Help for Builders, Remodelers & Developers - Cost of Doing Business Program

BUILDER/REMODELER-ONLY BREAKFAST & PROGRAM ON DECEMBER 17
As builders, we know our industry is weathering difficult times and that the last couple of years have been challenging, to say the least. At this point home builders have a couple of options: We can sit around and complain about how bad it is; or we can take steps now to prepare ourselves and our companies to be ready when the building industry begins to hit its stride again. I am choosing to be proactive so that I am ready to hit the ground running when the houses start to go up again. And I’d like to offer you an opportunity to do the same.

The Home Builders Association of Greater Springfield has arranged to bring in Steve Hays, a CPA with RubinBrown LLP, out of St. Louis, to come and visit with local home builders about financial management issues unique to our profession. Steve is a nationally-renowned speaker in the building industry whose seminars cover subjects like how to properly evaluate construction cost percentages, gross profit percentages and key operating expenses. He also helps builders identify which reports, technology tools and key statistics and ratios that will be important as home builders prepare for success in the changing times ahead. As well, this type of crucial, market specific data is now available through the HBA, thanks to an exclusive agreement with MarketGraphics research company.

Due to the value and importance of what Steve will present in Springfield, we have decided to combine this presentation with the HBA’s fourth quarter Builder/Remodeler-Only Breakfast on Thursday, December 17, 2009. The Builder/Remodeler-Only Breakfast will begin at 8:00 am at the Library Center (4653 South Campbell in Springfield). At approximately 8:45 am Steve will begin his presentation, which will conclude around 11:30 am. Thanks to the generous support of breakfast sponsor Connell Insurance, the Builder Breakfast and the presentation are offered at no cost to you.

I encourage you to take a few hours and come and listen to Steve as he presents “The Cost of Doing Business – Best Business & Tax Practices for the New Decade”. (Download event flyer by clicking here.) Get your business management questions answered and prepare for success as the coming recovery arrives.

Again, the complimentary breakfast program is ONLY for builders, remodelors, and developers. The staff must have an accurate head count to order food so you MUST RSVP by Tuesday, Decemer 15 if you plan to attend. So, please RSVP by clicking here, or by calling 881-3711.

Keepin' the Faith,
Rusty MacLachlan
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Change and the Art of Survival

A very large Oak Tree was uprooted by a storm and thrown across a stream. It fell among some reeds, which the powerful tree addressed, “How is it that these winds can knock me down, but you who are so weak and frail survive?”

They replied, “You fight and contend with the wind, and consequently are destroyed; while we have learned to bend, and therefore survive.” The art of survival is not to avoid life’s storms, which we cannot, but to learn to adjust.

The time to adjust is here. In fact, a new state law affecting all new homes (custom built and spec homes,) is now in force. Any contract signed after August 28, 2009 must include an offer by the builder to install a fire protection sprinkler system at the expense of the buyer. The choice is fully up to the buyer as is the financial responsibility for the cost of the system/installation. As builders we should supply the buyer with an informational pamphlet endorsed by both the Home Builders Associations and the Missouri Fire Service Alliance, and ask the client to sign a form that confirms their intentions. Both forms are available at the HBA office. State law requires that builders make the offer; including the form as part of your contracts is your proof of compliance with the law. The HBA is requesting that you also provide us with a copy of the Offer Form. As you will come to discover these forms will provide invaluable data for future building code development. The current law sunsets December 31, 2011. At that point each municipality is free to decide for themselves whether or not to adopt the full IRC code that requires fire sprinkler systems to be installed in all new, and many remodeled homes.

The times they are a changing. In fact, in response to our ever changing and ever hungry for instant news society, your HBA has been testing, and is now ready to improve the way that you receive industry news. The printed newsletter that you are accustomed to seeing each month will become a quarterly printed report, and we will be adding a weekly e-Housing News. The board is receiving the test runs and we are more than impressed with the real time, useful reports. This e-newsletter is possibly the most professionally prepared report that you will find anywhere on the web. The navigation, the up-to-date information, and the easy click format is very user friendly. I am confident it will be a welcome new marketing option for those of you who want cutting edge, targeted advertising options.

The HBA is working tirelessly to make sure that our members are the best informed, best represented, and best prepared for success, industry professionals. Hey, now that the storm is over, the weather is looking pretty good. Sales are up and gaining strength. Permits are up, and new home inventory is getting very low. Watch for your weekly e-news reports for more details. God Bless.

Keeping the Faith,
Rusty MacLachlan

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President's Blog: A Tale of Two Sams

A wise grandmother once said, “If you’re having a bad day, then do something good for someone else. You will brighten their day and yours, too”. In the midst of a slow housing market, two of our builder members took the advice of Grandma.

At a time when conventional wisdom tells us to look out for #1, to scale back, to cut out ALL unnecessary expenses, the two Sams rose to the occasion. With the support of countless HBA members and other volunteers, Sam Bradley and Sam Clifton gave of themselves and changed lives. Two families and a hospital that provides cutting edge care to heal critically ill children were the direct beneficiaries, but the lives of all those involved have been forever changed.

Sam Bradley built the 2009 St. Jude Dream Home in our area, a collaborative project of the HBA Charitable Foundation and several other worthy partners. The home, located in Lions Gate subdivision, was a huge success. In spite of a slowing economy, our members (too many to list) donated time, materials, and sweat to produce a stunning home. Under the careful direction of Sam Bradley those involved put forth their very best. This 2009 Parade home was a work of art. This HBA Charitable Foundation project has actually raised approximately $1.7 million over the past three years to assist in the fight to find a cure for childhood cancers. The Dream Home has successfully raised money, but more importantly it has raised hope.

And, before anyone could catch their breath, Sam Clifton announced that he had been chosen to build a home for “Extreme Makeover - Home Edition”. With a groundbreaking date only weeks away, and an allotted construction time of one week, there was no time to waste. Sam Clifton called on the good people of our area and asked them to roll up their sleeves one more time. Many of you responded to the call by saying, “When can we start? What do you need?”

It looked like the State Fair had come to a Greene County farm road. Large circus tents were everywhere. Clifton truly was the ring master of a 24/7, three ring circus. The folks at “Extreme” said that this was an outstanding build and a top quality home. Again, many, many of our best stepped forward to give their all. With little or no sleep, volunteers poured out their hearts as they labored around the clock to assist a family in need. Months of work was squeezed into hours, even minutes. The EMHE’s theme this year is “Heroes”. Sam, you and all those who helped are truly Heroes.

Sam and Sam, and really everyone who had a hand in these events, you have made your grandmothers proud. God bless you all.

Keeping the Faith

Rusty MacLachlan, HBA President

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A Productive Talk With Our Lenders

The board officers and our Education Czar recently invited member lending institutions to the table to discuss the dramatically different landscape we find ourselves in currently, especially with regard to AD&C lending and individual mortgage loans.

Our objective was to better understand both the market and regulatory forces which are creating the changes that affect our industry so substantially. We also wanted to promote dialogue with our lenders and work to convey accurate information to you, our members, so that you know what to expect and understand what changes we need to make to remain successful in an otherwise volatile industry at an incredibly challenging time.

While builders and lenders may have valid grievances with another – we agreed at the outset not to play a blame game. We need to move on and understand the rules of the game so we can position ourselves successfully. We also want the lenders to understand how our members represent the height of this profession and they can use our professional standards to prevent these problems from recurring in the future.

Here are some of what I believe were the most important points from our dialogue:

• A position of equity: For a speculative home, the builder must have some equity in the deal – no more 80% of appraisal. For example, if you own the lot, that value would be taken into consideration.

• More scrutiny – looking at the builder “globally”: I heard lenders saying that when they are lending for spec or a custom, they will be looking at the builder’s history and full financial profile in a very comprehensive way – debt service, cash reserves, insurance, years of experience, completed projects, current projects (including those with other lending institutions, etc.) They want to see a financial statement with liquidity and a comprehensive, itemized budget for the project. Those who are not professional builders will certainly not meet many of these requirements.

• Loan expiration: The lenders said that there have always been clauses in contracts about actions the lender may take after a certain period of time, if the home does not sell. For many years, however, these were nearly moot because homes were selling here in fairly short order. We need to be aware of the “fine print”, so to speak, and well informed about our legal obligations as well as those of the lender.

• Regulatory Hot Button – Appraisals: Those responsible for oversight of the lending industry are focusing intensely on the appraisal process. Some of the fraudulent schemes we’ve seen in the headlines related to manipulating appraisals are driving changes in the process of ordering an appraisal. Some banks are going to a more random selection of an appraiser from an internal list while others are using an Appraisal Management Company – a third party outside the bank that orders the appraisal to keep the process at an arm’s length.

• The Secondary Mortgage Market: this is a driving force behind this appraisal and other changes by making them requirements for those mortgages they are willing to buy. One banker said those eligibility criteria change and expand on a daily basis. This, of course, is also affecting what is required of the purchaser to qualify for a loan.

• Mortgage loans: a buyer will certainly have to provide a well-documented financial position. In the past, there wasn’t a need for the homeowner to sell their existing home before starting a custom. That may not be the case now. While there are still some bridge loans out there, the perspective on this situation is different. Before, banks made an asset-based decision in this equation. Now, it is more an issue of cash flow and whether or not someone can handle two loan payments for a longer period of time if the house does not sell quickly.

I really appreciated our lender members who made the time to come to this meeting to educate us, to listen to us, and to help us move forward in a productive way.

Keeping the Faith
God Bless
Rusty MacLachlan



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Fire Sprinklers "Mandatory Option" is Just what the Doctor Ordered!

A funny thing happened on the way to mandatory fire sprinklers.  The Home Builder’s Association of Missouri and the State Fire Chiefs of the Show Me state hashed out an agreement where the real winner is the buying public.  As you well know the National Association of Home Builder’s attempts to halt the inclusion of Mandatory fire sprinklers in the 2009 building codes failed.  

Faced with mandatory sprinklers in all new homes, the HBA of Missouri caught the attention of state lawmakers with legislative language that would prevent political subdivisions (cities, counties, fire protection districts) from adopting the residential sprinkler mandate. Instead, the legislation we have supported would require all builders to offer complete information to their customers about fire sprinkler systems, their advantages, disadvantages, and costs:

A builder of single family dwellings or residences or multi-unit dwellings of four or fewer units shall offer to any purchaser on or before the time of enterings into the purchase contract the option, at the purchaser's cost, to install or equip fire sprinklers in the dwelling, residence, or unit. 

Notwithstanding any other provision of law to the contrary, no purchaser of such a single family dwelling, residence, or multi-unit dwelling shall be denied the right to choose or decline to install a fire sprinkler system in such dwelling or residence being purchased by any code, ordinance, rule, regulation, order, or resolution by any county or other political subdivision.  Any county or other political subdivision shall provide in any such code, ordinance, rule, regulation, order, or resolution the mandatory option for purchasers to have the right to choose and the requirement that builders offer to purchasers the option to purchase fire sprinklers in connection with the purchase of any single family dwelling, residence, or multi-family-unit dwelling of four or fewer units.

Placing this provision in state law would allow the home buyer to make an informed decision whether to purchase or decline a sprinkler system for their home. This “mandatory option” for homeowners seemed like a reasonable middle ground to us.

Action in Jefferson City began with our trip to legislative day this past February, when the HBA of Greater Springfield showed up to Jefferson City in force.  In meetings with our representatives and senators we clearly expressed our concerns.  They listened and this legislation was drafted to stop what those at the national level could not.  Our “mandatory option” proposal was a move towards the center in hopes of finding a compromise with the fire districts.  Many municipal fire departments and area fire districts were holding firm in their stand for nothing less than full adoption of the 2009 building code, including the fire sprinklers mandate.

The battle lines were drawn, and politically this was a “Hot Potato.”  Senator John Griesheimer, from the St. Louis area, called for a meeting. He asked builders and fire fighters to come to the state capital to find common ground.  Matt Morrow and I journeyed to Jefferson City last week to defend the American Dream.  Senator Griesheimer made it very clear to the group that we needed to come to agreement and work in good faith. He then appointed the Eureka, Missouri Fire Chief as the meeting moderator, and promptly left the room.   

Wow, the odds were not looking good.  But, to the credit to the Fire Chiefs, they showed up ready to work in good faith toward a mutually acceptable solution. And, in the end we all agreed that ultimately the homeowner needs to decide for themselves whether or not to have fire sprinklers in their home. The fire officials believe strongly that if the buying public understands the virtues of residential fire sprinklers, then most will opt in. The primary remaining dispute on this day was over whether the state should enact this bill, or if the matter should be at the sole discretion of local authorities.  

After a long day we agreed to support passage of our state legislative language, but to include a December 31, 2011 sunset to the bill.  At that point the local authorities  will regain control of the issue.  Both sides agreed to jointly draft and sign a letter supporting permanent local ordinance language that reflects the temporary state legislative compromise of the “mandatory option.” This letter will be signed by the Missouri Fire Safety Alliance and the HBA of Missouri, and it will be sent to all state municipalities. The HBA of Greater Springfield will then spend the next 2 ½ years making the case to local and county governments that they should adopt this model ordinance endorsed by the HBA of Missouri and the Missouri Fire Safety Alliance.

The legislative process can at times be messy, but clearly the system works when you stay informed and stay involved.  I have no doubts that our strong presence on legislative day, coupled with a strong PAC is paying huge dividends.  Continue to stay informed, stay involved, and most importantly support our PAC, the Coalition for Building a Better Tomorrow.

Keeping the Faith

God Bless

Rusty MacLachlan

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Fed Action Means Lower Mortgage Rates are on the Way

Yesterday, the Federal Reserve announced some very aggressive steps aimed at unlocking the sluggish credit markets, with a major focus on further lowering mortgage interest rates. The Fed said it would significantly expand its ongoing program of buying Fannie Mae and Freddie Mac mortgage-backed securities (MBS) and debt. The Fed increased its planned MBS purchases by $750 billion, making the new target $1.25 trillion, and doubled its slated debt purchases to $200 billion. In addition, the Fed announced a new program to buy up to $300 billion in long-term Treasury bonds over the next six months. These initiatives are just the thing NAHB has pushed for in our recent meetings with Federal Reserve officials and should send a strong signal to consumers that homes can be purchased on very favorable terms.

Mortgage rates should drop significantly in response to the Fed moves. Some lenders have already lowered posted rates by a quarter of a point. This should be encouraging news for potential home buyers who have been sitting on the fence, waiting for the right reason to get back in the market.

Some dealers have indicated that the 10-year Treasury rate could test the December lows of just over 2%. It is anticipated that the majority of the Fed’s Treasury purchases will be centered on the 5-10 year sector, which will have the most influence on mortgage rates. The immediate result was a widening of MBS spreads as Treasury yields collapsed on the announcement of the new Fed Treasury purchase program. This presents an opportunity, however, for the Fed to methodically drive down this spread, as they proceed in acquiring the enormous volumes of Fannie and Freddie MBS and debt as outlined in the March 18 announcement.

You can click here to read the Fed’s official announcement.

If you have any questions, please feel free to contact Dave Ledford on the NAHB staff.

Keeping the Faith

Rusty MacLachlan

HBA President

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Hope Springs Eternal

Good News! Good News!  Good News!  The St. Louis Cardinals are still in first place.  Well so are the Cubs for that matter.  But, opening day is just around the corner and our beloved redbirds are sure to have a banner year.Wow, a little good weather does great wonders for our spirits.  

We just cannot help but believe that winter is over.  The grass is greening up, the trees are budding, the flowers are beginning to bloom.  The signs are all there.  To be sure, there are still a few cold days ahead, but there is just no disputing that spring is pushing winter aside.

We also are seeing early signs that the housing slump is losing steam as well.  Just this week the Wall Street Journal reported that “Home prices are closer to stabilizing today than at any time in the past nine years.”  The data points to a housing affordability index that is at the exact ratio that we last saw in the hay days of the 1980’s.  Of course the hot news on the national press in the last few days celebrated the 22% uptick in national housing starts from January 2009 to February 2009.  This ended 18 consecutive months of decline.  Encouraging news on the national scene!

Locally we can expect our market to rebound even sooner than most.  Zanola Research Group suggests that we need to build 666 homes this year in Greene county alone just to keep pace with demand.  The report went on to point out that southwest Missouri is continuing on a long pattern of job growth.  We see all the reports of job losses but research shows that new jobs outpace job losses in our area.  Add growing wages and a steady climb in population and we are three for three in those areas that matter most for a housing rebound.

Three for Three, that reminds me of baseball.  Yes, opening day is almost here.  Looks like busy days ahead.  God bless!

Keeping the Faith

Rusty MacLachlan

HBA President

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Update on HBA & GSBOR meeting

The leadership teams from The Home Builders Association of Greater Springfield and the Greater Springfield Board of Realtors held the first meeting in what is to become a quarterly event. Both associations recognize that we share common concerns over the housing market, and that we have much to offer each other. I am confident that our cooperative efforts will prove to be of tremendous value to a local housing market that is beginning to show signs of recovery.

We explored opportunities for our builders to share a database of custom home sales that will allow realtors and appraisers the opportunity to use custom homes as comparables for appraisals (thereby fostering higher and more accurate appaisals). And, the GSBOR is looking into adding the Builder's name on MLS forms for each and every listing. A builder's membership, or lack thereof, in the HBA could also potentially be noted on each listing. This would greatly increase the importance, and value of, homes that are built by HBA members.

We have agreed to lead a class for realtors on how to choose a builder, why insurance is important, the pitfalls of using a non-professional builder, and how Builders and Realtors can work together on custom homes. We all agreed that a lack of knowledge in how to cooperate on customs has hampered an often times neglected area that can benefit all involved.

In short, we had a very productive meeting of the minds. Both leadership teams agree that our market has slowed in large part because of news media reports about only those markets that have been hardest hit. In southwest Missouri we have have reasons to be hopeful. Spring is coming, and with it the early buds of our housing market are even now showing signs that they are about to bloom.

Keeping the Faith, 

Rusty MacLachlan
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A Rare Opportunity

As Home Show approaches, it is important for us to be able to share the upside of the current market with the public. That is the focus of my message (see below) for the HBA Event Magazine which will be distributed at Home Show and other major events throughout the year.

PRESIDENT'S 2009 EVENT MAGAZINE MESSAGE

After 25 years of marriage I have to let my wife in on a little secret. She’s not my first true love. In fact, as time moves on I find myself longing to find my old love, for just one more day together, just one more trip to the lake. But even if I could find her, I’ll bet time has not been her friend. I am sure she would need a lot of work. Yes that ‘73 Monte Carlo still has a place in my heart. My first investment. Long hot days of work over many summers were required to save enough money to buy that first car. I still can remember the security of those keys in my pocket. The status, transportation, and freedom. I was sure that this 16-year-old who had life all figured out had made a great investment. Until it came time to sell. That $3,500.00 INVESTMENT went for $300.00. WOW! That was sure an eye opener.

Years later I was sold the investment of whole life insurance. I soon discovered that while that policy did have some value, it simply was not the key investment that I needed. My wife and I invested a little in the stock market and that too has proven itself to be a wise decision. But, I’ve found that there’s just something about the stock market that I don’t like. The key to the stock market is “there are no keys”. Oh sure over time the value has gone up and down, admittedly mostly up over the long haul. But, I really don’t know what it's worth. I have to rely on some seemingly random number that pops up at the end of each day to discover what value there is to this invisible investment. I can’t see it, touch it, or really even find it. I can’t get insurance on it so that if a financial storm wipes it out I can rebuild it. Will your friends and neighbors even come to a stock rebuilding party after the storm?

The key investment that I have found true security and value in is my house. You see the key is that there are keys. Not only has the investment in my home outpaced the stock market, I can use this asset daily. At the end of the day, my home provides peace, comfort, and security from the weather and financial storms. Best of all, my home has given me a place where life’s best memories are made. The true value of a home can never be measured in dollars alone. Yet, over the course of time, the American dream continues to be the best financial investment one can make. The investment in a home doesn’t just build wealth, it builds families.

Have you ever heard someone say, “Boy, I wish I had bought a home 3 or 4 years ago?" They kick themselves because the prices and values have continued to climb and they realize that those prices are long gone. Today, we find ourselves in one of those rare places where the clock has been set back 3-4 years. Yes, you can buy or build a new home today at yesterday’s prices. These opportunities only come around once every 25-30 years. In the months to come the prices and values will begin to rise again. In fact, population growth trends indicate that in the next 10-12 years we are likely to face a housing shortage in America.

In my lifetime, I have never seen a better time to buy or build a new home. Interest rates are surprisingly low. Locally, our banks are very sound, willing and able to make very favorable loans. Our local economy is sound. Our area is even experiencing job and wage growth. Now is the time to move. Yes, I still have fond memories of that ‘73 Monte Carlo. But while those old cars hold memories, nothing can replace the deep feelings of home. Taste the American dream. Make the investment of a lifetime today. Invest in a dream. Buy or build your new home today.

Rusty MacLachlan
HBA President

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