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Author: Steven W. Hays, Sr., CPA
As printed in Builder News, October 2007
A publication of the Home Builders Association of St. Louis & Eastern Missouri

NEWS FROM SEATTLE

“Survival” and “Crisis” were the words most uttered by those in attendance at the NAHB Fall Board meeting in Seattle during early September. There was certainly a serious tone as all in the home building industry attempt to maneuver through these challenging times. Only a few markets in the country remain that have not been affected by the downturn.

NAHB is now predicting the market may hit bottom sometime in 2008, although all recent forecasts have been off the target. “Mortgage disruption,” as it is now called, is a HUGE concern for an otherwise weakened industry. The sub-prime market is virtually gone and the availability of credit has been limited, especially with jumbo loans. While not as much of a problem locally, the number of foreclosures that will impact the market and compete with new home inventory is substantial.

Some good news – it appears raw material prices nationally have fallen an “average” of 10% this year with another 5% decrease expected. There is apparent capacity in many of the production facilities especially in the Southwest and Southeast – barring any future hurricanes.

The NAHB is working very hard to lobby the Fed for some short and long-term interest rate relief, which if nothing else, these rate cuts should help the psyche of the market and provide some much needed good news.

THE LOCAL MARKET

The market continues to sputter along. Despite time periods of inconsistent sales, decent to good traffic, and very attractive incentives, the home buying public continues lack the sense of urgency to buy. It is truly unfortunate given all the excellent opportunities available to purchase. Also, for the first time, there is a fear from potential buyers in swapping their existing mortgage rate for one that is likely to be substantially higher.

The market locally showed signs of a slowdown beginning in August 2005. Despite a few spurts in the last two years, overall sales have decreased since. Eventually there will be some pent up demand that should occur, especially given the reduction of finished spec inventory. The slowdown in new projects being developed will also help reduce the perceived oversupply of lots.

It now remains even more imperative that All – home builders, lenders, suppliers, and subcontractors – work together to navigate these challenging times.

The Fall selling season, which has been in recent years a high spec market, will be interesting to follow. Builders will both try to sell existing inventory and also build some much needed backlog for 2008. Stay tuned!

OTHER NEWS

• NAHB is concerned about Congress’s renewed efforts to close what is perceived as the “Tax Gap” – i.e., what is actually collected vs. what is owed. Legislators have increased resources to examine those in the industry classified as “independent contractors.” In particular, it is alleged or assumed many are treated not as employees to avoid the required withholding. The industry has worked well for a variety of reasons with those treated as independent contractors. Let’s hope there are no major changes.
• There seems to be some clarification forthcoming on the definition of a Green Builder or a national green building standard. NAHB has accelerated its work on a National Green Building Program. It appears there will be 4-5 levels of “green” starting with emerald and ending with bronze.
• NAHB has developed a “help” piece titled “Back to Basics, NAHB’s Toolkit For A Challenging Market” which can be obtained by viewing NAHB.org – Good Stuff!
• A slightly revised NAHB Chart-of-Accounts will be published later this year.
• Since the national government has been ineffective in dealing with immigration reform – NAHB is closely monitoring the actions taken by several states including Missouri.
• Our Business Management and Information Technology Committee is putting its final touches on the 2008 Cost Of Doing Business Study. It is surprising to see the stronger than expected performance seen in 2006 operating results.

HAYS’ BITS

• I was fortunate to serve as a judge again for Builder Magazine America’s Best Builder Award. It is very interesting to see the characteristics that are consistent with these outstanding companies – mainly exceptional people, processes, and systems.

• Heard a new term for a punchout carpenter – “detail technician.”

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