National, State & Local Building Industry News 2016: Issue 9
Builders Fall Outlook HOUSING TRENDS
www.elpasobuilders.com
As home sales cool this fall, what will happen to home prices and interest rates? Autumn is typically known as the time of year when housing activity starts to slow down. "Generally, home sales tend to be very robust in spring and summer, then begin to soften somewhat during the autumn and winter months," says Lawrence Yun, chief economist and senior vice president of research for the National Association of Realtors, or NAR. The slowdown begins in the fall because school is starting, and families with kids would rather not move during this time, he adds. Mortgage rates likely won't change pace, however. They've been volatile in recent months, but the trend for mortgage rates is still upward, says Logan Mohtashami, senior loan officer for AMC Lending Group in Irvine, California. "Unless we get more (weak) data from Europe and China, the 10-year (Treasury) note and mortgage rates have room to climb up higher than these levels," he says. Nela Richardson, chief economist at real estate brokerage firm Redfin, agrees. She says the 30-year fixed rate has been under 4% on average for the past several weeks but may end up under 4.5% by year's end. "I think that as the economy improves, rates will increase a bit and also whatever the (Federal Reserve) does this year in terms of raising short-term rates might have an effect on mortgage rates, as well," she says.
Here are 5 other trends in housing to look for over the next few months.
Inventory shortage will continue A relatively small number of homes were for sale this summer, and that trend is likely to persist in the coming months. "Housing starts are not really picking up at all other than apartments, and therefore I think we will continue to have, generally speaking, tighter inventory than normal," Yun says. There were 2.29 million, or 5.2 months' worth, of existing homes for sale at the end of August, according to the most recent data available from the NAR. That's 1.7% below the August 2014 inventory of homes for sale. Then there is the separate category of newly built homes that have never been occupied. The seasonally adjusted estimate of new homes for sale at the end of August was 216,000, which is 4.7 months' worth of housing inventory, according to a joint release from the U.S. Census Bureau and the Department of Housing and Urban Development. That was about 4.7 months' worth of new homes for sale -- roughly 3 weeks shorter than the new-home supply a year earlier. "Because there's not a lot on the market, it causes all kinds of other things like higher prices, bidding wars (and) price escalation," which leads to buyer fatigue, Richardson says.
Rental demand will keep growing Mohtashami expects that the rental demand curve will continue to be strong. Homeownership is near a 50-year low, and consumers who either can't buy a home or aren't quite ready to buy have been flooding the rental market, which has boosted demand -and rent prices. The number of renters who spend more than half of their income on rent is projected to increase by at least 11% in 10 years, to 13.1 million people, according to research from Harvard University's Joint Center for Housing Studies and Enterprise Community Partners. Cash buyers will drop out Real estate investors who snap up properties for the sake of generating rental income may start bowing out of the housing market this fall, Yun says. Why? Because of the disappearance of the foreclosed homes that investors usually are attracted to. Yun says this change will "provide more opportunities for people who
are buying homes for homeownership a better chance at obtaining the home with less competition." The share of homes purchased by individual investors ticked down from 13% in July to 12% in August, according to the NAR. Individual investors comprise many of the home sales that are paid for in cash, the NAR says. Credit standards may begin loosening Lending standards will loosen but will do so at a "glacial pace," Yun says. "Those people who are getting approved (for) mortgages, their credit scores have been exceptionally high, but now (they) may begin to slide down," he says. Richardson agrees; she doesn't expect credit standards to significantly loosen until 2016. "Even (for) FHA loans, if you have something lower than a 680 credit score, you still don't see a lot of mortgages being originated to the lower end of the credit spectrum." Mortgage credit availability has increased, meaning that lending standards have somewhat loosened for most of 2015, according to the Mortgage Bankers Association's
Mortgage Credit Availability Index.
Home prices will increase As a symptom of the inventory shortage, home prices are predicted to continue moving higher. "I hope the home price growth moderates because some of the price growth has been quite sharp -- near double-digit rates of appreciation," Yun says. He predicts annualized price growth of 3% to 5% toward the end of this year and into 2016. Prices were up 4.7% year over year from July 2014 to July 2015, according to the latest Standard & Poor's/Case-Shiller home-price index. Separate data from the Federal Housing Finance Agency show a 5.8% year-over-year increase for the same period. "Mortgage rates may cut you a break, but prices don't seem to be," Richardson says. www.bankrate.com
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Builders Outlook
HEAT UP YOUR HOME SALES. Football season is here. It’s time to fire up the grill, mix the marinade and enjoy an evening on the patio cheering on your favorite team with friends and family. Natural gas can help. From grills and fire pits to lights and torches, building outdoor living spaces equipped with safe, clean and efficient natural gas gives your customers a chance to enjoy the big game from the comfort of home. For more information: ElPasoNewBusiness@TXGas.com William Nieves: 915-496-6126 Jorge Sejera: 915-680-7216 Please continue to direct service line and meter set requests to the Texas Gas Service Builder Hotline at slimgas-metroElPaso@onegas.com or 1-866-206-9587.
2016 issue 9
2016 issue 9
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Builders Outlook
President’s Message Carlos Villalobos
President, El Paso Association of Builders
October is National Member Drive for the Association of Builders, it is important for us to increase the number of members in each chapter in order to maintain our relevance and influence as a voice for our industry. In doing so we are asking our members to invite their commercial partners who are not members to join. Our association can be very beneficial to subcontractors, title companies, material suppliers, banks, mortgage companies, not to mention builders, developers and remodelers. Remind your friends and business associates that as members, they will benefit in the following ways, amongst others:
BUILDING OUR ASSOCIATION: Appreciating the value of an EPAB Membership 1. Advocacy: As a member you get to have a voice at the local, state and national government level, to discuss relevant issues to our industry. 2. Networking: Our association is a place where you get to network with the most influential and powerful business leaders in our industry. 3. Education: Apart from offering classes and continuous education on important subjects, they will get an opportunity to talk to peers to discuss the latest issues of the day, from the latest energy code requirements to rising material prices and what they are doing to adapt. 4. Doing their part to keep housing affordable in our community which keeps us competitive and growing as an industry. 5. Advertising and Branding opportunities: As a builder member one can partake in events such as our very own Parade of Homes, Home
Shows and soon to come Awards Ceremony (more on that later) which offer great exposure and branding opportunities in our community reaching literally thousands of potential customers in each event. 6. Rebate Programs: As a builder or remodeler member of TAB, they are eligible to receive money back from dozens of housing industry product manufacturers, up to thousands of dollar for each house registered.
So please reach out to your business associates this month and ask them to join to receive these benefits and more to improve their business. One another note, our real estate signs have become a visual nuisance to our city, sprawling up uncontrollably throughout different areas where new homes are being built. We have recently met with city officials who have assured us they will start enforcing the Sign
Ordinance currently in place more aggressively within two weeks. They calculate to be currently removing up to 2,000 to 2,500 signs per month and are planning to considerably increase that number to do away with the problem once and for all. They will likely start attacking heavily “sign-congested” corners pretty soon here, taking large numbers of workers at night (temporary signs like “A-frames” are allowed to be out until 8:00 PM and then need to be taken down) to remove entire areas at a time. The signs will be taken to a city yard where one can go pick them up within a limited amount of time, however, I can only imagine this to be cumbersome and time consuming, not to mention the signs will likely be damaged. So you have been warned, if you have illegal signs, you have two weeks to remove them or risk damaging or all together losing them. For a copy of the current sign ordinance, please e-mail Ray at ray@elpasobuilders.com
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Builders Outlook 2016
Executive’s Message Ray Adauto, Executive Vice President EPAB
“The changes end up costing the builder, the supplier and the homeowner. It affects the ability to qualify for a loan, since the price of the new homes will have to incorporate the cost increases.“
Issue 9
It’s not easy being green:
Adopting new energy code takes a lot of energy
There are a lot of challenges for our industry but you continue to perform under some very stressful times. Most people who don’t understand family housing think that every one of our member builders must be millionaires. After all, they are selling houses costing hundreds of thousands of dollars. What the majority of those don’t realize is how hard it is to actually be a builder or supplier. Let me give you a for instance. The new 2015 Energy Code enforcement just went into effect. The association has sponsored a number of training sessions to prepare the builder and supplier for the code. We’ve done this over the last 18 months, concentrating our training during the last six. The changes are another attempt by government to outlaw certain standard practices and bring in new laws (codes) to presumably make homes more energy efficient. So in practice what this means is that the home now has to be in a tighter envelope, holding “temperature” inside the house better while venting out fumes and gases that would be harmful to humans. In doing so many of the builders have had to change how they build the envelope using materials and processes new to them.
Some of our builders, especially those who build to either the NAHB Green or Energy Star standards see little disruption, while those who haven’t are being forced to adapt or face the consequence of noncompliance. Noncompliance means your house doesn’t pass tests and you can’t sell it. What you don’t see is the costs involved in this change. It’s not just a building method as much as it is finding the right formula for each builder to build the models they designed and improve them with different materials that most homeowners never see. Stuff like insulation, leak detection, roofing, air flow and exchange, HVAC designs, and even exterior components like stucco. The changes end up costing the builder, the supplier and the homeowner. It affects the ability to qualify for a loan, since the price of the new homes will have to incorporate the cost increases. It is supposed to reduce the cost of heating and cooling a house and supposedly that means long term savings for homeowners. Oh and by the way it increases the cost of government as well since now there has to be additional training for plan review and inspections. Third party is affected as well.
I find it interesting that in El Paso particularly nothing is done to older homes, no requirements to upgrade, to insulate, to make better use of energy. With resales far outpacing new home sales in our market this becomes another obstacle for our new home builders. Now the competition (resales) has another advantage and thus new home sales suffer. The naysayers reading this will say that I’m prejudiced. They are correct, I am because the government keeps going after the wrong target in my opinion. Our builders and suppliers are offering the highest rated most efficient energy saving home ever in the history of building. Yet new home construction is the target for more and more regulation. It’s time for government to find ways to help older homes get more energy efficient, stem water leaks, increase the use of alternate fuels, and provide significant incentives to homeowners for upgrades. In return the community would benefit and you would give a reprieve to the industry that has been targeted for years, new construction. Just saying.
2016 issue 9
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Builders Outlook
National Builder News Housing Production Hits a Mild Speed
n Nationwide housing starts fell 5.8 percent to a seasonally adjusted annual rate of 1.14 million units in August, according to newly released data from the U.S. Housing and Urban Development and the Commerce Department. Overall permit issuance edged 0.4 percent lower. “After two months of gains, the housing market gave back a bit in August,” said Ed Brady, chairman of the National Association of Home Builders (NAHB) and a home builder and developer from Bloomington, Ill. “However, with builders reporting low inventory levels and rising confidence, we expect more consumers will return to the market in the months ahead.” “The August reading represents a onemonth blip in what has been a long-term, gradual recovery,” said NAHB Chief Economist Robert Dietz. “On a year-overyear basis, single-family starts are up 9 percent while multifamily construction continues to level off at a solid level as that sector seeks to find a balance between supply and demand.” Both housing sectors posted production declines in August. Single-family housing starts fell 6 percent to a seasonally adjusted annual rate of 722,000 units while multifamily production declined 5.4 percent to 420,000 units. Combined single- and multifamily starts increased in three of the four regions in August. The Northeast, Midwest and West posted respective gains of 7.6 percent, 5.6
percent and 1.8 percent, respectively. The South registered a 14.8 percent decline. Single-family permits rose 3.7 percent in August to a rate of 737,000 while multifamily permits dropped 7.2 percent to 402,000. Permit issuance increased 5.1 percent in the Northeast, 4.2 percent in the Midwest and 0.7 percent in the West. Meanwhile, the South posted a loss of 3.4 percent.
U.S. Builders Seek New Lumber Sources in Chile n U.S. home builders today completed four days of talks with Chilean government, trade and industry officials that are geared toward increasing exports of softwood lumber and other wood products to America. “The meetings with more than 100 Chilean lumber-producing companies, trade organizations and government officials were extremely productive,” said Jerry Howard, CEO of the National Association of Home Builders (NAHB). “We support opening up competition in the U.S. lumber market because we know that it will benefit American families who want to buy homes and U.S. builders who are seeking a steady supply of affordably priced lumber.” The talks covered several areas, including establishing contacts among Chilean producers and American buyers and identifying and dealing with any policy
BUILDING
barriers to increasing the volume of Chilean exports from their current level. NAHB made contacts with two of the three largest Chilean lumber producers and a number of other smaller producers who all indicated that they will work together with their government to help increase exports. In addition, NAHB was able to meet with Swedish lumber producers in Chile, who expressed an interest in continuing conversations about increasing lumber exports to the U.S. and building a stronger relationship. The meetings in Chile come at a time when the U.S. and Canada are in discussions over a new softwood lumber trade agreement between the two nations. Though U.S. home builders would ideally prefer to purchase all of their softwood lumber and wood products from domestic producers, America today does not have the domestic capacity to meet its demand for lumber. Canada is by far the largest exporter of softwood lumber into the U.S. The latest three-year average share of Canadian imported lumber in the U.S. market is 28 percent. A nine-year softwood lumber agreement between the U.S. and Canada that established a system of fees and quotas on Canadian imports to the United States that
El Pa aso
were triggered in response to changes in the market price of softwood lumber expired last October. The two nations are now engaged in a one-year “cooling off” period – meaning no trade disputes can be filed by either country regarding softwood lumber imports – until October 12. Since the 1980s, numerous disputes have disrupted trade patterns, leading to unnecessary cost increases for industries such as home building that rely on softwood lumber, and straining U.S. relations with its neighbor to the north. This shortsighted political stalemate has left the American housing sector in the lurch. As U.S. and Canadian negotiators discuss the parameters of a new agreement, NAHB believes that it must be mindful of the U.S. housing market to ensure American consumers have access to a stable, dependable and affordable lumber supply. Though Chile currently holds just 1.22 percent of the U.S. lumber market, NAHB sees great potential for growth because the two nations have a free trade agreement. “As the U.S. housing recovery continues to pick up steam, the demand for softwood lumber will grow,” said Howard. “This is why expanding lumber trade with Chile can benefit both nations. Chile would have the opportunity to increase its exports and market share to the United States, while U.S. industries such as housing that depend on a reliable supply of softwood lumber would be able to meet the housing needs of American consumers and to keep lumber and housing affordable.”
SINCE 1950
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Builders Outlook
2016 Issue 9
2016 ISSUE 9
Building Materials Prices Continue to Climb By David Logan
Inflation in prices received by producers (prior to sales to consumers) held steady in August after a striking 0.4% decline in July. The flat reading was the result of a 0.1% increase in prices for services combined with a 0.4% drop in goods prices, according to the latest Producer Price Index (PPI) release by the Bureau of Labor Statistics (more weight is placed on services, in line with its share of the economy relative
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Builders Outlook to goods). Final demand prices for core goods (i.e. goods excluding food and energy) inched up 0.1%. In contrast to the steady overall index, prices of key building materials were anything but level. OSB prices rose sharply (+1.5%), continuing a 6month, upward trend. The producer price of OSB has increased by 8.7% over that period. Gypsum prices rose by 0.2% as the price of ready-mix concrete rose modestly (+0.1%). Unsurprisingly, given the net change of zero, the report showed mixed signals. Services prices were kept steady by opposing forces from services less trade, transportation, and warehousing (which increased 0.5%) and trade services (which fell
0.6%). This marked the second consecutive month that the trade index fell and a cumulative two-month decline of nearly 2%. The product detail showed a net decline in prices for real estate services of roughly 3% in August. Thirty percent of the decrease in prices for final demand goods was attributable to a 3.6% drop in prices for meats and energy products. These declines were partially offset by increases in the pharmaceuticals industry. Softwood lumber prices rose relatively sharply (+1.5%) in August following a July increase (+0.4%). Although the U.S. dollar remains relatively strong against the Canadian
Gypsum prices rose by 0.2% as the price of ready-mix concrete rose modestly dollar, it has declined to July 2015 levels and all market indicators point to a continued narrowing of the currency advantage until 2017. This is of particular importance as a large percentage of domestically consumed softwood lumber is purchased from Canadian producers.
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SPECIAL REPORT
The Housing Market
Mortgage rates are low but so is homeownership
Paradox
By Andrew Soergel Economy Reporter www.usnews.com
Housing is one of the biggest drivers of wealth in the country, and steadily rising home prices across the country have been a boon to existing homeowners whose home values were walloped in the mid-2000s. As prices get higher, however, it becomes more difficult for firsttime buyers to crack into the market. Rising home prices, low mortgage rates, tight inventories and recent evidence of national income gains have muddied America's housing landscape. Economists widely consider real estate to be in a good place on the whole, but affordability and options for first-time buyers are a more complicated story. Ralph McLaughlin, chief economist at real estate hub Trulia, says it's "still a good time to buy a home" but that there simply aren't enough homes on the market to keep up with demand. This is driving prices higher and leaving those who don't already own a home with fewer options. U.S. News spoke with McLaughlin to hear his take on current trends in the housing market and what he expects to see going forward. Excerpts:
What's been happening with home affordability in the U.S.? If you look back over the last 30 years, we're seeing a divergence in the market when it comes to housing prices. So the most expensive markets in 1986 were basically the same as the most expensive markets today. And those markets had a much higher return on investment in housing than did cheaper markets. So San Francisco, San Jose, New York had between 300 percent and 600 percent increases in house prices over the last 30 years, while less expensive markets like Dayton and Toledo and St. Louis were lucky to double their house prices. And that matters, because, for example, the median homeowner in San Francisco over the last 30 years earned about $900,000 just from buying a home. Contrast that with the median homeowner in a place like Fort Worth. They only gained about $50,000 in nominal value. As housing wealth is passed on to generations, that potentially would be a cause for widening wealth inequality across the U.S. in the long run. We see some income convergence over the last couple of years, but that's a small blip if you look at the bigger picture. The Census Bureau recently showed median incomes boomed in 2015. What does that mean for the housing market? Are these income gains keeping up with rising home prices? So the big news was that median income grew by the highest rate on record – 5.2 percent. For an
economist like myself who studies the housing market, what really matters is how that is being distributed across the U.S. I think the really interesting thing that came out of looking at this geographic variation is that income growth was actually highest in the lowest-income metros. And that's good news, because some of the highest-income metros – the usual suspects like San Francisco, New York, Los Angeles and Seattle – were the ones that were leading the U.S. economy, both from a job creation and income standpoint but also from a housing market standpoint. What we see here is actually good news for those in the lowest-income markets. Not only are their incomes increasing, but they're increasing faster than prices, which is good for those trying to save up for a downpayment. If we look at the sort of middle-tier metros, as far as incomes are concerned – places such as Cleveland or Chicago or Houston or Dallas – even though incomes have grown pretty respectably, prices are eclipsing those gains. It's not necessarily taking away from those who already own their home. But what it is doing is taking away from those first-time buyers who are looking to buy. So if people delayed buying from 2014 to 2015 – maybe because they just got a job – it's costing them even more money to buy that house, even when taking income into account. And that's of some concern. But it's
not quite surprising, just because many of these markets were second out of the gate with the economic recovery. Talk to me about the current mortgage situation. Mortgage rates have been really low for the last few months. Mortgage rates are still near historic lows. They've fluctuated quite a bit. They were down after Brexit, and they've come back up a little bit. But from a mortgage perspective, it's still a good time to buy a home. Rates are more likely to go up than go down in the near future. For those that own a home with a mortgage, many have refinanced. The most recent Census data actually show expenditures on mortgages are down over the last couple of years, and that's likely because of refinancing. Rates have gone down, so houses refinance. And they'll have a little extra income. If you look at mortgage affordability for those looking to buy a home, mortgage payments are certainly on the rise, and they are growing faster in many markets than incomes. And that doesn't just affect first-time homebuyers. It also affects homebuyers looking to trade up to a new home, because even if they want to move and take the equity that they have, that house they might want to trade up to is going to be more expensive and take up a larger share of their income. And I think that's introducing some gridlock into the housing market. Another interesting point that came out this week is that the share of
It's a chicken or egg problem with inventory and affordability. Affordability pressures may be keeping inventory low because existing homeowners don't want to move. They don't want to pay the higher prices. So it's this catch-22. Americans moving – mobility – is actually low. It's not the lowest on record, but it's declined. And that could be because existing homeowners may be reluctant to move because they don't want their mortgage payments to go up, even taking into account the equity they would have gained on their home over the last few years. So it really is this tale of two worlds. It's probably not as bad off if you're a current homeowner. But for those who don't own a home, the difference is pronounced Inventories keep coming up as a complicating factor for home sales. There simply aren't enough homes on the market to keep up with demand. What effect is that having on U.S. real estate? It's a chicken or egg problem with inventory and affordability. Affordability pressures may be keeping inventory low because existing homeowners don't want to move. They don't want to pay the higher prices. So it's this catch-22. Nationally, inventory is down and is continuing to decrease. But there are signs in some major markets on the West Coast and the Southeast and
in Florida that inventory is picking up. If you look at other sources, like the [National Association of Realtors] numbers, and you control for the number of houses in the U.S., inventory is actually at its lowest point on record. There are signs of life, but we're still very much in the weeds when it comes to the number of homes on the market. What's driving that? Why are there so few homes available? It's really a combination of three things. A lot of homes, especially on the lower end, on the starter end, were bought up by investors during the foreclosure crisis and turned into rental units. And because rents have gone up at roughly the same pace as prices, that really hasn't enticed investors to sell those homes. They're reaping the benefits of higher rents. A second issue is there are still a number of homeowners underwater in some markets. They bought their homes in 2006 or 2007, were able to stay out of foreclosure and are maybe just now starting to break even. But some homes are
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underwater and are probably not going to sell because they don't want to take that hit. Housing construction does help. It only makes up about 10 to 11 percent of the inventory on the market at any given time, so there's room to grow there on the construction side. Construction has seen some gains on a rolling average over the last couple of years, but homebuilders are more conservative than they were 10 or 15 years ago. Those who weren't taking big risks 10 or 15 years ago are the ones who are still in the game. Those who were taking big risks in 2005 and 2006 probably aren't in the market anymore. To what extent are you focused on the Federal Reserve's nearterm interest rate path. A higher Fed funds rate could bring mortgage rates higher, but is that something that's big on your radar? It's not huge on my radar for one particular reason, and that is that even if rates were to increase, the rent versus buy decision is still very much in favor of buying in many
parts of the country. Rates would have to be, in most markets, double what they are now for the cost of renting to essentially be at parity with the cost of buying. So from that perspective, I'm not checking rates everyday or clamoring over what the Fed does. But to play devil's advocate, I am watching what the Fed does because of what that might signal [about] the health of the U.S. economy. Other things I'm looking at more globally is what's happening with Europe and Asia. Any sneezes or colds caught over there could ripple here. Brexit is a big example. Any signs of uncertainty will cause international investors to flock to U.S. bonds, which arguably have a quicker and more drastic effect on U.S. mortgage rates. If other global economic entities like the World Bank release reports that show the world economy is really doing well and has a bright future, that could cause an increase in the bond rate as investors pull their money out of bonds and into other places. But we're not seeing many signs of that now.
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By Michael Neal
Lending Consumer Credit Outstanding: What is driving auto loan growth?
Consumer credit outstanding expanded by a seasonally adjusted annual rate of 5.8% over the month of July 2016, 1.0 percentage point faster than its growth rate in June. According to the report, released by the Federal Reserve Board, there is now $3.66 trillion in outstanding consumer credit. Growth in revolving credit, which is largely composed of credit card debt, contributed to the expansion in total consumer credit. Revolving credit outstanding grew by 3.4% on a seasonally adjusted annual rate over the month of July, 8.1 percentage points slower than its pace in June. There is now $969 billion in revolving credit outstanding. Due to the month-over-month acceleration in growth and its overall size, non-revolving credit had a larger impact on the growth in headline consumer credit. Non-revolving credit includes student loans and auto loans.
Builders Outlook
Over the month of June, non-revolving credit grew by 6.7%, 4.3 percentage points faster than its rate of growth in June. There is now $2.69 trillion in nonrevolving consumer credit outstanding. Recently, the expansion in auto loans, a component of non-revolving credit, has drawn the attention of financial regulators. In its Spring 2016 release of the Semiannual Risk Perspective, the Office of the Comptroller of the Currency (OCC), asserted that “auto lending risk is increasing because of notable and unprecedented growth across all types of lenders”. As illustrated by Figure 1 above, which uses auto loan debt outstanding from the Federal Reserve Board’s Consumer Credit Report and replicates Figure 20 from the OCC’s Risk report, auto loans have soared since their recession-induced low in 2010. Between 2010 and the second quarter of 2016 auto loans have grown from a cycle low of $713 billion to $1.07 trillion, an increase of 50%. In the Federal Reserve Board’s Consumer Credit Report, the vast majority of non-revolving debt, 97%, is held by the federal government, depository institutions, finance companies, and credit unions. However, as the Federal Reserve Board explains, the non-revolving consumer debt held by the federal government represents originations solely in the form of student loans through the Department of Education. As a result, the majority of auto loans debt is held by depository institutions (large ones in particular), finance companies, and credit unions. Figure 2 shows the outstanding
amount of auto loans held by these three major holders. Combined, auto loans held by depository institutions, finance companies, and credit unions totaled $724 billion in 2011. By the second quarter of 2016, auto loans at these three holders rose to about $1.05 trillion, an increase of 44%. Overall, according to the dollar values shown in Figure 1, auto loans rose by 42% over this same period. In 2011, the first year that the Federal Deposit Insurance Corporation (FDIC) provided a break-out of “auto loans to individuals”, auto loans at depository institutions and at finance companies were similar, $283 billion and $277 billion respectively, and were the largest of the 3 major holders. However, by the second
2016 issue 9
quarter of 2016, the outstanding amount of auto loans at depository institutions grew to $429 billion, a growth rate of 52%, while finance companies saw growth of 21% over the same period. Despite the strong growth in auto loans at depository institutions, expansion at credit unions was even faster. In 2011, auto loans held by credit unions totaled $165 billion, but by June 2016, credit unions carried $280 billion in auto loans, a growth rate of 70% over this time period. As Figure 3 illustrates, between 2011 and 2013, growth in auto loans at depository institutions was greatest, but since then and over the entire 2011 to 2016 time period, the increase in auto loans at credit unions has been faster.
2016 issue 9
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Builders Outlook
El Paso Development News Builders Outlook 2016 Issue 9 www.elpasodevnews.com
Avalon West: Phase One of New Desert Pass Development By Armando Landin A new project featuring apartment homes in West El Paso is the first part of a multi-phase development bringing residential and commercial uses to a long-vacant area off of Interstate 10 and Resler Drive. Avalon West, an apartment community that will be built in two phases, officially opened its doors on July 22, 2016. The complex is located at 240 Desert Pass Street along a relatively new street connecting the Remcon Circle area to Resler Drive. The residential component is located on the eastern side of the street while future commercial/retail uses will be located on the western side. The first phase of Avalon West includes 262 units ranging in size from 567 to 1,355 square feet. Floor plans include one-, two-, and three-bedroom apartments. Individual units include amenities such as granite countertops, fiber optic TV and internet wiring, and washer and dryer connections.
Other amenities at the apartment community include a "beach entry pool" with water features, detached garages, a "central bark" pet play area, and a clubhouse that includes a Starbucks coffee bar. Bohannon Development of El Paso is behind the Avalon West project and has partnered with Southwest Land Development Services to build out the
Work Progresses on El Paso Streetcar Rehabilitation
By Armando Landin The vehicles that will be used for the upcoming streetcar project, currently under construction, will use the same bodies as those And now we're getting a peek at the rehabilitation process for those streetcars taking place thousands of miles away.seen on city streets decades ago in El Paso. Car number 1506 is shown in a short series of photographs released by the Camino Real Regional Mobility Authority (CRRMA), basically a sandblasted metal shell that will receive upgrades in the coming months. The goal is to equip each of the six streetcars with modern amenities such as air conditioning and WiFi while still retaining their original look and feel. They are officially called Presidents' Conference Committee (PCC) streetcar vehicles. “We’ve been watching as this project becomes a reality in terms of the concrete and steel
which we can see along the route, but it’s also exciting to see progress on the cars which are a signature component of this project,” states Raymond Telles, Executive Director of the CRRMA, in a press release. “These photos also remind us of the multi-faceted nature of this project which includes restoration of the vintgage cars, extensive work along the route, construction of a maintenance storage facility downtown, and placement of the overhead contact system which will power the streetcars.” In all, the streetcar route will include 27 stops along two loops running throughout Downtown and connecting to the University of Texas at El Paso. Crews continue to work on laying track for the 4.8 mile route.The streetcar rehabilitation is being handled by Brookville Equipment Corporation out of Pennsylvania, with Paso del Norte Trackworks in charge of constructing the route. Completion of the project is expected in late 2018.
commercial/retail components across the street. No word on tenants or the type of retail expected at the development, which can be seen from Interstate 10 and is located just south of the Cinemark Theater between Resler Drive and North Mesa Street. West Side commuters driving south on Resler Drive towards I-10 will most
likely have noticed a new street and traffic signal just before the freeway connector, the new Desert Pass Street that leads into the development.
By Armando Landin Artspace officials are now accepting applications, effective September 1, 2016, from those interested in securing a spot in the Artspace El Paso Lofts. Applications will be considered on a first come, first served basis and can be submitted at the El Paso Community Foundation during regular business hours, located at 333 North Oregon Street in Downtown El Paso. Applicants must submit "a completed and signed rental application (including the signed page stating whether or not your household meets the artist preference)," and "an application fee of $13 per adult in your household in a money order or cashier's check made payable to Artspace El Paso Lofts," according to a press release.
According to the Artspace website, "Each loft has a preference for practicing artists, and applicants meeting the established household income and background qualifications will meet with an artist selection committee to talk about their body of work and commitment to the arts." The lofts, scheduled to open in November, will include 51 affordable live/work units targeted towards artists. Units will be available in one-, two-, and three-bedroom configurations, depending on family size. Artspace El Paso Lofts are located at the corner of Oregon Street and Missouri Avenue. For more information, go to www.artspace.org/ourplaces/artspace-el-paso-lofts.
Artspace El Paso Lofts Now Accepting Applications
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Builders Outlook
Expert Analysis Elliot Eisenberg Economic & Policy Blog
The prolonged and robust job growth we have been experiencing for the last several years has brought down the unemployment rate from 10% to just 4.9%, low by historic standards. As a result, workers are finally becoming scarce and labor costs are, at long last, rising, although not as fast as before the recession.
2016 issue 9
Plentiful Jobs but Weak Growth, Wages and Inflation While the US economy is creating plenty of jobs, it isn’t growing much. In the first half of 2016, gross domestic product (GDP) grew at an anemic annualized rate of just 1%, compared to about 2% since the end of the recession, and 2.5% from 2000 through 2007. Usually, weak economic growth has been associated with weak employment growth. But not now! Employment growth during the first six months of the year totaled slightly over one million jobs, or a healthy average of 175,000 net new jobs/month. If the historical relationship between GDP and employment that existed before the Great Recession still held, 40% fewer jobs would have been created since January. That said, what does slow growth mean for future wages, why is GDP growth so slow, is it likely to persist, and what does this imply about future interest rates? The prolonged and robust job growth we have been experiencing for the last several years has brought down the unemployment rate from 10% to just 4.9%, low by historic standards. As a result, workers are finally becoming scarce and labor costs are, at long last, rising, although not as fast as before the recession. This is because wage growth results from two forces: labor
scarcity and increases in labor productivity. Having already discussed scarcity, let’s focus on productivity growth, or the increase in output per worker per hour. What we see is dismal labor productivity growth. It has actually been declining for the last three quarters in a row, the first time this has ever happened outside of a recession. This goes a long way in explaining why wage growth remains mediocre despite the low unemployment rate. While labor productivity is expected to improve and return to the 2006 – 2015 annual average rate of 1.25%, that is way below the 2.5% annual growth rate between 1949 and 2005. This weak labor productivity growth is most likely the result of an aging population and years of weak corporate investment in plant and equipment. This continued lack of investment has sharply reduced corporate efficiency gains. As a result, to produce more product to meet virtually any increase in demand requires more hiring. Importantly, the conditions that have created this weak investment environment will not dissipate soon. While energy prices appear to have bottomed, it is unlikely that they will soon rise. Thus, exploration and production activity in the oil patch is
unlikely to increase much. Similarly, mining firms are holding back on investment while commodity prices are weak, and manufacturers that sell their output overseas will continue to face strong headwinds due to the strong US dollar. In addition, agricultural prices are also expected to remain depressed and auto sales have peaked. Collectively, this means investment in plant and equipment is likely to remain weak, all but insuring GDP growth of at best 2% for the foreseeable future. With labor productivity weak, GDP growth sluggish, and inflation correspondingly low, the Fed has reduced how high it sees the longterm fed-funds rate reaching -- no higher than 3% compared to 4% or more as recently as 2013! As a result, it may well take three or four years for the fed-funds rate to hit just 3%. As for conventional 30-year mortgage rates, they are likely to remain below 4% well into 2018. Elliot Eisenberg, Ph.D. is President of GraphsandLaughs, LLC and can be reached at Elliot@graphsandlaughs.net. His daily 70 word economics and policy blog can be seen at www.econ70.com.
2016 Issue 9
Association News & Events
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Builders Outlook
If you have an event or meeting that you would like to share with EPAB members, please submit your information to: margaret1@elpasobuilders.com
CONDOLENCES Heart felt Condolences to the Judy English Family and the Stewart Title Family on their loss
UPCOMING EVENTS
SODA SPONSOR PALO VERDE HOMES
SEPTEMBER 27 LUNCH & LEARN 11:30 EPAB OFFICE OCTOBER 7-9 FALL HOME & GARDEN SHOW EL PASO CONVENTION CENTER OCTOBER 12 BOARD MEETING 11:00 GENERAL MEETING 12:00 EL PASO CLUB TOP OF CHASE BANK BLDG.
Connect to the El Paso Association of Builders: www.elpasobuilders.com
Condolences to the Todd Paschich Family and the Passage Supply family on their loss
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Builders Outlook
Expert Advice
Joe Bernal
Employer Benefits of El Paso
Pros and Cons of Outsourcing Benefits Administration Affordable Care Act regulations and other government rules have many employers wondering whether it would be more cost effective and prudent to outsource employee benefits administration.
Associates Council
John Dorney
Associates Council Chair
The Associate members are a vital component of any Builders Association, in fact many would correctly assume that a Builders Association wouldn’t exist without associate members. While it is a matter of support most of it in the form of dues the missing component from most associate members is the need to be involved. I have seen how my involvement in the Builders Association has benefitted my businesses but I’ll be honest at first I thought I was just throwing money up against the wind. Like any group
NEXT MONTH:
Pros and Cons of Outsourcing Benefits Administration
More than half of mid-sized and large companies believe health care reform will increase the complexity of employee benefits administration, according to a survey by the ADP Research Institute. Companies responding to the survey said they are most likely to outsource complex compliance tasks for COBRA, flexible spending accounts and 401(k) administration. What to Consider When a company is experiencing growth, employee resources can get stretched. Outsourcing benefits administration can help a company focus its energies on its core business. In addition, make a mistake, and it can cost you. If your HR department is unsure what it needs to do to stay in compliance, then outsourcing certain
tasks to experts can help you avoid lawsuits, fines and penalties. If a mistake is made, then some of the liability falls on your third-party vendor. Also, a firm with expertise in health benefits can research and advise you on methods to reduce insurance premiums. Outsourcing also helps reduce workforce needs and saves salary and benefit costs. It will help you save time and money if the talents of your human resources staff can be better used for other tasks. Reasons to Keep Benefits Administration In-House According to ADP, many mid-sized companies choose to keep employee benefits administration in-house because it increases interactions with employees. It also makes it quicker to
make changes to benefits or to fix errors, rather than waiting for a contractor to do it. Keeping all operations in-house also has the benefit of your company keeping control. Employers may have concerns that something will be missed or they won’t understand what’s being done if they don’t oversee the process. There’s also the possibility that important confidential data will be shared by an unscrupulous vendor. Using an outside vendor also means not having control of delivery times or quality and possibly not being their first priority.
Builders Associations have established working relationships and sometimes trying to break into those requires patience and fortitude. I can tell you from my experience that you have to get involved and you have to show your face. You know we preach doing business with a member but you have to know who those members are in order to keep them in what advertising guru’s call “top of mind”. In other words when a builder needs your product or service they should recall that you do that type of work or provide that product or service. How do you do that? By attending meetings, go around and introduce yourself and let them know what you do. As a matter of fact you need to do that with other associate members because I’ve found that group to be an excellent source of referrals. Sometimes our business name doesn’t always fully tell what we do. My business is home and business security
monitoring, so my company states that. But what you may not know is that I also offer internet services, prewiring, telephonic and I T services. Why? Because my company name doesn’t have room enough to say it. Or in some cases your company name may not even mention what you do. How do you resolve this? By going to meetings and telling people what you
do and what services you provide can really help you get that “what am I getting out of my membership” question. Until you get involved you won’t know how much you’re missing. Make plans to attend the October 12 general membership meeting at the El Paso Club downtown at noon. I hope to see you there.
Employer Benefits of El Paso 7501 Lockheed Dr., Suite B, El Paso, TX 79925 joe@employerbenefitsep.com www.joebernalinsurance.com
Becoming a member is just the beginning
NEW HOME WARRANTIES FOR THE
LONE STAR STATE Texas Strong for 35 Years! A special edition of the Builders Outlook that has been 70 years in the making.
2016 issue 9
+ Mark Smiley 800-445-8173 Ext 2626 sales@homeoftexas.com www.homeoftexas.com/ElPasoOutlook
El Paso Disposal
772-7495
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Builders Outlook
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2016 Issue 9
6046 Surety Dr. El Paso, TX 79905 915-778-5387 • Fax: 915-772-3038
■ executive oFFicers
PresideNt
Carlos Villalobos
vice PresideNt
NatioNal associatioN oF Home builders (800) 368-5242
Don Rassette
associates cHair
texas associatioN oF
John Dorney
builders
(800)252-3625
executive vice PresideNt Ray Adauto
Past PresideNt Edgar Montiel
membership retentiion Patrick Tuttle
Finance committee Kathy Carrillo
Henry Tinajero
■ advisorY to tHe board
Jay Kerr, Firth, Johnston, Bunn & Kerr
James Martinez, Law Office of James Martinez ■ board oF directors
Antonio Cervantes, BIC Homes
Leti Navarrete, Dream Homes/Bella Homes
2015 builder member of the Year edgar montiel
Palo Verde Homes 2015 associate of the Year Interceramic Tile
Mark Dyer
Wayne Grinnell
Don Henderson
Chester Lovelady Cliff C. Anthes Anna Gill
Brad Roe
Bret Thompson, Foxworth Galbraith Lumber Ted Escobedo, Snappy Publishing, LLC Patrick Tuttle, Legacy Real Estate Sam Trimble, Lone Star Title
Luis Rosas, HuB International Gilbert Pedregon, GECu
Gregg Davis, First Light FCu ■ tab state directors
Randy Bowling Greg Bowling
Sam Shallenberger ■ NatioNal directors
Bobby Bowling IV.
Demetrio Jimenez
Now more than ever, El Paso home buyers are planning for the future.
E H Baeza
Edgar Garcia, Bella Vista Cutom Homes
Linda Troncoso, TRE & Associates
Give your customers the ‘option of the sun’
Rudy Guel
Leslie Driggers-Hoard, Homes By Design
Joe Bernal, Employer Benefits of El Paso
915-208-9313 602-708-7560
Honorary life members
Fernando Torres, CTu Metro Homes
Sal Masoud, DRE Development
Total Customer Satisfaction
Bradley Roe
Walter Lujan, Dawco Home Builders
Samira Gonzalez, ICoN Custom Homes
Residential Specialists Tract Homes • Custom Homes
2015 John shatzman award
Bud Foster, Southwest Land Development Services
Jason Cullers, Cullers Homes
For All Your Electrical Needs
Past Presidents
committed to serve
Greg Bowling
Kelly Sorenson Mark Dyer
Mike Santamaria
Bobby Bowling, IV Rudy Guel Anna Gil
Bradley Roe
John Cullers
Bob Bowling, III
Doug Schwartz
Hershel Stringfield
Randy Bowling Robert Baeza
Edmundo Dena 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. © 2015 Builder’s Outlook is published and distributed for the El Paso Association of Builders by Ted Escobedo, Snappy Publishing, LLC ted@snappypublishing.com El Paso • Texas • 915-820-2800
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