Housing Conference Recap - Finding the New Normal

The "good old days" of housing are gone for good. If you are waiting for the housing industry to get back to normal, you’re in for a surprise. It’s not going to happen. The old "normal" is gone, a new "normal" is evolving. Springfield’s 1st regional housing conference served as a road map for success in navigating the new normal.

Our growing population alone will drive the need for new homes, but the "Mega-Mansions" of recent years will not return. There will certainly always be large, even luxurious homes built, but that will be a rarity. Rising utility costs, increasing material expenses, and a “green” mentality of conservatism all point to a paradigm shift in the housing industry. In short, the homes we build are catching up with the shift the auto industry went through beginning in the 80’s. The end product will be similar: smaller, more efficient, with nicer amenities.

As much as I would love to give the Reader's Digest version of the conference, it would be impossible to include in one article. The speakers were all incredibly knowledgeable and on the cutting edge of our industry. We heard from Debra Bassert, an NAHB veteran who is Editor in Chief of Land Development magazine. Joe Zanola summarized an enormous volume of local statistics to clearly spell out the facts on lot development and new construction for our market, and in relation those to the other 21 states they track. (We are still at the top of the pack in reasons to be optimistic.) Other speakers led break out sessions that were relevant to those in attendance. The day was full of invaluable information -- for example, to download the most up-to-date new housing supply and demand chart for our six county area, click here.

Our keynote speaker Edsel Charles was far more than I expected. His credentials were impressive enough, but the more he “taught” us (he was clearly more than a polished speaker), the more all of those in attendance were aware that we were in the presence of a national housing giant. Mr. Charles was among the final four in President Obama’s hunt for a new Secretary of HUD, in spite of his Republican background. He is a former home builder, developer, and owner of a real estate company where he trained and employed nationally known radio host Dave Ramsey. The founder of MarketGraphics research group, Edsel Charles is mentor to 9 of the top 10 builders in the United States. His list of clients include municipalities, banks and builders that include David Weekly, Centex, Pulte and other nationally-known companies.

The road map for success was presented at the conference -- we are already planning for next year's event. The pitfalls were defined and the path to a different, yet exciting, future was clarified. And while attending this one event will not guarantee success, operating in the dark is not an option for those professionals who will be the leaders in the new "normal". I look forward to learning, adjusting, and moving forward with confidence into an exciting future in building the American Dream. I am still “keeping the faith.”

God Bless,

Rusty MacLachlan

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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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