Powerful Connections

As the old saying goes, there is strength in numbers, and with an official count of 235,000 members, the NAHB is larger and stronger now than ever before in its 65-year history.

From advocacy to auto discounts, the NAHB offers a wide range of unique benefits, and I urge local associations to make sure that all of their members—especially the new ones—are familiar with the benefits and services they can access.

One of the most valuable services the NAHB offers is powerful advocacy. Our association is highly regarded on Capitol Hill and throughout the regulatory community and is currently ranked at No. 11 among Fortune magazine's Power 25 advocates. Fighting to defend housing affordability and defeat excessive laws and regulations is a daily occurrence at our headquarters in Washington, in every state, and in the communities where members do business. It's just one of the many reasons we're known as the voice of the housing industry, and our voice grows stronger with every new member we add.

The NAHB is also the nation's foremost source of information for and about the housing industry. From print publications to e-newsletters, members-only Web content, special reports, economic studies, and hundreds of industry-specific publications at Builderbooks.com, the NAHB provides information and analysis that is available nowhere else.

To help members develop and keep a competitive edge, the NAHB also offers hundreds of nationally recognized educational programs at the International Builders' Show and at seminars across the country. No matter what the specialty, the NAHB has the curriculum, instructors, and knowledge to help members boost their success. And in some disciplines, members can earn professional designations that attest to their expertise.

The NAHB also provides countless valuable networking opportunities for members, including the largest networking event of all, the International Builders' Show, where members get a first-hand look at the latest products and services developed for housing and the home building business.

Another important resource is the NAHB's professional staff. More than 300 industry experts, including distinguished economists, legal research staff, finance experts, and regulatory and technical specialists, stand ready every business day to address members' specific business questions.

Among the hundreds of services and benefits the NAHB offers, one of the most popular is member-only discounts on car rentals, office products, computers, payroll services, overnight delivery, and more. Last year, members saved a total of more than $10 million through the discount program, and more than 350 state and local associations earned money through a related revenue-sharing program that distributed over $600,000 nationwide.

Finally, I want to mention changes to the Affiliate membership category that provide significant growth opportunities for the NAHB and add value to existing memberships.

At its meeting in February, the NAHB board of directors changed the national dues for the Affiliate membership category, which accommodates the employees of current members, to $5 annually. This change provides HBAs with an unparalleled opportunity to grow their memberships, enhance their member benefits, and increase their grassroots strength and participation.

I encourage associations that do not recognize the Affiliate category to consider it. The Affiliate category is a benefit for our members, a benefit for the association, and a benefit for the industry.

For more information about Affiliate membership or the services and benefits that the NAHB offers members, contact the NAHB at 800-368-5242 or visit our Web site at www.nahb.org.

Brian C. Catalde
PRESIDENT, NAHB WASHINGTON, D.C.

Significantly increasing operating costs are putting in financial jeopardy hundreds of affordable apartment communities across the country that were built using Low Income Housing Tax Credits (LIHTC), according to a new study by the NAHB. Adding to the threat is a recent change in the data used by HUD to calculate income limits. This change in data methods has artificially frozen both the maximum income limit requirements of eligible residents and the rents that can be charged in a large number of areas across the country. In these areas, it's impossible to offset rising costs through increases in rents that would normally occur as the result of ordinary inflation. The NAHB found nearly 200 counties across the country where flat income limits had completely frozen rents at tax credit properties since 2001. Over that time period, utility costs across the country have risen by an average of almost 27 percent.

Builders continue to demand homeownership for all Americans, pushing for viable alternatives to the sub-prime market by urging reform for the Federal Housing Administration's (FHA) single-family mortgage insurance programs. “Comprehensive FHA reform would mean greater flexibility in responding to the needs of borrowers, enabling more working families to become homeowners, and providing a viable alternative to the volatile subprime market,” says NAHB Executive Vice President Jerry Howard. The FHA could potentially assist tens of thousands more borrowers who need an exit strategy from their subprime mortgage by insuring fixed-rate, adjustable-rate, and hybrid adjustable-rate mortgage loans to borrowers with limited cash reserves or slightly tarnished credit.

On May 22, home builders applauded House passage of legislation that they hope will establish a strong regulatory framework for housing government-sponsored enterprises (GSEs)—Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. Because of the importance of this issue to the housing community, the NAHB designated passage of H.R. 1427, the Federal Housing Finance Reform Act. “The comprehensive GSE reform bill offers a sound regulatory solution for our secondary market institutions that would safeguard and strengthen their financial health while simultaneously supporting their ability to fulfill their housing-mission activities,” says Jerry Howard, executive vice president and CEO of the NAHB. In another key vote for the NAHB, lawmakers—by a margin of 383 to 36—overwhelmingly approved a pro-housing amendment to clarify that a new regulator must base its evaluation on the risk of Fannie Mae's and Freddie Mac's portfolio holdings solely on mission and safety and soundness considerations, and not on broader concerns, such as systematic risk.

Setting the Standard

The NAHB and the International Code Council are teaming up to provide the industry with a standard for what it means to be green.

Earlier this year, the NAHB and the International Code Council (ICC) announced their agreement to develop a new National Green Building Standard, providing a common benchmark for recognizing green residential design, development, and construction practices. Because market demand for green-built homes is growing rapidly, the NAHB Research Center, which is coordinating the effort, has set an aggressive timeline for development and is expected to complete the standard in early 2008.

Based on the NAHB Model Green Home Building Guidelines, the standard will be submitted for accreditation by the American National Standards Institute (ANSI). Once the accreditation process is complete, the standard can be adopted by local green home building programs or building departments as a conformance guide. ANSI guidelines for standard development require consensus-based decision-making and opportunity for public comment to ensure that views of all affected parties—as well as those who regulate the construction industry—are adequately considered.

The NAHB Research Center has organized a consensus committee of more than 70 builders, designers, government officials, and manufacturer's representatives to draft the new standard. The draft is currently posted on the Research Center's Web site, www.nahbrc.org/gbstandard, which industry professionals are encouraged to check regularly for progress.

Many residential construction industry stakeholders already have reviewed the working draft, providing numerous individual comments on the proposed standard's various components. It's still too soon to tell how many comments will be incorporated into the new standard.

Modifications are currently under review, but there are some key requirements of the existing Model Green Home Building Guidelines that will likely remain active in the national standard. According to Kochkin, the new standard will incorporate a points system, which will require certain practices and then allow builders to pick and choose among other green practices in order to achieve a minimum number of points. “How you get there is up to you,” he says.

Pull Out the Stops

As the housing downturn presses on, it is imperative for builders to offer discounts to move inventory.

In my June column (“Inventory Overload,” page 76), I talked about serious deterioration of the supply-demand balance in housing markets—owing to a large runup in vacant housing inventory combined with renewed downward pressure on home buyer demand due to subprime-related tightening of mortgage lending standards.

This difficult market situation has compelled builders to make severe cutbacks in new production as well as intensify efforts to sell inventory and hold down sales cancellations. These challenging market pressures most likely will persist during the second half of this year and perhaps into 2008 as well.

The subprime-related tightening of mortgage lending standards certainly has pushed large numbers of prospective home buyers back to the sidelines, and the timing of their return to the market is highly uncertain. There's also been widespread reluctance among consumers who have good access to credit to go ahead with home purchases at a time when affordability remains well below conditions prevailing prior to the 2004–2005 housing boom, when there are a lot of new and existing homes to pick from, and when home prices are weakening in many areas.

Consumer perceptions of the direction of home prices are central to the difficult market conditions now encountered by builders. Projections of rising house prices strengthened demand during the 2004–2005 boom, even as rising prices were taking a toll on current affordability conditions; and projections of falling house prices now are weakening demand even as lower prices are supporting current affordability conditions. Most builders have never had to deal with such a maddening reality before, and the frustration level is mounting rapidly!

In May, the NAHB conducted a nationwide survey of single-family builders to track the kinds of incentives being offered to bolster sales and limit cancellations, and we also got builders' assessments of the degree of success being achieved. On the home price front, we found that 52 percent of builders had reduced prices during the previous month. For those cutting prices, the average reduction was 7 percent, similar to the magnitudes revealed by a series of surveys conducted by the NAHB since mid-2006. Nearly three-fourths of the builders who had reduced the prices of their homes said the price cuts were at least somewhat effective in bolstering sales and/or limiting cancellations, but the rest said the cuts were not effective at all.

Nearly three-fourths of builders in our May survey were offering non-price sales incentives of various types, sometimes in combination with price cuts. The most frequently offered incentives stacked up as follows: include optional items in homes at no cost; pay closing costs for buyers; absorb up-front mortgage finance points; buy down mortgage interest rates; and help buyers sell existing homes or offer trade-in programs. High proportions of builders rated all of these incentives as at least somewhat effective in bolstering sales and/or limiting cancellations.

A small percentage of builders said they had offered to match price reductions on future sales of the same models. Despite the apparent appeal of this sales incentive in the current market environment, only about half the builders making such an offer said it was an effective measure.

The supply-demand imbalance in housing markets will persist for some time, and we can't count on surging economic conditions or falling interest rates to bring this housing downswing to a decisive end—unlike earlier contractions that were part-and-parcel of outright economic recessions. In this situation, builders must hold down new production for some time and pull out the stops on both price and nonprice sales incentives. Stay tuned!

David F. Seiders
CHIEF ECONOMIST, NAHB WASHINGTON, D.C.