study.

The higher demand has driven average U.S. rents up to $775 a month, the Wall Street Journal recently reported.

• Yet condos are a slightly different story. The median existing condo price in March was $219,400, according to NAR, making condo prices more competitive with luxury apartment prices, which in most markets will rent for more than the $775 average.
  
  Thus renting a brand-new condo--comparable in many cases to a luxury rental unit in terms of amenities and appearance--for $100 or $150 more than the average apartment rent isn't so unlikely. It may, in fact, actually be the same cost as renting a luxury apartment, depending on the area.
  

In the end, though, price may not even be the deciding factor.

The cost of renting a house in many areas will be higher than renting a condo or apartment; but in some markets where single-family home prices have fallen considerably and/or the market is really overloaded with inventory, the cost of renting a single-family home could possibly be close to the cost of renting a condo.

But that doesn't mean people will want to. Renters have different needs--and ones looking to live in an apartment may not want the responsibility of renting a home, which involves upkeep. (Getting more space is one thing; having to mow a lawn that isn't really yours is another.)

A condo, however, is likely to include general maintenance. It is also more likely than a house to provide a location closer to public transportation or an urban setting--which, for work or social needs, renters may prefer.

More units, more versatility: That could be one big reason for the Commerce Department's March multifamily permit increase.

What do you think? Is the multifamily market be benefiting from its various moneymaking opportunities--ones that extend beyond basic unit sales?

Rental Conversions, Condos and the Future of the Housing Market

As overall residential building declines, the multifamily and single-family housing markets are having two very separate experiences: Although both were down in March, they were down in varying amounts, and for different reasons.

And that's painting an interesting picture of how each may start to recover as we tentatively try to claw out of the housing slump.

Thursday's news showed that building in general has slowed considerably: Total housing starts fell 34.5 percent to 1.035 million in the first quarter.

They'll probably remain under 1 million until the middle of 2009, according to The Wall Street Journal.

But single-family starts fell 5.7 percent in March. Multifamily unit starts declined much more--24.6 percent.

Permits for single-family homes dropped 6.2 percent in the month; but multifamily permits only fell 5 percent, according to government data released in mid-April.

Why the difference?

Consider the new $20 million, 75-unit condo building in Charlotte, N.C.

Condo sales began in November; since home sales have slowed nationally and lending standards have become stricter, risk has risen--which caused the project's developers to radically alter their plans.

They've stopped selling units--and are officially becoming a rental property, according to the Charlotte Observer.

"We are returning deposits and releasing buyers from their contracts," Terrence Llewellyn, whose company is developing the project with Dean Kiriluk of Kirco, told the paper.

In some places, like Miami, luxury real estate helped keep the condo market going during the housing slump--at least for awhile.

As condo prices in the rest of the state fell 25 percent or more, Miami prices grew by 6 percent in 2007, according to the Florida Association of Realtors--but in January, the median condo price dropped by $32,000. Sales fell 30 percent.

That shift is causing some developers, like Llewellyn, to switch gears--and change their for-sale projects into rental ones.

Which may explain why multifamily starts would be down in March, but multifamily permits--indicative of future construction activity--would show an increase that the single-family home market did not.

More profitability options; more faith in the industry--and more funding.

But why? Is changing a multifamily unit into a rental property really more profitable than converting a single-family home into one?

Join us Monday for the answer--and part two of our look at how condos may be able to recover sooner, even if foreclosures continue to rise  ...

March Construction Numbers Are Out--But February's Hold More Insight

The Commerce Department said today that construction spending dropped in March--but the news was offset by a surprise revision to February's numbers.

The revision showed an 0.4 percent increase in construction in February--a vast difference from the original 0.3 percent decline that had been reported.

And yet, spending fell 1.1 percent in March from the month before; total construction spending is down 3.4 percent from last year, MarketWatch reports.

Residential spending didn't do so well in March, either.

• Private residential construction declined 4.6 percent from February to March--hitting its lowest level since the department began calculating these statistics in 1993, according to Forbes.

• For the year, residential project spending is down 19.9 percent.

However, February's residential building numbers were revised to show a 0.2 percent increase--not the originally estimated 0.9 percent drop.

We're used to news of residential project spending declining--and it's hard to say that a blip on the radar is a sign that the market is improving.

But still, February's revisions are intriguing.

According to AP, residential construction had declined for 23 straight months before the small increase in February--and yes, construction declined again in March, but could the February growth be a sign that recovery is near?

Private, nonresidential project spending is up--by 1.9 percent, and up 15.4 percent from last year--thanks to communications and lodgings projects.

Yep, that's right: Lodgings. A sector that includes hotels, motels, resorts and cabins.

If temporary housing can grow, couldn't residential building be ready for an increase? And could February's revision be an early indicator that one is coming? Will April's numbers show residential growth?
 
It's a possibility. After all, why should the hotel industry have all the fun?

Less Home Sales--And Less Starbucks

The government's new home sales and price results are in--and they don't seem to indicate that the housing slump might finally be ending.

According to the Commerce Department, new home sales fell in March to their lowest level in 16 years--and median home prices fell by the biggest amount in almost 40 years.

• New home sales declined by 8.5 percent last month to a seasonally adjusted annual rate of 526,000 units. That's the slowest new home sales pace since 1991.

• Sales were down last month in all regions--most prominently in the Northeast, where they fell 19.4 percent. In the West, sales dropped by 12.9 percent; in the Midwest, they fell by 12.5 percent. In the South, sales fell by 4.6 percent.

And that wasn't the only dour economic news today:

• In March, big-ticket manufactured goods orders to factories dropped for the third consecutive month--the longest straight period of decline since the 2001 recession, according to the New York Times.

• Yet unemployment benefit applications dropped by 33,000 to 342,000.

The fact that demand for durable goods fell by 0.3 percent last month reinforced the general feeling that the softening economy is starting to really hurt manufacturers.

It also reinforced the belief that the U.S. economy is headed for a recession: Orders haven't declined for three months in a row since early 2001--when the U.S. was entering its last recession, the Times said.

But wait! Another news item today indicated things are far, far worse than any durable goods or housing news might imply: People are starting to forgo their daily Starbucks fix.

The Seattle-based coffee retailer forecast its first decline in annual profits in eight years. And if you don't see a connection between that and housing, Starbucks CEO Howard Schultz does: Calling this economic environment "the weakest in our company's history," Schultz said that Starbucks' California and Florida markets--which account for one third of its revenue in the U.S.--especially suffered, according to BBCNews.

Those are, of course, also two of the states hardest hit in the housing slump--and, thus, Starbucks markets that "have been especially impacted by the effects of the downturn in the housing market," the company said.

The company is trying some new things to correct the situation, which the CEO said will show results in the future--such as the introduction of the new Pike Place Roast coffee. (Which would explain why I was handed a card to get free cups each Wednesday for the next month the last time I was in a Starbucks--along with a card for a friend.)

But seriously, even Starbucks? This is the chain that, in the past year, doubled its number of stores to more than 15,000 in 44 countries, according to the Times?

Starbucks is a lifestyle for some consumers--a daily ritual. Or was.

According to Schultz, ..."our customers are reducing the frequency of their visits to our stores--due to the economic pressures they are feeling."

First we got saddled with a high foreclosure rate; now less cash for creamy lattes? If that's not a sign of a recession, what is?

 

Affordable Housing Grows--With a Little Guidance

Single-family homes may be taking a beating--but multifamily affordable housing isn't.

Just ask Fannie Mae. According to The Wall Street Journal, Fannie Mae and Freddie Mac are working to make up for the lenders who have pulled back from project funding, especially in the multifamily affordable housing market.

A spokesman for Fannie Mae said that the multifamily market's low delinquency rates--a scant one-tenth of 1 percent in January--makes it a good bet for the government-backed agency, according to the Journal.

Fannie and Freddie aren't the only ones working to increase affordable housing. As the subprime housing crisis continues, states--including New York--are spending more money on affordable housing programs.

In fact, most New York housing programs will receive an infusion next year, according to Newsday, including:

• Access to Home, an organization that gives property owners funds to increase disabled residents' accessibility options, is slated to get $14 million. Last year, it received $5 million.

• A public benefit corporation created in 1985 called the Affordable Housing Corporation will receive $45 million to help low- to moderate-income residents get homes--a $20 million increase from what it got last year.

• The Housing Trust Fund Corporation, which last year received $29 million, will get $73 million for programs that sponsor new construction and pre-existing housing rehabilitation for affordable housing. (Developers interested in applying for the funds can here.)

However, not all states are making a push to fund affordable living. It's not that they're against it; but at least one state--Massachusetts--is on the verge of changing the way it's done.

The state could soon pass an amendment that would require large affordable housing builders to pay construction workers higher wages--raising overall construction costs on some projects, the Boston Globe reported recently.

Developers would have to pay workers a "prevailing wage"--which means the Massachusetts Department of Labor determines minimum hourly rates on projects involving 75 or more units or projects with $25 million or more in overall development costs. Those rates can be twice as high as a project's nonunion worker hourly rates.

Government projects already require the prevailing wage. Projects during 2002 to 2006 that paid the wage spent 34 percent more--roughly $60,000--on each unit, according to a 2007 study by the Massachusetts Housing Partnership.

As the economy sinks, higher wages will likely help builders; but it could cost the community by reducing the amount of housing being built.

One wonders if Massachusetts has really thought the wage hike through. Residential construction employment has declined in the past year--so will making higher construction costs mandatory for large affordable housing projects really help workers in the long run?

It's a delicate balance--workers are battling the same higher food and gas costs affordable housing recipients are--but overprice our projects, and they'll be out of work...

Do Low Housing Starts Indicate the Slump Won't End This Year?

Disappointing news from the Commerce Department today--housing starts hit their lowest level in 17 years last month.

Let's just take a moment to mull that over: Seventeen years. And that wasn't the report's only low point:

• U.S. homebuilder starts dropped to the lowest rate since 1991, falling 11.9 percent to a seasonally adjusted annual rate of 947,000. That's 36.5 percent less than a year ago.

• Building permits also dropped to 927,000 last month--a 5.8 percent decline and 40.9 percent drop from March 2007.

• Multifamily unit starts also fell in March by 24.6 percent. The future doesn't look much brighter--multifamily permits fell 5 percent.

The fact that new home completions hit their lowest level since December 1995 wasn't a shock; we knew things were rocky in recent months.

However, the building permit news is particularly troubling because it indicates--as the low National Association of Homebuilders/Wells Fargo Housing Market index showed Monday--that the housing slump is far from over. (The NAHB index found that homebuilder confidence in the industry was lingering at a near-record low for the third consecutive month.)

The problem seems to be more widespread than ever, too: Starts declined in all four regions. In two--the Midwest and the South--housing starts reached their lowest level in years (the lowest since 1982 in the Midwest and lowest since 1993 in the South).

Most sources are in agreement: Today's news indicates we're still knee-deep in the housing slump.

But will this month's round of negative reports prompt some sources--such as the National Association of Realtors, whose March existing home sales report is due next Tuesday--to revise their predictions that the slump will turn around in the second half of the year?

On April 8, NAR said in its housing forecast that sales would increase in the second half of the year--the later part of it, but still, the group is sticking to its second-half prediction.

But given today's news, could that really happen? The start of the year's second half, after all, is just a few months away ...

What do you think?

Will the Builder Tax Break Go Through?

As the bipartisan tax bill zooms its way to a vote--some estimates have said the decision could come as early as next week--a new focus has fallen on its provisions for homebuilders struggling under the pressure of the housing decline.

Debate on the bill began Thursday--and by day's end, lawmakers had already killed one of the portions, which would have rewritten bankruptcy laws to allow judges more power to alter mortgage terms.

And that wasn't exactly a huge surprise: Republicans had previously expressed dissatisfaction about that provision and said they wouldn't approve it.

But what of the $6 billion in tax breaks being included to help the home building industry? According to today's Los Angeles Times, it's now come under fire.

For one, it's the largest monetary provision in the bill. And the bill is by no means a cheap suggestion: Its cost could eventually exceed $15 billion.

The provision would let builders write off losses this and next year against taxes previously paid in the past four years--an increase from the current allowance of two years.

The National Association of Home Builders encouraged the tax break, according to the Times; but its effect may vary:

• In the 2006 election cycle, the NAHB political action committee ranked third in contributions to federal candidates, donating $2.9 million, according to the Center for Responsive Politics.

• Since the 2000 election, it has contributed $11.3 million to federal candidates and parties.

• However, earlier this year, the NAHB stopped all campaign contributions, saying lawmakers hadn't "adequately addressed the underlying economic issues that would help to stabilize the housing sector and keep the economy moving forward."

Will that affect the builder tax provision? Maybe. But the NAHB is confident it will effect more than just builders.

"Putting stability into the housing markets helps homeowners retain their equity," Jerry Howard, the association's chief executive, told the Times. "Moreover, it will help stabilize the overall capital markets and therefore the economy. That helps everyone."

Good point. Sen. Max Baucus (D-Mont.), chairman of the Senate Finance Committee, had another good point--the tax break provision would let builders avoid selling land and homes at hugely discounted prices, which could help the housing market turnaround-- and save jobs.

That's especially pressing, given today's news that unemployment has risen to its highest level since 2005. A loss of construction jobs helped cause the biggest employment decline in five years, according to the New York Times.

But will the builder tax break make it all the way to the vote? Stay tuned to multi-housingnews.com to find out ...

Housing Bill Could Become a Reality Soon

The bipartisan housing bill is picking up steam in Congress--and it could be voted on this week, possibly as early as tomorrow.

That's amazingly fast, considering how long the housing slump has been going on--and it took just a few days to cobble this proposal together.

However, the bill may have been constructed quickly--but it's more thorough than you might think.

Some highlights of the proposal, courtesy of CNNMoney.com:

• Revamping the FHA. FHA loan limits could increased from 95 percent of an area's median home price to 110 percent, with a limit of $550,000 in high-cost areas. Down payment requirements may also go from 3 percent to 3.5 percent.

• Giving Builders a Boost. Builders would be allowed to extend the time homebuilders can post 2008 and 2009 losses to past tax bills from two to four years, which could help offset the impact of the housing bust.

• Giving Homebuyers a Break. The bill contains a number of provisions to help encourage homebuying, which could be good news for the market, including a $7,000 credit for homebuyers who buy foreclosed homes or homes in default and an additional property tax break.

• Helping out Refis. Homeowners looking to refinance would also get help via the bill, which suggests opening up $10 billion in tax-free municipal bonds, with proceeds going toward paying for mortgage refinancing for troubled subprime borrowers.

• Making the Lending Process Better. In addition to $100 million for homeowner counseling to prevent foreclosures, the bill calls for more mortgage application disclosure to ensure consumers better understand what loan terms they're agreeing to--and what exactly they will owe over time.

Builders are sure to benefit from the bill's allowances, and its tax and buying breaks could help invigorate home sales--a desperately needed change.

There is, of course, no guarantee all the bill's provisions will be accepted. The Bush administration has already focused in on the bill's suggestions to offer $4 billion in state and local government grants to buy and rework foreclosed properties and its suggestion to earmark $100 million for counseling, calling it a bailout for investors--a group which the government has said from the get-go won't be helped by any housing aid plan.

But the bill's attempt to attack multiple prongs of the housing crisis is admirable--the builders do need a break, as do buyers, as do communities with a high number of foreclosed properties.

Is the bipartisan bill the solution that the housing slump needs? Is it missing any necessary help--or does it contain any excessive measures? What do you think?

Tell us what you'd add or subtract from the bill by posting below.

 

Good News, Bad Mood for Housing Industry

Homebuilders may not be feeling great about the residential industry, but the multifamily sector received some good news this week: Construction of housing with two ore more units rose 14.4 percent, and multifamily home groundbreakings increased 14.5 percent.

Yet overall builder sentiment is low, according to the National Association of Home Builders, who said  that its housing market index for March was the third lowest reading on record. Buyers are either waiting it out to see if prices fall more or just plain can't get financing to buy homes, USA Today says.

And homebuilders are feeling the effect: The index came in at 20 in March for the second month in a row. It's been at 20 or below since September. A reading of more than 50 indicates builder confidence is healthy.

That low confidence was reflected in the Commerce Department data reflected today--which showed future groundbreaking permits reached their lowest level in 16 years. Also:

• Overall construction declined, with starts dropping 0.6 percent after going up 7.1 percent in January.

• That January number was higher than originally thought--the Commerce Department had reported that housing starts were 0.8 percent higher in January. But the increase provided little comfort because of last month's drop in starts. January, it seems, may have just been a blip on the radar--and we didn't even realize it was a decent blip at the time.

• And the annual comparison isn't very hopeful, either: Housing starts last month were 28.4 percent lower than in February 2007.

Homebuilders don't feel the slump is near over. Buyers clearly don't either, if they're still waiting for prices to fall further before they buy.

The same can be said of lending institutions--if they're still being strict about loans, which is preventing home purchases for some buyers, it doesn't seem they're so sure the situation is close to being straightened out, either.

What needs to change first--buyer enthusiasm? Lender availability? Builder confidence? Homebuilder positivity will probably come last; but who most needs to light a fire under themselves to get the housing market moving: Banks or buyers? What do you think?

International Builders' Show Offers the Industry Excitement and New Opportunities

Forget Disney World: The biggest event in Orlando today is the International Builders' Show, sponsored by the National Association of Homebuilders, which kicks off this morning.

The past year hasn't been an easy one for residential builders or remodeling experts. But the annual IBS show--the housing industry's largest annual light construction trade show and exhibition, held at the Orange County Convention Center in Orlando--is a chance for builders to meet, network, exchange ideas and grow their business.

"Builders view the International Builders' Show as an indispensable business tool," said Ken Klein, chairman of the NAHB Convention & Meetings Committee and a builder and remodeler from Tulsa, Okla. "They come to the show to gain valuable knowledge on the industry; order the latest building products that will keep them competitive in their market; and educate themselves on timely sales and marketing practices."

In short: It's an event business-minded builders don't want to miss.

The show gave the industry some good news before it even started: NAHB announced in October that registration was up 15 percent from last year. (Registration is still open for those who want to attend.)

The number of dealer distributors--a huge source of prospective business--coming to the show had also risen by 37 percent. Considering more than 100,000 people from 100 countries attended last year's show, that is an overwhelming vote of confidence from the industry. (According to the Orlando Sentinel, pre-registration as of Monday was down just 12 percent, a number which the NAHB was comfortable with; final numbers aren't in because people are still registering.)

"Does this mean the downturn is over? No," Klein says. "But builders and suppliers are aggressively positioning themselves to ride out the downturn and come back strong when the market improves."

This year, the International Builders' Show will feature more than 1,900 exhibitors representing more than 300 industry categories. Visitors will have the chance to see the latest in home and building products and services and meet other industry members and potential clients.

Trade shows that large can be overwhelming--so it's good to have a game plan before you attend. The IBS Web site has a nifty online planner that allows you to personalize what personal and show events you want on your schedule; Entrepreneur.com also has some great tips on how to tackle a trade show, which include:

• Schedule some time each day for networking. Even if you're tired--it's important to walk around and make new contacts. Chat up people in lines and speak to as many people as you can.

• If you're there to meet with someone specific--a potential client, distributor or industry leader--ask that person to step outside with you into the hallway where it's quieter so no one is distracted.

• Bring three times as many business cards as you think you will need and consider leaving the heavy marketing materials at home. Collecting business cards and offering to mail prospects a kit can be a great way to prevent having to lug around a ton of items--and a way to build and follow up with new contacts.

Trade shows are the perfect place to market a product; they put the product in contact with hundreds of distributors, consumers and the media.

And you are a product: Whether you have 50 employees or just one (you), never forget that you are not only offering a highly skilled, valuable service, but also running a business, which requires thinking about the big picture.

Marketing yourself may not be your first inclination, but it can make or break a builder--so pound that convention center pavement, and let everyone you meet know how much you can do.

Stay tuned to multi-housingnews.com and the MHN blog this week for more IBS coverage! 

Housing Market's Loss Helps Affordable Housing Providers

The nation's high foreclosure rate--Irvine, Calif-based Realty Trac said in November that foreclosures were up nearly 68 percent from the same month in 2006--has led to an interesting phenomenon: Banks who are anxious to unload many of their foreclosed upon items.

Some likely don't want to invest in the properties' upkeep; other banks possibly are acting out of fear the housing market will in fact continue downward next year, further reducing the homes' value.

That's good news for investors who are eager to buy foreclosed properties and land and reduced homes.

However, those deals might not be as much of a steal as investors had hoped. "Many markets are still overvalued," David Stiff, chief economist at Fiserv, told BusinessWeek. "The [previous housing price] increases were just so meteoric they need a larger correction."

So many are waiting the slump out--holding off on buying a new home because they are certain the next six months will bring unbelievable bargains.

And yet, an unlikely investor--one not looking to make money off the low market--has emerged: Habitat for Humanity, the nonprofit homebuilder.

• Dallas Habitat President Philip Wise has created the Texas Habitat Land & Development Fund to finance, purchase and develop property because the market is low. The fund will work with Habitat's 15 metro affiliates in Texas and Oklahoma. It's already secured 500 lots in Texas, which the fund will close on in the next three months.

"We can now acquire raw land, prepared lots and possibly finished homes from builders, investors and lenders cheaper than any time in the previous seven or eight years," Wise told The Dallas Morning News. "We'd like to double Habitat production in the big cities in the next four years."

• Sarasota County in Florida recently gave $10 million to revamp three of the area's six public housing sites throughout 2014, according to the Sarasota Herald-Tribune. But those requiring public aid aren't the area's only problem anymore. Forget that we have a 10-plus month supply of new homes still to sell in this country. Forget that building has slowed because housing demand has decreased. As prices stay stubbornly higher than many can afford and financing becomes harder to get, there is still a strong need for housing--as long as it's reasonably priced.

As such, Sarasota's Habitat for Humanity chapter won preliminary approval in December for a 200-home program in Newtown, Fla., which will contain homes for people making just 30 percent below the county median income--a far cry from public aid, but a growing sector that is being pushed out of homeownership by high costs and flat employment growth.

In 2004, during the real estate boom, the county created a trust to help provide middle-income families with affordable housing; that's now more needed than ever. The county voted in December to continue funding the trust.

Cheaper options for affordable housing creators: It makes sense. And it's one piece of positive news to come out of the housing decline--which is something we all can benefit from.

The Housing Supply: Where Recovery Really Starts

Jerry Howard, chief executive of the National Association of Home Builders, told CNNMoney.com last week that overbuilding was a key reason for the current housing decline--and he's not kidding.

At the end of October, there were 191,000 finished homes hanging out on the market, 14 percent more than last year, according to government data.

The number swells to 500,000 if you include new homes about to be built. That gives us a housing supply of more than eight months--and a declining home price.

As the housing supply grew, demand shrunk, and new home median price fell a record 13 percent in October.

And what about the plan announced two weeks ago to rescue Americans in mortgage trouble? It's been touted for keeping a large crop of homes from being foreclosed upon and added to the housing inventory--but many say it won't be enough to spur sales of homes that are already just sitting there.

"At best, [the plan] may stop some of the hemorrhaging of the housing market, but it doesn't necessarily turn things around,'' Nicolas Retsinas, director of Harvard University's Joint Center for Housing Studies in Cambridge, Mass. told Bloomberg. "The fundamental problem with housing is oversupply.''

Because of the excessive supply, CNNMoney.com reports that many of the big publicly traded builders--like Lennar, which announced at the end of last month it would sell 11,000 properties to Morgan Stanley for 40 percent of the value--have seen their homes' value decline.

However, while Howard says price drops may continue, he doesn't expect homes to sell for 50 or 60 percent of their asking price.

That's good news for the industry. But how can we reduce the housing supply without slashing prices--which would further drag down already weak U.S. home values?

• Developers Can Lower Cost Without Lowering Price. According to Jon Boyd, president of the National Association of Exclusive Buyer Agents, developers want the recorded price of each home they sell to remain as high as they can get it because they have more just like it on the market to sell. They are, of course, thinking about the big picture--they have to.

CNNMoney.com suggests buyers can gain from that need by asking for money for closing costs and other home buying expenses like condo association fees and even mortgage payments.

The cost of buying a home will seem lower to them--but the home's selling price won't seem lower to the company that built it. Developers can structure deals to include those added-value extras, which might woo some of the hesitant buyers who are waiting for the big deals they think are coming in the months ahead.

Developers concerned about potentially outlandish requests, take note: If you're trying to move inventory without cursing what's left, make sure buyers know that Fannie Mae and Freddie Mac have set limits about how many incentives can be included in deals. Getting greedy can reduce the amount they can borrow--and ultimately, could block them from buying at all.

• Agents Can Work on Selling Pre-Existing Homes. It may take time for new home sales to pick up. But last week, the National Association of Realtors' announced that its Pending Home Sale Index had risen slightly in October.

Could it be an overly optimistic take--or a sign that things may finally be turning around? NAR thinks so.

"Now that mortgage conditions have improved, some postponed activity should turn up in existing-home sales over the next couple of months, and I expect sales at fairly stable to slightly higher levels," NAR Chief Economist Lawrence Yun said.

Looking to capitalize on the new-home feel when selling existing homes? Add new siding or a deck to the outside of the house. The 2007 Remodeling Cost vs. Value Report, produced by Hanley Wood, LLC in cooperation with REALTOR Magazine, found exterior upgrades were the highest national percentage of costs recouped this year.

Whatever we do to reduce the housing supply, it's important to remember not to get overexcited and overbuild when the market picks up again.

In the Netherlands, the Central Planning Bureau (CPB) has studied the prices of the Dutch housing supply for 35 years. Its findings are telling--there, a 10 percent home price increase in a year only increases new home building by 0.4 percent.

In the U.S., a 10 percent price jump causes new home construction to rise 40 percent--100 times more than in the Netherlands, according to Netherlands Info Services.

Just ask Karen Ward, chief UK economist at HSBC, who has studied housing.

'In my research I didn't find a genuine balance between supply and demand in the property market," Ward told the Observer "A lot of the demand has been speculative, driven by people expecting big capital gains on their properties. As people realize the rapid gains they were expecting aren't going to materialize, a lot of that demand will drop off."

Sounds familiar. Let's just hope that next time, we can control the supply of U.S.homes before it drops.

Residential Round-Up

As the October housing numbers trickle in, residential building and construction industry reports from areas around the country can provide a snapshot of what the various regions are experiencing as the housing slump drags on. And on. And ... say it with me ... on.

Some recent state results include:

• Utah -- New home demand along Utah's Wasatch Front hit its lowest level in 17 years last month, according to a new Construction Monitor report. Builders took out just 530 single-family home permits, down from 1,186 in October 2006, the Salt Lake Tribune reports.

• Pennsylvania -- Pittsburgh's October residential building permits revealed an increase over the same period in 2006, but the total permit number for the first 10 months of the year is still lower than last year, according to the Pittsburgh Business Times. Housing permits in the Pittsburgh Metropolitan area were 12.8 percent higher than last year -- however, the total permits issued this year thus far are down 6.4 percent from 2006.

• South Carolina -- The October unemployment rate rose slightly from September to 5.8 percent but construction payrolls expanded by 500 jobs from September to October, according to the