Now's the Time

Since its inception more than six decades ago, the NAHB has focused its efforts on a single mission—serving members' needs.

Sometimes fulfilling that goal is as simple as answering a telephone call and providing information. At other times—such as during today's difficult housing market—serving members' needs requires significantly more.

The NAHB board of directors bore this realization in mind when it met during the 2007 International Builders' Show. There, the board allocated $3 million for a new Buy Now Advertising Assistance program, to provide grants to help local HBAs conduct Buy Now campaigns in their markets.

The board is acutely aware that members in many parts of the country are struggling as a result of the downturn in the housing market. Because several associations were already considering or in the process of implementing Buy Now campaigns last February, the board determined that providing assistance with those programs was the best way to help members, while leveraging the NAHB's investment.

The Buy Now program is structured so that local associations (not state HBAs) in the top 10 major media markets as measured by the Nielsen ratings can receive matching grants equal to one-third of their campaign costs, up to a maximum of $75,000. Local associations with more than 250 members operating outside the top 10 major media markets can receive matching grants equal to one-half their campaign costs, up to a maximum of $40,000. And local associations with fewer than 250 members are eligible to receive grants of $5,000 with no matching required. To qualify, HBAs must provide evidence that their market is suffering from a downturn.

As soon as the program was announced, the NAHB was deluged with applications. And within just a few weeks, the joint member-staff team evaluating the applications had allocated more than $997,000 to 51 eligible HBAs, enabling them to conduct Buy Now campaigns valued at $3.5 million.

But then, with dozens of applications pending, the funds temporarily stopped flowing. The board of directors had wisely stipulated that the program be evaluated for effectiveness after the first $1 million was distributed. Only if the program had been successful would the remaining $2 million be allocated for additional Buy Now campaigns.

As a condition of receiving the grant money, HBAs were required to poll their members about the program's effectiveness, and it wasn't long before we knew that members overwhelmingly viewed the program as successful and felt that it was having a positive effect in their markets. Based on that information, the NAHB senior officers, in consultation with the Public Affairs Committee, recently released the remaining $2 million for more Buy Now campaigns.

I urge all local HBAs considering advertising programs to apply for one of these grants. Buy Now campaigns can definitely help stimulate sales and rebuild confidence in the market, which is especially important today, when so many potential buyers are sitting on the fence. Most of these prospects are well qualified, but circumstances such as the controversy over subprime loans (which really affects only a small portion of the market) are making them fearful and hesitant to move forward.

I am very proud of this program and its accomplishments to date. It's effective and efficient, and it meets an important need in the housing market. It also demonstrates clearly that the NAHB recognizes that times are tough in many markets around the country and that we are stepping up to the plate to help out. That's important for every member to know.

For more information about the Buy Now Advertising Assistance program, visit www.NAHB.org/BuyNowApplication or call 800-368-5242, ext. 8061.

In mid-April, the NAHB called on Congress to enact legislation that would reform and revitalize the FHA's single-family mortgage insurance programs. Testifying before the House Financial Services Committee's Housing and Community Opportunity Subcommittee, Bill Killmer, the NAHB's group vice president for advocacy, said that statutory and regulatory constraints have limited the FHA's ability to respond to the needs of borrowers, resulting in many home buyers ending up with inappropriate mortgages. “Had the FHA been in a better position to respond to changing market forces in the past few years, the subprime situation might not be as severe as it is today,” Killmer told the committee. If granted the proper authority by Congress, Killmer said, the FHA's single-family mortgage insurance programs could insure fixed-rate, adjustable-rate, and hybrid adjustable-rate mortgage loans to borrowers with limited cash reserves and slightly tarnished credit. “And this could be done on far better terms than the subprime loans that are making adverse headlines daily,” he added.

The famous—but deteriorating—RCA Building remade into trendy loft apartments, an artists' colony for seniors, and Elvis Presley's childhood apartment saved as part of the rehabilitation of an old public housing development were among this year's winners of the Pillars of the Industry Awards, bestowed by the NAHB. The awards honor excellence in apartment and condo design, development, marketing, and management and are considered the most prestigious national awards in the multifamily housing industry. The NAHB recognized the winners for excellence and superior leadership in more than 30 categories as part of its annual conference for apartment and condo developers. “These award-winning projects are proof positive that multifamily housing in this country just keeps getting better and better,” says Leonard Wood, managing partner of Atlanta-based Wood Partners and chairman of the NAHB's Multifamily Leadership Board. “We saw tremendous innovation across so many categories—from luxury condos to student housing—but what is most impressive is what multifamily builders are doing to serve the needs of families with low and moderate incomes, including military personnel.” Wood notes that this year's awards competition had the highest number of entries ever in the affordable-housing categories, including four large-scale redevelopments of whole neighborhoods into mixed-income and mixed-use communities.

As partners in the newly created Home Technology Alliance, the NAHB and the Custom Electronic Design & Installation Association (CEDIA) will start offering new home-technology related tools as a way to keep builders current on home automation practices and trends. The alliance was designed to offer education and information to home builders on options for integrating home automation in new-home planning and construction as well as remodeling and existing structures.

Inventory Overload

The supply-demand balance has deteriorated further.

In my March column (“Beware The Vacant Overhang,” page 92), I talked about serious deficiencies in standard measures of housing inventory and pointed out that comprehensive government information regarding vacant housing units on the market showed development of a historically heavy overhang by the end of 2006. And in my May column (“Bad to Worse,” page 114), I discussed the subprime mortgage mess that figures to cut into the effective demand for homes.

I regret to say that recent data show further deterioration of the supply-demand balance in housing markets nationwide. The deterioration reflects not only the further buildup of vacant housing inventory, but also heavier impacts of tightening mortgage market conditions on housing demand. These revelations have prompted downward revisions to the NAHB's forecasts for home sales, housing starts, and house prices over the balance of this year and in 2008.

The unsustainable housing boom of 2004–2005 was propelled by overly stimulative financial market conditions, and the combination of easy credit and rapid house-price appreciation attracted hoards of investors/speculators into single-family and condo markets. The result was gross overproduction of housing units, and we're still getting a heavy flow of completions in markets that were already oversupplied by late 2006. Those investors/speculators are now trying to sell or rent increasing numbers of vacant single-family and multi-family units in the face of flagging demand.

The Commerce Department reports that the number of vacant year-round housing units on the market (excluding those for seasonal or occasional use) surged to another new record in the first quarter of this year, continuing the sharp upward trend that began early last year. The ratio of vacant units on the market to the total housing stock also surged to a new record in the first quarter. While it's hard to know what a “normal” ratio is at this time, it appears that there's an excess of at least 1.3 million vacant housing units on the market.

The recent run-up in vacant housing inventory on the market has been concentrated in for-sale units—both single-family homes and multifamily condos. But it's important to note that the number of for-rent units on the market also has climbed to a new record, reflecting recent increases in rental vacancy rates for both the single-family and multifamily sectors.

Rental units naturally compete with for-sale units on the market, and vacant units for rent can easily convert to vacant units for sale as market conditions shift. Indeed, many investors/speculators presumably will unload the units onto the for-sale market—with negative implications for new-home sales and house prices.

The meltdown of the subprime mortgage market has continued apace, and credit standards for new loans have been tightening in the subprime and “near-prime” (Alt-A) markets and even in the prime segment. It turns out that inadequate documentation of borrower income and debt ratios infected a broad swath of mortgage lending during both the housing boom and the 2006 housing retreat, and various types of risk layering became quite common as well.

The NAHB surveyed builders of all sizes in April, following up on our initial survey of mortgage lending impacts in March. We found deepening adverse effects on home sales from tightening lending standards compared with the March results.

We also found adverse effects on sales cancellations, heavily concentrated among big builders. Indeed, two-thirds of companies starting more than 100 units per year reported adverse impacts on cancellations, and these companies (on average) said the upswing in cancellations had wiped out 10 percent of their backlog of signed sales contracts.

The tightening of mortgage lending standards may not yet be complete, and it's clear that we will not see the exceedingly easy credit conditions that prevailed last year. Fannie Mae and Freddie Mac have announced efforts to keep credit flowing to higher-risk borrowers, and the FHA program is regaining some market share as the subprime component shrinks. But the net effect of the subprime blowup on home sales will be heavily negative for both 2007 and 2008.

David F. Seiders

CHIEF ECONOMIST, NAHB WASHINGTON, D.C.

High Energy

The 2008 EnergyValue Housing Award competition has begun.

At a time when the home building industry is stepping up its efforts to address rising fuel and energy costs by improving the energy efficiency and performance of new homes, the EnergyValue Housing Awards (EVHAs) present an opportunity for environmentally responsible builders to share their best practices and be recognized for their efforts.

The NAHB Research Center recently announced the open application period for this year's competition, which honors home builders who voluntarily integrate energy efficiency into the design, construction, and marketing of their new homes. Now entering its 13th year, the EVHA program challenges builders to elevate standards for energy-efficient construction while creating an opportunity for them to improve their business practices and educate consumers about successful approaches to energy efficiency.

Each year, the competition is judged by a panel of energy-efficiency experts in the fields of engineering, construction, design, and marketing, as well as past EVHAwinners. Applicants are evaluated based on energy value, design, construction methods and processes, marketing and customer relations efforts, and participation in voluntary energy programs. David Simon, president of operations for the 2007 EVHA Builder of the Year, Veridian Homes in Madison, Wis., says, “The EnergyValue Housing Award is a key driver for improving our homes, as it provides an opportunity for benchmarking, networking, and evaluating the best energy-efficient design, construction, and marketing practices.” Award categories for 2008 include affordable, custom, factory-built, production, and multifamily housing in hot, moderate, and cold climates.

The EnergyValue Housing Awards are open to all U.S. home builders whose primary occupation is constructing homes and/or developing real estate. Winners will be announced at the 2008 International Builders' Show, in Orlando, Fla.

The EVHA program is coordinated by the NAHB Research Center in partnership with the NAHB Energy Subcommittee and the U.S. Department of Energy through the National Renewable Energy Laboratory. To learn more and apply, visit www.nahbrc.org/evha.