Green Nation

When 800 registered voters were asked last fall about what would motivate them to either purchase a new green home or “green” their existing home, 64 percent said that reduced energy costs would be the biggest reason. With energy prices on the rise, now's the time to improve the energy efficiency of America's homes, and the NAHB is helping to lead the way.

As advocates for buyers, it's up to the nation's home builders to make sure the solution is not only effective, but also less expensive than the problem itself. Now, more than ever, we need to build on the success of the local HBA programs that have resulted in the construction of more than 100,000 green homes nationwide.

Following extensive testing and refinement, our association and the NAHB Research Center are now putting the finishing touches on the NAHB National Green Building Program, which will be launched on Green Day, Feb. 14, at the International Builders' Show (IBS). The National Green Building Program includes a scoring tool that helps builders identify and document green construction techniques and features in the homes they build. You can try it out at www.nahbgreen.org. This tool is the heart of the new program, which also will include a registry of green homes and builders as well as extensive educational resources, providing the opportunity for all of our members to build green.

On Green Day, we will also introduce the new University of Housing Certified Green Builder designation, which will help identify people with considerable expertise in green building.

The timing could not be better for two initiatives that will help pave the way for authentic, cost-effective green building. We also surveyed builders and developers last fall, and the vast majority of NAHB members—90 percent—are interested in participating in a voluntary green building certification program. Eighty percent say they would choose the NAHB National Green Building Program over other national programs such as the Green Building Council's LEED-H rating system.

While new technologies and advances in building science already mean that homes are significantly more energy efficient than they used to be, a certification program is the next logical step. The NAHB National Green Building Program moves the market forward in a flexible, cost-effective manner, because in today's market, cost is the overriding concern.

Heating and air-conditioning bills wreak havoc on the family budget, and people vote with their wallets. That's something that everyone concerned—builders, regulators, and advocates—needs to keep topmost in their minds.

But that certainly doesn't mean that green must be watered down. Green comes in many shades, but for NAHB builders, there is a bright line: To meet the minimum certification requirements under the NAHB program, homes must meet energy-efficiency levels that are at least equivalent to Energy Star, the federal EPA program that has enjoyed great success in the marketplace. Over the past seven years, 750,000 homes have earned the Energy Star label, indicating that they are at least 15 percent more efficient than required by current energy codes.

When a green home doesn't look or feel significantly different from one built using more traditional construction methods, when builders have the tools and resources to build them without significant material or labor cost increases, and when consumers readily accept the finished product, then green has arrived. And that's why—and how—the NAHB National Green Building Program will bring green to the mainstream. The time has come, and we're ready.

Brian Catalde
PRESIDENT, NAHB WASHINGTON, D.C.

Fannie Mae has announced a plan to impose an “Adverse Market Delivery Charge,” which would cost lenders an additional 25 basis points for loans purchased for portfolio as well as for loans delivered into Fannie's guaranteed mortgage-backed securities, for all mortgages purchased after March 1, 2008. Jerry Howard, NAHB executive vice president and CEO, says, “Fannie Mae's new fee is a broad tax on homeownership that ultimately will be passed along to consumers. … This is the exact opposite of what needs to be done and underscores the importance of Congress quickly enacting legislation that would strengthen regulatory oversight of Fannie Mae and Freddie Mac while also preserving their vital housing mission.”

Home-price appreciation rates among resale homes vary significantly among the nation's top markets, according to the latest monthly S&P/Case-Shiller home-price statistics tracking the 20 largest metro areas in the U.S.

Among the top 20 markets surveyed by S&P/Case-Shiller, which represent more than 40 percent of the U.S. population, five showed positive home-price appreciation rates over the past year, seven posted declines of less than 5 percent, and eight registered losses of between 5 percent and 10 percent.

The NAHB and the NAHB Research Center will be conducting 40 four-hour-long fall protection seminars for builders, contractors, supervisors, and workers this year.

Funded through a grant from OSHA, 35 sessions will be conducted in English and five in Spanish. The Spanish-language seminars are available upon request.

Local HBAs are invited to host the seminars for their members.

The Office of Federal Housing Enterprise Oversight (OFHEO) announced that the 2008 conforming loan limit for single-family mortgages purchased by Fannie Mae and Freddie Mac will remain at $417,000, unchanged for the third straight year. The announcement is consistent with guidelines proposed by OFHEO to handle future conforming loan limit adjustments.

Efforts in the housing finance industry to keep homeowners from losing their homes, limit the amount of inventory returning to the market, and help check further housing price declines are being hampered by federal tax law that legislators on Capitol Hill are attempting to change, according to Robert Dietz, an NAHB economist. H.R. 3648, the Mortgage Forgiveness Debt Relief Act of 2007, which would eliminate the tax consequences associated with debt forgiveness, has been approved by the House of Representatives and is now awaiting Senate approval.

“The Internal Revenue Service treats all debt amounts that are reduced, forgiven, or eliminated as part of a mortgage restructuring or foreclosure as taxable income,” Dietz writes in a special study for NAHB Housing Economics. “This phantom income taxation creates a disincentive against restructuring an existing mortgage to ensure continued payment and avoid foreclosure.”

Credit Crunch

Credit tightening is now reaching builders.

The subprime-induced tightening of credit conditions in home mortgage markets now is being joined by tightening in credit markets where builders and developers raise funds—the markets for land acquisition, land development, and construction loans (AD&C). Some tightening in AD&C markets has been inevitable in view of the major downswing in home sales, the major upswing in inventories of unsold homes, and the associated weakening in prices of both homes and buildable land in many parts of the country. But the tightening process has been moderate, and we're not likely to face the kind of AD&C credit crunch that decimated the housing market in the early 1990s.

Large public home builders have access to AD&C credit through the capital markets. But most other builders and developers raise AD&C credit at depository institutions (commercial banks and thrift institutions). In fact, a quarterly NAHB survey of residential builders and developers shows that about 90 percent of these businesses rely on depositories for AD&C financing.

Depository institutions, of course, are subject to federal supervision and regulation. Indeed, tightening of regulatory constraints was a major factor in the AD&C credit crunch of the early 1990s. In the wake of that credit crunch, real estate lending rules were developed and implemented by the federal regulators, including limits on loan-to-value ratios for AD&C loans. These rules helped prevent the kind of collapse in lending standards that characterized major components of the home mortgage market during the recent housing boom. Thus, we're not likely to see the kind of snapback in lending standards that now characterizes the mortgage market.

The major housing downswing naturally has had some adverse impact on the quality of AD&C loans held by depository institutions, illustrated by an upswing in the noncurrent proportion of construction loans at FDIC-insured institutions between mid-2006 and the third quarter of 2007. Even so, the noncurrent rate for the third quarter still was historically low and came to only one- seventh the peak rate registered in the early 1990s.

The regulators naturally have been warning depository institutions about deteriorating credit quality, and the institutions have been firming standards to some degree. Federal Reserve surveys of senior bank lending officers document this process. In October, about half the respondents said they had tightened credit standards on “commercial” real estate loans (including construction and land development loans) during the previous three months, but only 10 percent said the tightening was “considerable.” The balance of respondents held credit standards steady during the August to October period.

NAHB surveys of single-family builders show some deterioration in the availability of AD&C credit during the past year, but this deterioration hardly stacks up as a credit crunch. For example, 39 percent of respondents to a December survey said that the availability of single-family construction loans had deteriorated since mid-2007. The deterioration most commonly showed up as a reduction in allowable loan-to-value ratios.

We also surveyed builders about changing terms on land loans taken out during the past two years. About one-fifth of respondents said that they had been asked to pay down part of their loans because the value of the land had declined since loan origination. This response was most common among larger companies and in the West.

Most single-family construction loans are floating-rate arrangements, where the loan rate is tied to a short-term market index. In recent years, LIBOR has supplanted the prime rate in many loan contracts. However, LIBOR has been very volatile recently while the prime rate has moved down systematically with the federal funds rate (controlled by the Fed). In this environment, many builders have been shifting back to prime-based construction loans and that's a good lesson for most companies.

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

Path to Success

PATH and the NAHB Research Center have created an online resource to help bring new technologies to market.

To help bridge the gap between technology innovation and the competitive home-building products marketplace, the Partnership for Advancing Technology in Housing (PATH) and the NAHB Research Center have developed a new online resource that will guide building-product manufacturers and innovators through the process of developing and launching new building products and services. This Web-based suite of new-product–development tools provides readily accessible information to help users successfully navigate the product development and commercialization process, build relationships, and understand the nuances of the building industry—based on benchmarking the top-producing new-product developers in the building industry. The three tools are:

“The New Product Development Guide,” which helps users determine market needs for their prospective product as well as evaluate technical and financial capabilities. It provides resources for locating opportunities, testing new product ideas, developing product specs and prototypes, and developing a launch strategy.

The Collaboration Forum, which serves as a “match making” system for users to establish the mutually beneficial relationships required to develop, test, finance, and ultimately commercialize innovations. This tool brings together key stakeholders and bridges the gap for those manufacturers that may not have ready access to the analytical tools, financial resources, and industrial savvy to broadly produce innovations.

The Lead-User Panel, which is an expert panel consisting of leading home builders who will evaluate new product ideas for their likelihood of success in the marketplace. Panel members will provide advice on improvements and point out applications and potential markets where products will most likely find success.

Dr. Randy Cantrell, principal investigator on the project, notes that the tools can now assist building-product and service companies of all sizes while also engaging financiers, legal and regulatory professionals, research and testing facilities, and others in the product development and commercialization process.

For more information about the New Product Development Tools, visit www.housing-commercialization-tools.org, or to learn about upcoming demonstrations of the Tools in your area, contact Randy Cantrell at 800–638–8556.