Builders
utlook
www.elpasobuilders.com
2014: issue 3
Pending home sales down 10.5% from February 2013 Down 0.8% from January as investor sales dry up Pending home sales fell for the eighth straight month, down 0.8% from the downwardly revised January report and down 10.5% from February 2013, according to the index from the National Association of Realtors. NAR’s pending sales index is an indicator of closings that usually happen within three months. "Contract signings for the past three months have been little changed, implying the market appears to be stabilizing," said Lawrence Yun, chief economist for NAR. "Moreover, buyer traffic information from our monthly Realtor survey shows a modest turnaround, and some weather delayed transactions should close in the spring." Existing home sales have been down since September 2013, with buyers facing the challenges of an increasing affordability gap as investors have driven up prices and lending requirements have tightened. “Upon first glance, it may seem high that a quarter of all ZipRealty home sales closed without financing in 2012 and
2013,” said ZipRealty CEO and president Lanny Baker. “But based on our own internal analysis and data from the National Association of Realtors, the percentage of all-cash real estate transactions may actually be moderating. Nationwide, the percentage of all-cash real estate transactions reached a fiveyear high in 2010 at 27%, and the percentage of all-cash property sales has slowly declined or flattened every subsequent year.” All-cash transactions accounted for 20% of the residential real estate market in 2009, and 25.6% of the market in 2011, NAR reports. According to ZipRealty’s analysis, in 2013 26% of all the real estate transactions closed by ZipRealty agents were purchased with cash, while 25% of the homes purchased through ZipRealty agents were acquired with cash. Mortgage applications dropped 3.5% from one week earlier, according to data from the Mortgage Bankers Association’s weekly applications survey for the week ending March 21, 2014. Refinance
applications dropped 8%. This is the second week in a row for declines after a spike of almost 10%. Apps fell last week 1.2% but were revised upward to 0.2%. Regionally, the pending home sales index fell 2.4% in the Northeast monthto-month and is 7.4% below a year ago.
In the Midwest the index rose 2.8%, but is 8.5% lower than February 2013. Pending home sales in the South fell 4%, and are 9.3% below a year ago – in this the largest housing market. The index in the West increased 2.3%, but is 16.5% below February 2013.
The cost of closing mortgages officially astronomical
Fannie, Freddie, FHFA settle MBS lawsuit with BofA
First, the Federal Reserve finds investors prefer to do business with toobig-to-fails, in favor of smaller financial institutions, leaving a higher cost of doing business for the little guys. Now, the Mortgage Bankers Association is reporting that, per loan, mortgage-banking profits took a huge hit in the fourth quarter. What's more, loan production expenses are going through the roof. And this doesn't even include the qualified mortgage rule numbers yet. Will the MBA first quarter 2014 report show an even bigger increase? Expect it. Why? It seems it's quickly becoming a market where it doesn't pay to be a mortgage banker. Independent mortgage banks and mortgage subsidiaries of chartered banks made an average profit of $150
on each loan they originated in the fourth quarter of 2013, down from $743 per loan in the third quarter, the MBA reports in its latest Mortgage Bankers Performance Report. The level of profit is at its lowest point since the MBA started counting in 2008. The opposite is true for mortgage servicing, where MSRs are huge right now. In that space the financial situation improved on a quarterly basis. Net servicing income per loan increased to $355 per loan in the fourth quarter from $224 per loan in the third quarter. In basis points, the MBA reports the average servicing profit was 19 basis points in the fourth quarter of 2013, compared to 12 basis points in the third quarter. "However, not all mortgage companies retained mortgage servicing rights or
generated margins large enough to offset production losses," Marina Walsh, MBA’s Vice President of Industry Analysis. "It is perhaps not surprising that only 58% of participating companies had overall positive pre-tax profits in the quarter." That 58% profit statistic used by Walsh is down from 74% in third quarter, and 92% in second quarter. Total loan production expenses increased to $6,959 per loan in the fourth quarter, up from $6,368 in the third quarter. Fourth quarter 2013 production expenses were the highest recorded in any quarter since the Performance Report was created in the third quarter of 2008. The "net cost to originate" was $5,171 per loan in the fourth quarter, up from $4,573 in the third quarter.
Fannie Mae, Freddie Mac and the Federal Housing Finance Agency reached an agreement with Bank of America (BAC) to settle claims associated with non-agency mortgage-related securities from 2005 to 2007. Under the agreement, Bank of America will pay Fannie $4.4 billion to satisfy all claims and buyback private label securities from Fannie with an unpaid principal balance of approximately $1.9 billion. Meanwhile, Bank of America will pay Freddie $5.1 billion.
According to the FHFA, the agreement provides for an aggregate payment of approximately $9.33 billion by Bank of America that includes the litigation resolution as well as a purchase of securities by Bank of America from Fannie Mae and Freddie Mac. “FHFA has acted under its statutory mandate to recover losses incurred by the companies and American taxpayers and has concluded that this resolution represents a reasonable and prudent settlement of these cases,” said FHFA Director Mel Watt said.
“This settlement also represents an important step in helping restore stability to our broader mortgage market and moving to bring back the role of private firms in providing mortgage credit. Many potential homeowners will benefit from increasing certainty in the marketplace and that is very much the direction we should be taking,” Watt added. The FHFA now has only seven out of 18 PLS suits filed in 2011 against various institutions.
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Builders Outlook
Natural gas is your key to home sales. By installing natural gas in your new homes and developments, you’re opening the door to added value for potential buyers. Natural gas kitchens sell themselves, and natural gas furnaces, water heaters and clothes dryers offer greater efficiency and lower operating costs than their electric counterparts. For more information on how to use natural gas to turn prospects into buyers, contact Eduardo Lucero at ealucero@txgas.com or (915) 680-7216.
2014 issue 3
2014 issue 3
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Builders Outlook
President’s Message | Frank Torres
El Paso Disposal
President, El Paso Association of Builders
2014 is moving very fast and we are very busy at your association, here are some of the issues that your different committees worked on for the last part of February and the month of March, at local and state level. Once again thanks to all that participated at the Home Show. It was a well-attended event. I like to thank all individuals, groups and organizations that in any way had something to do with the impact fee issue, by talking and convincing our city council and PSB representatives not to raise this fee. If you have not heard or read, they decided to put the increase (about $1,800.00 more per house) on hold for one year, with the condition that we try to build more homes inside the city limits. They also acknowledged the problems why developers are not buying land from PSB. The council has agreed to meet with Development services and PSB to try to minimize the regulations and restrictions that exist on this parcels of land due to the smart growth idea. Tthis will help to decrease or at least stabilize the prices of new lots. Special thanks to Mayor Oscar Lesser, to all members of City Council and PSB staff for their cooperation on this matter. Another major victory at National level: Home builders will save an average of $6,200 per home on storm water control costs due to a recent settlement agreement between NAHB and the Wisconsin Home Builders Association and the Environmental Protection Agency (EPA). This is your membership at work! You’re looking at about $8,000.00 savings per home. When you invite a builder or an associate to join us and they ask you, what do I get out of joining the Association of Builders show them this and ask them to join us. The $500.00 membership is being well used. The applications can be downloaded from our website at www.elpasobuilders.com. See you all April 9 for our Board and General Meeting at El Paso Club and have fun at our golf tournament at Horizon Golf Club on April 16. My thanks to StrucSure Home Warranty and all the advertisers we have in the golf outing.
772-7495
Showroom: 2131 Missouri 915 • 533 • 6045
fax • 533• 6096
Thomas R. Brown, Owner
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Builders Outlook
2014 issue 3
Perspective
Ray Adauto, Executive Vice President EPAB
The issue of impact fees for water and wastewater has not gone away, not in total and not in the minds of the foes of growth. Our headline story last month was concerning impact fees and the work done by this association and its members to work with the current city council and stop increases wanted by the PSB. Under the leadership of Mayor Oscar Leeser and with the facts presented by PSB CEO John Bailew city council agreed to hold the line and to look for alternative methods of paying for capacity issues. On March 16 I had the opportunity to once again demonstrate our resolve on live TV on ABC news Xtra. I had been told that the Mayor and City Rep Dr. Noe would be on the panel but the Mayor declined and the ABC7 invited former City Rep Susie Byrd on instead. Politically Ms. Byrd and I are oil and water and the issues of her term on council is a very hard pill to retake. Nothing has changed as she
Old ghosts continue to haunt issues; new city hall idea? supports increases in fees while disregarding the work of the current council, Mr. Bailew, and us. She went so far as to admonish the current city council on “retreating” the impact fees. That is unfair to the city council and Mayor. The moderator tried to be fair and Dr. Noe said he felt like he was invited to keep Ms. Byrd and myself separated. In the end the city council did the right thing in holding the line. It was very apparent that the old ghosts are still not happy with us or the new council. That’s fine, because it’s the new council under new leadership that will bring housing starts back into the city. With it will come commercial and retail and with all that we’ll have a way to pay for the nearly $2Billion in debt those ghosts from the past have saddled us with. Is anyone really happy with the City of El Paso and the way their offices and departments are scattered all over downtown? It is a problem that came about when the 10 story City
Hall was demolished so that the new Southwest University Park ball park could be put up. (Opening day, by the way is April 28.) Not only did departments get displaced all over town but soon you will begin to feel the impact of zero property taxes from a variety of downtown buildings now owned by the city. Those improvements won’t come back in the form of taxes until or unless those buildings are sold sometime in the future. Word on the street is that the County wants to demolish the jail, sell or lease the land to the city for the NEW city hall. One would think that having so many buildings to manage that someday in the near future a call will be out there to once again bring everyone under one roof. May not happen for a decade but my crystal ball says plans are already under way to do just that. Finally, I’d like to say a fond farewell to one of our most beloved members, Burgo Gill. He was a
retired Major in the US Army when he decided to build homes. He and Ana, our first female president, built some beautiful homes in El Paso. Burgo would always remind me of a neighbor of mine, Mr. Earl. Burgo had a great sense of humor; spoke better Spanish than Rudy or Brad, and loved homebuilding, Ana, and the association. He also loved his trips to Laughlin or Las Vegas, something I got an opportunity to do with him several times. Burgo was given a full military honor ceremony where old friends came to send the warrior off. Burgo had served in Korea and Vietnam. He was a man’s man. A friend to many, a good guy. Adios Burgo, keep the light on as we make our way. He’s probably hit the jackpot more than once.
2014 issue 3
Builders Outlook
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Industry News New-Home Sales Continue to Trend Relatively Flat Sales of newly built, single-family homes fell 3.3 percent to a seasonally adjusted annual rate of 440,000 units in February, according to newly released figures from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. “There is no doubt that the persistently bad weather took a toll on sales in February,” said Kevin Kelly, chairman of the National Association of Home Builders (NAHB) and a home builder from Wilmington, Del. “However, builders continued to increase their inventory of forsale homes, indicating they still anticipate a relatively strong spring buying season.” “We still expect 2014 will be a strong year for housing,” said NAHB Chief Economist David Crowe. “The first twomonth average of 2014 is exactly in line with where 2013 left off. If not for the unusual weather, we would easily be ahead of last year’s pace. We also
Index (HMI), released today. “The March HMI mirrors last month’s sentiment, as builders continued to be affected by poor weather and difficulties in finding lots and labor,” said NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, Del. continue to see household formations and pent-up demand driving sales forward.” Regionally, new-home sales activity fell 32.4 percent in the weather-battered Northeast, 1.5 percent in the South and 15.9 percent in the West. The Midwest posted a gain of 36.7 percent, stemming from an unusually low January figure. The inventory of new homes rose to 189,000 units in February, a 5.2 month supply at the current sales pace.
Builder Confidence Treads Water Builder confidence in the market for newlybuilt, single-family homes rose one point to 47 on the National Association of Home Builders/Wells Fargo Housing Market
A number of factors are raising builder concerns over meeting demand for the spring buying season,” said NAHB Chief Economist David Crowe. “These include a shortage of buildable lots and skilled workers, rising materials prices and an extremely low inventory of new homes for sale.” Derived from a monthly survey that NAHB has been conducting for 30 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more
A W A R D E D
TEXAS BUILD E R O F THE Y E AR 2013
We build so you can GROW
builders view conditions as good than poor. The index’s components were mixed in March. The component gauging current sales conditions rose one point to 52 and the component measuring buyer traffic increased two points to 33. The component gauging sales expectations in the next six months fell one point to 53. The three-month moving averages for regional HMI scores all fell in March. The Northeast dropped three points to 35, the Midwest fell three points to 53, the South posted a four-point decline to 49 and the West registered a two-point drop to 61.
Developer Confidence in Multifamily Market Shows Slight Decline The Multifamily Production Index (MPI), released today by the National Association of Home Builders (NAHB), showed a slight weakening as the index declined four points to 50 in the fourth quarter of 2013. It is, however, the eighth consecutive reading of 50 or above. The MPI measures builder and developer sentiment about current conditions in the apartment and condominium market on a scale of 0 to 100. The index and all of its components are scaled so that a number of 50 indicates that the same number of respondents report conditions are improving as report conditions are getting worse. The MPI provides a composite measure of three key elements of the multifamily housing market: construction of low-rent units, market-rate rental units and “for-sale" units, or condominiums. The MPI component tracking builder and developer perceptions of market-rate rental properties has been the strongest of the components recently, remaining above 50 for 13 straight quarters, but dipped four points in the fourth quarter to 60; while the component for low-rent units fell three points to 47; and for-sale units declined four points to 46. The Multifamily Vacancy Index (MVI), which measures the multifamily housing industry's perception of vacancies, dropped two points to 38, with lower numbers indicating fewer vacancies. After peaking at 70 in the second quarter of 2009, the MVI improved consistently through 2010 and has been fairly stable since 2011. “Multifamily developers are still seeing demand for apartments, as the MVI shows,” said W. Dean Henry, CEO of Legacy Partners Residential in Foster City, Calif., and chairman of NAHB’s Multifamily Leadership Board. “However, the cost and availability of labor is putting pressure on the ability to bring new units online.” “This quarter’s MPI results are in line with NAHB’s forecast that calls for increased production of new apartments in 2014, but at a slower pace than last year,” said NAHB Chief Economist David Crowe. “The results are also in line with recent downturns in other economic indicators, due to unusually severe weather in parts of the country that disrupted supply chains and affected confidence in several sectors of the economy.” Historically, the MPI and MVI have performed well as leading indicators of U.S. Census figures for multifamily starts and vacancy rates, providing information on likely movement in the Census figures one to three quarters in advance.
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Builders Outlook
2014 issue 3
2014 ISSUE 3
Builders
Builders Outlook
utlook on the scene |
Home Show Smash Hit The 2014 Spring Home and Garden Show was a hit with both the consumers and the exhibitors. Show Technology Productions brought El Paso a show that had a great mix of education, exhibitors, demonstrations and fun. One particular area that was well received was the Kids Area where animal rescue had dogs for adoption and on the end of the hall the El Paso Zoological Society presented Birds of Prey. While the kids had a lot to do it was the adults that really enjoyed Brian Santos, The Wall Wizard, who educated the audience on the fine art of painting and wall decoration. Our thanks to our City and County officials who came to cut the ribbon in front of the wonderful house built inside the hall by Rassette Homes. Exhibitors reported record sales and good contacts for future business. Our next Home Show is in October.
General meeting welcomes Representative Marquez The February general membership meeting was given an update on the last legislative session by State Representative Marisa Marquez. The meeting, sponsored by Spotlight Homes magazine was well attended.
March board meeting The board of directors were brought up to date at the monthly meeting held at the EPAB offices. New members were welcomed along with the installation of Nick Bombach. On sad news Margaret Livingston resigned as she moved jobs to the El Paso Water Utility.
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el paso development news Retail Update: Changes for North Hills Crossing The newest site plan for a future shopping center slated for Northeast El Paso shows a few changes from the version revealed last year. The layout for North Hills Crossing remains generally unchanged and will take up a 28-acre spot at the corner of Martin Luther King Jr. Boulevard and Gateway South, along the US-54 freeway. A Chick-fil-a Restaurant has been replaced by a McDonald’s location on the southern corner of the site, while two spots that were previously labeled as future Panda Express and Whataburger locations are now simply labeled as “Restaurant” and “Fast Food.” Panda Express now shows up along the southeastern side of the center and may share a wall with a Verizon location. Taco Cabana is still pictured next door to this structure, though Five Guys and Dunkin’ Donuts have been removed. A Walmart Market will still take the largest anchor spot in the northwestern corner, with a 41,000 square foot store planned along Martin Luther King Jr. Boulevard. Next to it will be a Petco pet store, which is a new addition. Previous versions of the site plan have indicated a generic “Pet Store” label as well as PetSmart.
Continuing to the east along the main shopping center building, stores include Dollar Tree, Ross, Marshall’s, and Rack Room Shoes, which have all been previously mentioned. New to the tentative lineup are Rue 21 and Big Lots. Other retailers no longer listed on the site plan include Anna’s Linens, Office Depot, and a Michael’s crafts store. A previous version of the site plan also showed spots for JCPenney and Peter Piper Pizza, which are no longer shown. The latest version of the site plan is included in the newest marketing flyer of the RJL Real Estate consultants website (www.rjlrealestate.com) and also shows up in an El Paso City Council agenda item which seeks to release certain special conditions from the property to allow the project to move forward, though there are slight differences. As with previous versions of the site plan, the stores listed may not be set in stone and will most likely change as the project moves closer to becoming a reality. The project is located just south of the 342-unit Bungalows at North Hills apartment complex. No timeline has been revealed for this project. ■
The newest site plan for the future North Hills Crossing shopping center in Northeast El Paso is slightly different than the RJL Real Estate version. (City of El Paso)
Downtown: San Jacinto Plaza’s Next Phase of Construction Begins
This concept image of the eastern edge of San Jacinto Plaza shows an interactive “splash pad,” shade trees, and benches (City of El Paso)
The next phase in San Jacinto Plaza’s evolution into a modern park began recently in Downtown El Paso, with a groundbreaking that marked the beginning of the next stage of construction that is expected to last 12 months. The first phase, which was completed late last year, included expanding the park by 10 feet in each direction. The new design took over the lane of parking that surrounded the plaza. Other phase one work included preparing the park for improvements. Now, the next phase of the multi-million dollar renovation of the park will fill it with new amenities as well as keeping some of San Jacinto Plaza’s historical elements. A full-service café will be added on the western edge of the plaza and will most likely be leased out to a food vendor. On the other side of the park, an interactive water feature will be lit with LED lighting, and a horseshoe/washer sand pit will be located just to its north. Other amenities include café tables and chairs, bike racks, drinking fountains, benches, activity spaces for table tennis and chess, and a stage. Signage will also be installed throughout the plaza. The large Afghan Pine that is used as the Christmas tree during the holiday season was saved and will continue to fill that role. And the Los Lagartos sculpture, currently undergoing rehabilitation in Ohio, will once again take its place at the plaza’s center. This time, it will have a shade canopy installed above it that will protect it from the elements. Construction is expected to be completed in early 2015. The project was awarded in January to Basic IDIQ, Inc., a construction firm with an office in El Paso. The groundbreaking was held Wednesday, February 26, 2014.
Builders Outlook Issue 3.2014
Content provided by El Paso Development News visit: elpasodevnews.com
Latest Montecillo Aerial Photo Shows Progress
Mulligan Building Renovation Nears End Crews Complete Work on Historic Building’s Exterior
A new bird’s eye view photograph of the Montecillo Town Center construction site shows significant progress in leveling off the area. The lifestyle center is part of the larger Montecillo SmartCode development on El Paso’s West Side. In the photograph, posted by ZTEX Construction of El Paso on its Facebook page (facebook.com/ztexconst) last week, the Venue at Montecillo apartment buildings can be seen across Mesa Street, to the west. The Montecillo Town Center may open as early as fall of 2014. Image Courtesy ZTEX Construction
TI:ME at Montecillo Debuts New Website ‘Non-Traditional’ Shopping Center to Open this Year An urban, compact shopping center that is part of the Montecillo smart growth development in West El Paso has debuted its new website. The site for TI:ME at Montecillo, which bills itself as a “non-traditional” shopping center, can now be found at itistimeelpaso.com. The center will have 12,000 square feet of leasable space, with options ranging in size from 80 to 1,200 square feet. It will be anchored by three new full service restaurants, owned and operated by the same restaurant group that created Crave Kitchen and Bar, 1914 Loung, and the Independent Burger. In the TI:ME center, the group will operate Stonewood Modern American Grill, Hillside Coffee & Donut Co., and Malolam Cantina. The leasable retail areas will be
located on the northern side of the intimate complex, with the restaurants taking up most of the southern half. The complex of buildings will surround a central gathering space. According to the website, the landscaping “will be like no other space in town, going above and beyond the required amount, making it lush and green throughout.” In addition, the center will be partially built using shipping containers. Last month, TI:ME announced its tenant lineup and includes a diversity of local shops. The tenants include HommeWork, GlowDry, Modern Hookah, Black Dot, ALDesign, Le Trendy, Trendy:Decor, HommeWork Jewelry, and The Backyard Patio. The center takes a spot along North
Triple-A Stadium Construction Gets Two Additional Weeks El Paso Chihuahuas officials are moving forward with their plan to postpone the Triple-A stadium’s opening until the second home stand for the baseball team. The decision will give construction crews more than two additional weeks to finish readying the stadium for the team. The first four “home” games will now be
Mesa Street among the four buildings that make up the Venue at Montecillo apartment complex, which was the first part of the Montecillo development to be completed. Eventually, Montecillo will have 4,000 apartment units, 400 single family homes, retail, office, and civic spaces built in a largely SmartCode environment. Across Mesa Street from the Venue, work continues on site preparation for the Montecillo Town Center, which will include retail, apartments, and an Alamo Drafthouse movie theater. That project should continue through the year. No official opening date has been set for the TI:ME at Montecillo shopping center, though construction continues at a steady pace. ■
played at the team’s former home in Tucson. Opening day at the park will now be April 28, 2014, instead of the original April 11 date. A few local media outlets were given a tour of the construction site last week, which included visits to several areas of the ballpark, including the team areas below the stands. SStadium lights are now being installed on their respective pole structures, and roofing materials are being readied for placement.
An urban, compact shopping center that is part of the Montecillo smart growth development in West El Paso has debuted its new website. The site for TI:ME at Montecillo, which bills itself as a “non-traditional” shopping center, can now be found at itistimeelpaso.com. The center will have 12,000 square feet of leasable space, with options ranging in size from 80 to 1,200 square feet. It will be anchored by three new full service restaurants, owned and operated by the same restaurant group that created Crave Kitchen and Bar, 1914 Loung, and the Independent Burger. In the TI:ME center, the group will operate Stonewood Modern American Grill, Hillside Coffee & Donut Co., and Malolam Cantina. The leasable retail areas will be located on the northern side of the intimate complex, with the restaurants taking up most of the southern half. The complex of buildings will surround a central gathering space. According to the website, the landscaping “will be like no other space in town, going above and beyond the required amount, making it lush and green throughout.” In addition, the center will be partially built using shipping containers. Last month, TI:ME announced its tenant lineup and includes a diversity of local shops. The tenants include HommeWork, GlowDry, Modern Hookah, Black Dot, ALDesign, Le Trendy, Trendy:Decor, HommeWork Jewelry, and The Backyard Patio. The center takes a spot along North Mesa Street among the four buildings that make up the Venue at Montecillo apartment complex, which was the first part of the Montecillo development to be completed. Eventually, Montecillo will have 4,000 apartment units, 400 single family homes, retail, office, and civic spaces built in a largely SmartCode environment. Across Mesa Street from the Venue, work continues on site preparation for the Montecillo Town Center, which will include retail, apartments, and an Alamo Drafthouse movie theater. That project should continue through the year. No official opening date has been set for the TI:ME at Montecillo shopping center, though construction continues at a steady pace. ■
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Builders Outlook
2014 issue 3
The Economy
Reservations About The Dollar By Elliot Eisenberg, Ph.D., GraphsandLaughs, LLC
Since the start of the Great Recession of 2008 and the Fed’s decision to inject trillions of dollars into the banking system, there has been constant talk of the US dollar losing its position as the world’s reserve currency, the position it has held since the end of WWII. After all, our debt is huge and growing, DC is thoroughly dysfunctional, our share of the world economy is shrinking and China is increasingly pushing for a post dollarcentric financial system. Despite all the concerns above, the dollar’s position as the reserve currency of the world is safe for a long while. First, which currency can realistically unseat it? The British pound is simply too small to do the job as the British economy is about 1/7th the size of the US economy. As for the euro, while it is large enough, there are too many structural problems including weak growth, over taxation, an inflexible central bank and the outside possibility of the collapse of the monetary union to entice many central banks to significantly increase their euro holdings. As for the Yen, Swiss Franc or Chinese renminbi, you have got to be kidding! With a debt to GDP ratio greater than that of Greece, Japan makes the US look downright fiscally responsible. Moreover, Japan and Switzerland are both pushing down the value of their respective currencies making them that much less appealing to hold. Lastly, the renminbi does not freely float and there are significant foreign exchange controls in place. As a result, it will take at least a decade before China has the necessary legal framework and deep and open financial markets that are a necessary prerequisite before the renminbi can become a credible reserve currency competitor. Second, because of increased capital flows between nations due to increases in trade and investment, central banks have been repeatedly told by their respective governments to hold larger quantities of safe and easy-to-sell assets which can be easily liquidated in time of crisis. As a result, total foreign reserves have nearly quadrupled in the past decade and this has dramatically increased the demand for dollars. For example, when foreign capital suddenly flees a developing nation, it puts downward pressure on the local currency. By selling some of its dollar holdings to purchase its own currency, a country can stabilize its currency and avoid large currency swings. Moreover, simply holding a large supply of highly liquid foreign assets, like dollars, discourages speculation and
demonstrates that a nation has the necessary reserves to pay foreign creditors for things like oil and wheat. Lastly, with large holdings of dollars the last thing foreign nations want to do is harm the dollar as that would reduce the value of their holdings and that, in and of itself, reinforces the dominance of the dollar and thus improves its stability. That is at least partly why for the past 15 years 60% of world foreign exchange reserves have consistently been in dollars. Were that percentage to slowly fall to 50% over the next few decades, it would matter relatively little. To sum up, despite lots of talk, there exists no strong competitor to the US dollar and one is unlikely to appear anytime soon. Economist Elliot Eisenberg is a regular contributor to the Builders Outlook. His wealth of experience on housing has been the model for HBA’s across the country over the past decade. Now in private practice, Dr. Eisenberg brings his insight every month to our members.
Engineering Manager MRQ Construction LLC seeks Engineering Manager in El Paso, Texas. Bachelor Degree in Civil Engineering required. Candidate must possess at least 60 months of experience in Civil Engineering. Qualified applicants may submit resume to: Mr. Francisco Guillen, Human Resources Manager via email at: info@mrqconstruction.com
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2014 issue 3
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Builders Outlook
Expert Advice
Joe Bernal Employee Benefits of El Paso
401(K) Basics Most (85 percent) of employers with ten or more full-time workers find defined contribution (DC) retirement plans, such as 401(k)s, valuable in helping to retain, recruit and motivate employees. And a surprising 72 percent of similarly sized employers that do not offer a DC plan agree.* To find out why, read on. Advantages for Employees A 401(k) plan allows employees to contribute to an individual retirement savings account set up on their behalf by the employer. Employees enjoy the following advantages: • They can make salary deferral contributions to traditional 401(k)s, reducing current taxable income. • They do not have to include employer contributions in their taxable income until they withdraw the funds. (Subject to certain limitations.) • They can direct their funds into various investment vehicles, if their plan allows,
according to their appetite for risk and other factors. • Their funds will grow tax-free until they are distributed. • They can easily see their retirement balances at any time, unlike traditional pensions, which require complicated actuarial calculations. • They own their accounts; they can take all vested funds with them if they leave your employ. A 401(k) plan offers the following advantages to employers: • Employers can use a well-designed plan to help attract and keep talented employees. • Employee salary deferral contributions reduce employers’ payroll tax liability. • Employers can deduct their administration expenses and any contributions they make to employees’ accounts as business expenses. • Employers limit their liability to a defined contribution, unlike with traditional pension plans. To set up a 401(k) plan, employers must adopt a written document that serves as the foundation for day-to-day plan operations. If you have hired someone to help with your plan, that person likely will provide the document. Once you have decided on a 401(k) plan, you will need to choose the type plan that is best for you—a traditional 401(k) plan, a safe harbor 401(k) plan, or SIMPLE 401(k) plan. Traditional 401(k) Plans A traditional 401(k) plan allows eligible employees to make pre-tax elective deferrals through payroll deductions. Employers can make contributions on behalf of all participants, make matching contributions based on employees’ elective deferrals, or both. In traditional 401(k) plans,
you can design your plan so that employer contributions vest over time, according to a schedule. Employees forfeit unvested funds when they leave your employment. (Employee contributions are always 100 percent vested, or owned, by the employee.) Traditional 401(k) plans cannot discriminate in favor of highly compensated employees. This means average deferred wages and employer matching contributions for highly compensated employees cannot greatly exceed average deferrals and matches for non-highly compensated employees. To ensure that the plan satisfies these requirements, the employer must perform annual tests, known as the Actual Deferral Percentage (ADP) and Actual Contribution Percentage (ACP) tests. Safe harbor 401(k) Plans A safe harbor 401(k) plan lets employers avoid the nondiscrimination tests that apply to traditional 401(k) plans. It resembles a traditional 401(k) plan, but, among other things, requires employer contributions that are fully vested when made. Employers can make matching contributions limited to employees who defer, or contributions on behalf of all eligible employees, regardless of whether they make elective deferrals. Employers sponsoring safe harbor 401(k) must satisfy certain notice plans requirements. Each eligible employee for the plan year must receive written notice of his/her rights and obligations under the plan. The notice must describe the safe harbor method in use and how eligible employees make elections, and other pertinent information. Employers of any size can use a traditional or safe harbor plan; they can also combine these plans with other retirement plans.
SIMPLE 401(k) Plans The SIMPLE 401(k) plan gives small businesses a simple, cost-efficient way to offer retirement benefits to their employees. It exempts plan sponsors from the annual nondiscrimination tests that apply to traditional 401(k) plans. As with a safe harbor 401(k) plan, the employer must make employer contributions that are fully vested. To be eligible for a SIMPLE 401(k), an employer must have 100 or fewer employees who received at least $5,000 in compensation from the employer for the preceding calendar year and no other employee retirement plan. Roth Contributions Employers with a traditional, safe harbor or SIMPLE 401(k) plan can allow employees to make Roth contributions, if plan documents permit. With Roth contributions, employees designate some or all of their contributions as Roth contributions and make them with aftertax dollars. This lets them avoid taxation on these funds when withdrawn after retirement, subject to certain conditions. IRS code limits the total amount contributed to all 401(k) accounts from both employers and employees, including Roth contributions, for any one year. For 2013, contributions cannot exceed $17,500, plus an additional $5,500 in catch-up contributions for participants age 50 or older by year-end. Limits typically increase every year to reflect cost of living adjustments. Over time, a 401(k) fund can grow into a tidy nest egg and help you retain valuable employees. For more information on setting up a 401(k) plan, please contact us. *Source: American Benefits Institute, “Attitudes of Employee Benefits Decision Makers Toward Retirement Plan Tax Proposals,” December 11, 2012
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12
Builders Outlook
2014 issue 3
Closing a door for homeowners A new tax reform plan could be bad news for housing Changing the mortgage interest deduction could mean higher tax bills for some homeowners. By Robert Dietz
House Ways and Means Committee Chairman Dave Camp, R-Mich., recently unveiled a draft comprehensive tax reform plan that seeks to broaden the tax base while lowering corporate and individual income tax rates. The draft makes significant changes to federal tax rules connected to housing and homeowning. While most tax policy observers believe that the chances of a comprehensive tax reform plan being enacted in 2014 are slim, Camp’s proposal likely establishes the rough draft of future tax reform efforts in 2015 and thereafter. Given the large scale of changes in any comprehensive tax reform proposal, it is important to review the plan its entirety. For example, the loss of deductions and credits that are law today may be offset by lower marginal income tax rates for some taxpayers. The plan effectively proposes a three-tier system for individuals (10 percent, 25 percent, and 35 percent), although the 10 percent rate phases out for high-income taxpayers. Additional phaseouts for items like the standard deduction or itemized deductions and changes to passthrough business income rules could also be classified as creating additional rates within the revised rate structure. In total, the proposal is revenue and distributionally neutral, as evaluated by the nonpartisan Joint Committee on Taxation – the official tax policy scorekeeper on Capitol Hill. This means the proposal does not change the amount of revenue collected and there are effectively no changes in tax liabilities among income classes, at least as evaluated on a conventional scoring analysis. However, revenue neutrality means that the sum of the changes will produce winners and losers within each income class. For homeowners and homebuyers, there are a number of proposals that would have direct and indirect impacts on how the nation’s tax code treats the costs associated with owning a home. And the indirect impacts are in some ways the largest potential effects that could come from this type of tax reform. For example, the plan leaves most of the rules concerning the mortgage interest deduction intact. The deductions’s primary beneficiaries are middle class homeowners, with approximately two-thirds of the dollar benefit being collected by families with less than $200,000 in household economic income. The following map illustrates the share of mortgage interest deduction benefiting taxpayers with less than $200,000 in adjusted gross income using 2010 IRS data by state. Under the draft proposal, the overall principal cap for the mortgage interest deduction would be lowered over a number of years to $500,000 (not indexed for inflation), but the second home rule would continue to apply under the new debt limit. The home equity loan interest deduction would be repealed, but loans taken out to improve an existing home via remodeling would continue to qualify under the new principal cap. The fact that most of the existing rules have been retained is a positive development for housing in terms of what may be kept in future tax reform drafts, although the lower cap limit would
have negative impacts in high cost areas of the nation. On the negative side, the deduction for property taxes paid in connection with an owner-occupied home would be repealed, along with all other individual taxpayer deductions for state and local income taxes. Furthermore, most of the other existing itemized deductions would be repealed, and the charitable giving deduction would be subject to a 2 percent floor of adjusted gross income (meaning you could not claim the charitable deduction unless your dollar value of giving exceeded 2 percent of adjusted gross income). These proposed changes would reduce the number of taxpayers who itemize their returns, thus reducing the direct tax benefit from homeownership and charity. The draft proposal makes another significant change that would also alter the final distribution of tax liabilities. The standard deduction would be increased to $22,000 for married taxpayers filing joint returns ($11,000 for single returns). While touted as a change to improve simplicity with respect to tax filing, taxpayers who pay mortgage interest or engage in charitable giving would continue to need to tally those expenses to determine whether they itemize or not. Thus, the simplicity achieved here is one of outcome, not necessarily of process and administration. The Ways and Means Committee summary indicates that these changes would reduce the number of taxpayers who itemize their returns, and who receive a direct tax benefit from homeownership or charitable giving, from 30 percent of all tax returns to approximately 5 percent. This is a significant step back from our current system which provides direct policy support for goals such as homeownership. It is worth recalling that numerous academic studies demonstrate a rich set of social and private benefits from homeownership. Now some may argue that the increased standard deduction provides the same tax benefit as the current system for those who currently itemize. However, another change in the plan rules out this possibility. Under the draft plan, all personal exemptions are repealed. For present law, taxpayers in 2014 can claim a deduction in the amount of $3,950 per qualified family or household member. The increase in the standard deduction would help offset this change, along with a $500 increase in the child tax credit. In contrast, under the proposed draft, the expanded standard deduction would stand in for a number of permissible adjustments under present law: the present law standard deduction, the present law personal exemptions, and certain itemized deductions like the mortgage interest deduction. However, the standard deduction simply does not increase enough to make up for all of these current tax rules. Here are a few numbers to illustrate. Suppose a married couple with three children: Under present law, in 2014 the couple could claim a standard deduction of $12,400. They would also be allowed $19,750 in personal exemptions, raising their household deductions to $32,150 if they do not itemize. Finally, they would be able to claim three child tax credits in the amount of $3,000 total.
Under the new proposal, their standard deduction would increase from $12,400 to $22,000, but that benefit is completely offset by the loss of the personal exemptions. The approximate $10,150 loss in deductions is partially reduced by having the child credit total increase from $3,000 to $4,500 under the proposal. Assuming a 25 percent tax rate, this boost in the child credit is equivalent to gaining another $6,000 in non-schedule A deductions, leaving the taxpayer with about $4,000 less in deductions, even before accounting for potentially lost Schedule A items due to not itemizing. Thus, there is no ability for the increased standard deduction to make up for the loss of the charitable and mortgage interest deductions for those taxpayers who itemize under present law but who would not under the proposed reform. This example suggests that under this kind of revenue neutral tax reform, taxpayers who claim the mortgage interest deduction and the charitable giving deduction would likely find their taxes to be higher. It is important to analyze any plan in its
entirety, and the lower marginal rates of 10 percent and 25 percent offer a tax benefit to compensate for the broader tax base. But whether an individual family wins because of lower rates or loses because of changes to deductions depends a lot on family size and where you live. Pro-growth tax reform that rewards investment, including housing, is clearly an important goal for the future. And the Ways and Means draft offers an important starting point that reflects a lot of work and difficult tradeoffs. But breaking the explicit link between tax policy and homeownership is the wrong path as the housing recovery continues. Robert D. Dietz is an economist with the National Association of Home Builders. Previously an economist with the Congressional Joint Committee on Taxation, Robert writes on housing and policy issues at NAHB's Eye on Housing blog and @dietz_econ on Twitter.
TM
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2014 Issue 3
13
Builders Outlook
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14
Builders Outlook
2014 issue 2
Associates Council
Sam Shallenberger Western Wholesale Supply
ome Your New H eva
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el Ahora es ra tiempo pa comprar eva nu sa ca a un ! en El Paso
Hi everyone the year is in fast gear and we are moving quickly. I hope most of you got to visit the Home Show. It was great. The crowds were just unbelievable. I think it is because our good friends from Rassette Homes did such a great job building a magnificent home that showed great. I know Joe was stressed and tired but he hung in there and the final result was over the top.
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Well I am happy to report the great Golf promotion team of the good looking guys Ray and Sam did it again. Everything is sold out for April 16th and I do mean everything. I think everyone who is participating will be surprised by the facilities and the course. It is our goal to keep making this tournament fun. It is not really about the golf it is about the comradery that this event generates. Ray and I want to thank
everyone who participated and look forward to the best weather day of the year. More information will be coming soon on a possible Parade of Homes, as well as the summer outings we’ll get going. Stay tuned, there’s a lot of things happening at the association. Don’t forget to bring your new member in, two for the board. Let’s grow this place.
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Builders
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www.elpasobuilders.com www.epbuilders.org 6046 Surety Dr. El Paso, TX 79905 915-778-5387 • Fax: 915-772-3038 ■ execuTive oFFicerS Frank Torres – President GMF Custom Homes edgar montiel – vice President Palo Verde Homes carlos villalobos – Secretary Treasurer Palo Verde Homes Sam Shallenberger – Associates chair Western Wholesale edmundo Dena - immediate Past President Accent Homes ray Adauto – executive vice President El Paso Association of Builders Jay Kerr -Attorney of record
■ couNciL/commiTTee cHAirS Associates council Sam Shallenberger Build PAc Randy Bowling Desert Green Building council Javier Ruiz Land use council Sal Masoud Young Designer Award John Chaney remodelers council Rudy Guel membership retention Mike Santamaria, Greg Bowling Finance committee Carlos Villalobos Women’s council Lorraine Huit ■ ADviSorY To THe BoArD J. Crawford Kerr, Attorney, Firth, Johnston & Martinez ■ BoArD oF DirecTorS Beverly Clevenger, Automated Division 6 Builders, Inc. Leti Navarette, Custom Dream Homes Kathy Parry, Hunt Communities Edgar Garcia, Bella Vista Custom Homes, Inc.. Bud Foster, Southwest Land Development Services Juanita Garcia, ICON Custom Home Builder, LLC Walter Lujan, DAWCO Home Builders Joey Najera, Joseph Custom Homes Rigo Mendez, Mission Homes Nick Bombach, Casas de Leon, LLC Lydia Mhouli, Crown Heritage Homes JJ Vasquez, Pacifica Homes Dan Ruth, Millenium Homes Ken Wade, El Paso Building Materials Ruben Orquiz, MTI Ready Mix Kathy Carrillo, Pioneer Bank El Paso Henry Tinajero, WestStar Bank Chuck Gabriel, Carpets West Ted Escobedo, Snappy Publishing John Chaney, Passage Supply Joe Bernal, Employee Benefits of El Paso Linda Troncoso, TRE & Associates Orlando Rodriguez, Mass Media Advertising, Inc. Bret Thompson, Foxworth Galbraith Lumber Chris Worm, City Bank Texas Sal Masoud, Del Rio Engineering
■ TAB STATe DirecTorS Randy Bowling Greg Bowling
■ NATioNAL DirecTorS Bobby Bowling IV. Demetrio Jimenez NATioNAL ASSociATioN oF Home BuiLDerS (800) 368-5242
TexAS ASSociATioN oF BuiLDerS (800)252-3625
2013 Builder member of The Year Edmundo Dena Accent Homes 2013 Pat cox Award Sam Shallenberger Western Wholesale Supply 2013 Associate of The Year WestStar Bank Larry Patton, Burt Blacksher and Henry Tinajero
Honorary Life members Wayne Grinnell Don Henderson Chester Lovelady Cliff C. Anthes Anna Gill Brad Roe Rudy Guel E H Baeza Past Presidents committed to Serve Greg Bowling Kelly Sorenson Mark Dyer Mike Santamaria John Cullers Randy Bowling Doug Schwartz Robert Baeza
Bobby Bowling, IV Rudy Guel Anna Gil Bradley Roe Bob Bowling, III E. H. Baeza Hershel Stringfield Pat Woods
ePAB mission Statement: The El Paso Association of Builders is a federated professional organization representing the home building industry, committed to enhancing the quality of life in our community by providing affordable homes of excellence and value. The El Paso Association of Builders is a 501C(6) trade organization. © 2014 Builder’s Outlook is published and distributed for the El Paso Association of Builders by Ted Escobedo, Snappy Publishing ted@snappypublishing.com El Paso • Texas • 79912 915-820-2800