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EL PASO BUILDERS A S S O C I AT I O N O F
www.elpasobuilders.com By Samantha Sharf, Forbes Staff www.forbes.com
n so many ways 2016 was an unprecedented, volatile and, for some, excruciating 12 months. And the housing market was not immune to the year’s whims. At the start experts anticipated a pick up in building activity, instead builders are still not producing enough homes. Meanwhile, home prices appreciated beyond expectations and mortgage rates toyed with record lows before crossing 4% for the first time in two years. "If the expectation was that the market would transition smoothly from deep red hot recovery to normal--that certainly didn’t happen," says Svenja Gudell, chief economist at real estate data firm Zillow. Nevertheless, Gudell and others argue that on balance 2016 was a pretty good year for housing. National prices finally crossing the previous 2006 peak, mortgage rates remained historically low and there were some signs that Millennials, a generation which some feared would never buy homes, are beginning to enter the market. Through it all the election loomed large. In 2017 we'll see how profound it's effects.
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Here are eight things housing experts expect to see in 2017:
1. Prices will continue to rise--but more slowly. Prices rose every month last year (through October) with the largest gains coming in the later half and a 5.61% increase in national. Experts expect prices will continue their climb, but gains will slow. "We believe price increases will hold steady despite slowing sales growth, because homebuyer demand is stronger now than it was at the same time last year, and because we foresee a small uptick in homes for sale," notes Nela Richardson, chief economist at real estate brokerage Redfin. "With the current high consumer confidence numbers and low unemployment rate, affordability trends do not suggest an immediate reversal in home price trends," noted David Blitzer, chairman of the Index Committee at S&P Dow Jones Indices, in the December release of the CaseShiller home price index. "Nevertheless, home prices cannot rise faster than incomes and inflation indefinitely.” Redfin expects the median home sale prices to gain 5.3% in 2017 compared to 2016, which would not be a major change from the 5.5% yearover-year gain expected to close out this year. Zillow is forecasting the median home value to rise 3.2% from $192,500 between November 2016 to
National, State & Local Building Industry News 2017: Issue 1
HOUSING 2017: Eight Predictions From The Experts
November 2017. Zillow's home value index rose 6.5% in the year ending November 30th.
2. Affordability will worsen. Wages are expected to grow in America's big cities this year, but the share of homes affordable to someone earning the median income is not. This trend, which has stymied many aspiring to buy their first home over the past few years, will be intensified by a continued shortage in low- to moderate-priced inventory and rising mortgage rates. "The irony of the modern housing market is that the places where we are seeing wage growth are places where people can't live because they are too un-affordable. There is a mismatch," says Nela Richardson, chief economist at real estate brokerage Redfin. A decade ago a mismatch like this would not have been so apparent because buyers could get subprime loans, but now high credit is a requirement. The percent of new listings in the lowest price tier of the market has declined nearly every month in the last five years. Experts agree that even if builders are more active this year, they are unlikely to significantly add to the starter home stock in 2017.
3. Mortgage rates will be volatile. The two major political events of 2016 set mortgage rates moving in opposite directions. In June, the British vote to exit the European Union put rates near a record low. In November, the U.S. election of Donald Trump had the opposite effect, sending rates above 4% for the first time in two years. By historic standards rates are still low. In 2017 experts expect movement, but differ on where for the 30-year fixed rate will land. Estimates out there range from between 3.75% and 4.6%--not so far from where it is today. "Mortgage rates going up is a bit of euphoria and optimism over [Trump's] promise to lower taxes, increase infrastructure spending and drive 4% econ growth," says Richardson. "As more details materialize and we get a realistic assessment, we will see rates bump around." Notes Gudell: "If you squint at line you will see nice upward trend, but it will happen at a volatile pace." In December the Federal Reserve bumped short term interest rates o between 0.50% and 0.75%, the second hike in a decade. The 25 basis point move left rates low by historic standards and on did not have a huge impact on mortgage rates. However, the Fed's policy makers indicated they anticipate three hikes in 2017, which could have a larger effect. That's up from the two officials projected before Donald Trump was elected. That said,
Fed projections can be taken with a grain of salt: they also originally thought they would hike three times in 2016.
4. Credit availability will improve-maybe. By and large early Trump administration priorities are not expected to deal directly with housing. However, the president-elect and his team have made it clear that they hope to roll back much of the post-crisis financial regulation laid out in the DoddFrank Act. In theory, this could open up banks to lend more freely to wide-range of would be buyers. Though not everyone is convinced this type of lending is the direction banks would go with any new found freedom. Meanwhile, there is speculation that Trump would return governmentcontrolled mortgage companies Fannie Mae and Freddie Mac to private control. Investors have cheered the possibility, but some housing economists worry such a move would further restrict who could get credit to buy a home.
5. Supply will improve but remain short. Declining inventory was without a doubt the defining feature of the housing market in 2016. It led to price appreciation, as well as a hyper fast market for buyers and discouraged would-be-sellers who feared entering the buying fray. A complete turnaround is unlikely in 2017, but there are some signs the coming year could see a small bump in housing supply--at least on the new home front. Homebuilder sentiment picked up late last year, as many expect Trump to be a friend to the industry. Meanwhile, strong demand should also encourage building. "Controlling for the number of households in the U.S., housing starts are still only 55% of the 50-year average," wrote Trulia Chief Economist Ralph McLaughlin. "The historical view looks like there’s also more room for housing starts to grow." Construction, however, is unlikely to improve the
affordability picture because there is a growing premium for new homes and most building in recent years has been on the high-end, since builders feel they can get a better return there. When it comes to existing homes a phenomenon Richardson calls "rate lock" may constrain inventory. Homeowners who locked in a mortgage below 4% are likely to stay in low priced homes rather than upgrade, a pattern that last emerged when rates briefly rose in 2013.
6. More Millennials will become homeowners--and renters. According to Zillow half of all buyers are under age 36. Not every economist agrees with this assessment, however it is clear that Millennials will continue to make up a large and growing portion of the buyer pool. Of course much of this is due to the fact that Millennials-adults born after 1980--are now the largest adult generation and make up the greatest percentage of the workforce. Redfin expects Millennial homebuyers will move from the coasts to "inland markets" where starter homes are more affordable. 7. Competition will grow fiercer. In 2017 sellers will maintain the edge over buyers as demand is expected to increase. In 2016 the typical homes stayed on the market for just 52 days, about a week faster than in 2015 and the fastest year since Redfin began measuring in 2009. The brokerage expects 2017 to be even faster.
8. Political uncertainty will be replaced with policy uncertainty. Experts agree that three of PresidentElect Donald Trump's policy priorities could meaningfully impact the housing market: his pledges to spend more on infrastructure, to cut taxes and to crack down on immigration. The consensus is that in the very short term any moves in these three ares could have a neutralto-positive impact on the housing market. Over the longer term, however, opinions vary widely.
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Builders Outlook
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2017 Issue 1
2017 Issue 1
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Builders Outlook
President’s Message Don Rassette
President, El Paso Association of Builders
I would like to wish everyone a Happy New Year and hopefully a prosperous 2017. I am honored to be your El Paso Association of Builders President for this year, especially as we celebrate our 70th anniversary as an association. With the start of the year our attention needs to be on this year's legislative session. What is presented and passed will affect our industry for years. As I stated in my acceptance speech, studies have shown we cannot predict the future but we can prepare for it. If you haven't already planned on attending "Rally Day" with us on February 22nd I challenge you to re-evaluate and get involved. Participate, be there! As the Navy says, we need carriers, not cruisers, within the membership. On the topic of legislation locally, this is an election year in El Paso.
New year begins with many new changes in the works Already within our Board of Directors we have tripled our donations to our BuildPAC account. Our goal is to interview, endorse and contribute to candidates who support our industry. If you haven't participated yet I challenge you to re-evaluate and get involved. My personal goals for the association in 2O17 include the following: First increase, stabilize and retain membership. A personal challenge to all builders is to have their partner base as members. This increase will only add to our association’s clout within the community and at the state level. There is no down side to this only positives. We will be having a membership drive soon to accomplish this goal. A working committee has already met and proposed several ideas such as a
member ambassadors assigned to new members, a membership kit for all new members, etc. The goal is to have 90% of all homes built in "El Paso" to be built by builder members. Second, change our Bylaws to reflect, create and offer more opportunities for Associate Members. I requested of Brad Roe, to review the Bylaws. Brad did not waiver, responded quickly and presented verbiage on allowing Associates to be placed on the ladder, in other words run for President. Both proposed areas were accepted and our bylaws have been changed, so that Associate Members can be on the ladder. Third be influential in the political scene. As above we showcase on "Rally Day" (State level) and BuildPAC (local level) for local elections.
Fourth to recognize excellence within our local industry. At the state level with TAB this is validated by the winners of the "Star Award's." Our “best of “ will use the TAB Star awards as a guide. Categories, judging and timelines have been penciled out. Projected planning will be presented for discussion at our February 8th Board meeting. Finally to have more EPAB educational courses, which would be a direct benefit to our members. Patrick Tuttle, as an Associate member, has started and will be working to achieve this as a defined benefit. With everyone's help the above goals will make our association better and everyone wins.
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Builders Outlook
Executive’s Message Ray Adauto, Executive Vice President EPAB Attending an International Builders Show (IBS) is daunting, exhausting as it is exhilarating. Traveling from El Paso to Florida is just exhausting. Don’t get me wrong the flights were fine even though packed like sardines. More on this down the column. The Show was held in Orlando and is scheduled back there in 2018. The Orange County Convention Center is a huge multi-building facility that is better suited for smaller conventions than the super huge IBS. In addition to the actual exhibits there are meetings going on for all the states as the National Association of Home Builders (NAHB) holds winter meetings in conjunction with
2017 Issue 1
IBS: Show provides window into future
the IBS. Also note that the Kitchen and Bath Association has incorporated itself into the IBS and frankly that makes sense. In one swoop you can see the latest in home building techniques and products as well as those fabulous new bathrooms and kitchens. Unfortunately for the El Paso Association of Builders not many attended this year. A lot of it has to do with distance and costs of travel. I was fortunate to be with the Metro Homes group and I know the EPAB NAHB Directors were there as well, Bobby Bowling IV and Demetrio Jimenez. Fernando Torres joined me and Margaret on the flight to Orlando and spent time at the show together. As big as the show is there are some little things that attracted me more than the grandiose items. That included a simple adaptable electrical socket plate that uses a simple connection to add LED lights as a type of simple night light; the appliance industry proclaiming “black Stainless” as the newest greatest covering for refrigerators and
dishwashers. These two things really caught my eye but there were other things that also intrigued me. VR, or virtual reality meant a whole different thing when I was growing up as we looked at a red and blue lens to get “3D” effects. Well today you can draw your concept with new apps and then showcase that view to your customer. They “walk” through the house before you even lay down the foundation, modify or adjust so that when you’ve completed the project it’s what your customer wanted. New colors, new textures and new widgets. If you’ve never been to an IBS you owe it to yourself to see. The housing report from NAHB was a little more telling as the NAHB Chief Economist gave a report on the prospects for 2017 and beyond. Findings? Home size is coming down, mostly because of costs. Mortgage rates will escalate over the next few years making mortgages higher. Trending is the future of home buyers as the Baby Boomers retire or expire the Gen X’ers are in the buying
time now. But watch out as Millennials come into their own and start wanting their own homes. Right now that group is more about trying to find themselves, finishing college, getting a real job and moving out of Mom and Dad’s house for privacy and to build their own wealth. Home building has challenges mostly in labor and regulations. There was a sense of optimism with the new Trump administration and talk about reforming regulatory impediments to housing. The future looks bright as people continue to want to own rather than rent. El Paso has concerns with labor and lumber costs. NAFTA is a three way street when it comes to building supplies, as Canada continues to export lumber to the US and the US exports to….China. That’s right, China. Is the Trump administration going to look at domesticating that segment of the lumber market? Time will tell, but overall the new home construction business looks bullish on many fronts.
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2017 Issue 1
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Builders Outlook
National Builder News
New Home Sales Post Highest Yearly Total Since 2007
n Sales of newly built, single-family homes rose 12.2 percent in 2016 to 563,000 units, the highest annual rate since 2007, according to newly released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. New home sales fell 10.4 percent in December 2016 to a seasonally adjusted annual rate of 536,000 units. “We are encouraged by the growth in the housing sector last year, and by the fact that builders increased inventory by 10 percent in anticipation of future business,” said Robert Dietz, chief economist of the National Association of Home Builders (NAHB). “NAHB’s forecast calls for continued upward momentum this year, with housing starts expected to rise 10 percent over the course of 2017.” “To ensure sales continue to move forward in 2017, builders need to price their homes competitively, especially given that mortgage interest rates are expected to rise this year,” said NAHB Chairman Granger MacDonald, a home builder and developer from Kerrville, Texas. The inventory of new home sales for sale was 259,000 in December, which is a 5.8-month supply at the current sales pace. The median sales price of new houses sold was $322,500. Regionally, new home sales increased 48.4 percent in the Northeast. Sales fell 1.3 percent in the West, 12.6 percent in the South and 41 percent in the Midwest.
Remodeling Market Optimism Remains Positive
n The National Association of Home Builders’ (NAHB) Remodeling Market Index (RMI) posted a reading of 53 in the fourth quarter of 2016, a decrease of four points from the previous quarter, but on par with levels seen in the first half of 2016. Remodeler confidence has held firm in positive territory for 15 straight quarters. An RMI above 50 indicates that more remodelers report market activity is higher (compared to the prior quarter) than report it is lower. The overall RMI averages ratings of current remodeling activity with indicators of future remodeling activity. “Many remodelers are seeing consumers commit to larger, long-term home improvement projects,” said 2017 NAHB Remodelers Chair Dan Bawden, CAPS, GMB, CGR, CGP, a remodeler from Houston. “As Americans are seeing wages and home values rise overall, it gives them greater confidence to go ahead and invest in their homes.” Returning to levels seen early last year, the RMI’s current market conditions index dipped to 53, down three points from the previous quarter. Among its components, major additions and alterations waned one point to 53, demand for smaller remodeling projects decreased by four points to 52, and the home maintenance and repair component declined by five points to 54. The index measuring future market indicators reached 52, about the same level as early 2016, but six points lower than in the third quarter. Among its four
BUILDING
components, calls for bids and appointments for proposals fell to 49 and 54, respectively, the backlog of remodeling jobs dropped three points to 55, and the amount of work committed declined five points to 50. “At 53, the Remodeling Market Index is consistent with NAHB’s forecast that remodeling market activity will continue to grow over the next two years, but at a more moderate annual rate of 1 to 2%,” said NAHB Chief Economist Robert Dietz. For the full RMI tables, please visit www.nahb.org/rmi. For more information about remodeling, visit www.nahb.org/remodel.
Nationwide Housing Production Up 11.3 Percent
n A surge in multifamily production resulted in overall nationwide housing starts rising 11.3 percent to a seasonally adjusted annual rate of 1.23 million units, according to newly released data from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. Single-family starts dropped 4 percent to a seasonally adjusted annual rate of 795,000 units. “Despite the slight dip in single-family production, December’s rate is still the fourth highest single-family pace since the Great Recession, and single-family starts also posted solid gains for the year,” said Granger MacDonald, chairman of the National Association of Home Builders (NAHB) and a home builder and developer from Kerrville, Texas. “Builders remain
El Pa aso
confident and we expect further growth in the single-family market in the year ahead.” “This report represents firm growth for housing in 2016, as single-family starts rose 9 percent and multifamily production was down slightly,” said NAHB Chief Economist Robert Dietz. “We expect that 2017 will be another year of gradual, steady improvement in the housing market. Multifamily starts have been volatile in recent months, but should level off as supply meets demand. Meanwhile, singlefamily production continues to gain momentum but is limited by supply-side headwinds.” Multifamily production jumped 57 percent to 431,000 units in December. However, the monthly data for apartment production has exhibited strong volatility since August. Regionally in December, combined single- and multifamily housing production rose 31.2 percent in the Midwest, 23.5 percent in the West and 18.5 percent in the Northeast. The South posted a loss of 1.4 percent. Overall permit issuance edged 0.2 percent lower in December to 1.21 million units. Single-family permits rose 4.7 percent to 817,000 units, which was the highest level in 2016. Meanwhile, multifamily permits fell 9 percent to 393,000 units. Regionally, permits rose 3.3 percent in the West, 2.7 percent in the Northeast and 0.5 percent in the Midwest. The South registered a decline of 2.9 percent.
SINCE 1950
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Builders Outlook
what’s in
2017 Issue 1
vogue The Decorating Trends to Look for in 2017 by Monique Valeris vogue.com
When it comes to home décor, 2016 was the year of everything from woven wall hangings to Scandinavian-inspired interiors. And as the year winds down, soon enough your thoughts will most likely wander to a home refresh. So it’s worth exploring the top decorating trends that will likely be on repeat in homes across the country—and possibly in your own abode.
We checked in with three interior designers— Martyn Lawrence-Bullard, Young Huh, and Beth Diana Smith—for their 2017 decorating forecast and some easy pointers on how to make them your own. These trends are chic, inspiring, and (fortunately) don’t require a complete room overhaul.
Green According to celebrity interior designer Martyn Lawrence-Bullard, who counts Kendall Jenner among his list of clients, green is “strong again.” From lime green to emerald, the hue works throughout the home—whether it’s as a wall color or a room-filling rug. If you’re not too keen on the idea of using green in large doses, LawrenceBullard has a suggestion: “Add really fun emerald glasses to your regular white plates and suddenly you’ve got that up-to-the minute look.”
Tropical Prints It’s no secret that interior design takes cues from the runways, and this year, we’ve seen the likes of Marc Jacobs, Prada, and Emanuel Ungaro experiment with all things tropical. The print will continue to appear in wallpaper and designer fabrics, according to Lawrence-Bullard. But don’t worry if such in-your-face prints are out of character for you. He suggests throw pillows boasting the trendy pattern: “Always buy a plain sofa and change it up with new pillows,” LawrenceBullard advises. “It’s just like buying a great piece of classic clothing. You can certainly refresh it with a new bag and shoes.”
Texture Weaving texture into an interior makes it more inviting and the idea of mixing fabrics and materials will be on the rise. “Texture is really important,” says Lawrence-Bullard. “We are seeing more and more texture in every form, from brushed brass tables to light fixtures to fabrics and wallpapers.” A quick way to test the trend: Drape a nubby wool throw over a leather chair or mix fabrics used for decorative pillows.
Marble and Brass Combinations Young Huh, who was named one of Vogue’s five young interior designers on the rise in 2015, promises marble and brass will continue to dominate in 2017. “We’re going to see this trend in
both kitchens and baths,” Huh explains. “It’s that combination of something very natural and clean, like white marble, and something industrial, hard, and a little bit glamorous with the brass.”
Muted Colors Does the thought of bold colors anywhere in your home make you feel a tinge of anxiety? Don’t fret—it’s all about neutrals in the year ahead. “Whites, beiges, pale grays, camel, and blush pink are super on-trend,” Huh says. Geometrics Your goal should always be to create a home that feels curated, and an easy way to accomplish this is through pattern. “We’ll see inventive geometrics that speak to ancient cultures, whether it is African or Asian patterns, but they’ll be modernized,” Huh says. Think simple lines, geometric designs, and triangles, Huh explains.
Quirky Lighting Think of lighting as an accessory for your home— it’s the perfect way to show off your unique design sensibility. “A quirky lighting fixture looks great in a dining room,” Huh says. “It’s a great space to go for it and do something unusual.” Also consider sprucing up your bedside lamps with something truly memorable.
Artisan-Crafted Furniture For New Jersey–based interior designer Beth Diana Smith, the new year will include an emphasis on uniquely crafted furniture. “People will be going back to furniture that is more of an investment—furniture that is very well-made,” Smith says. She recommends antique shopping for pieces that will add character to your home and browsing sites like Chairish.
Gray Gray was a prominent color in 2016 interiors and it will continue to reign in 2017. “We will see different tones of gray, a lot of gray and white, and gray in deeper colors,” Smith says. It’s the sort of color that complements a full spectrum of shades, from bold red to mellow ivory.
Bronze Smith promises that 2017 will bring loads of bronze—a metal that warms up any space. “It’s a lot more classic in a sense,” she says, as it complements a myriad of decorating styles. “I like it in lighting and accessories, whether it be vases, lamps, or decorative bowls for the kitchen,” Smith says.
2017 Issue 1
Builders Outlook
Expert Analysis Elliot Eisenberg Economic & Policy Blog
Housing starts should increase by about 7.5%, to 1.25 million. Single-family starts will likely total 850,000, up from 760,000, while multifamily starts should hit 400,000, up from 390,000. New and existing home sales should collectively rise by about 3% and end the year at 6.15 million, with mortgage purchase volume advancing by $100 billion and refinance activity falling by about $400 billion due to the rise in mortgage rates.
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Economic Forecast 2017: Like 2016 But Slightly Better Entering 2017, the domestic economic landscape is solid, and while there is an increased likelihood of volatility with President Trump in the White House, the risks to the forecast are slightly to the upside. This is because the proposed combination of personal and corporate tax cuts, increases in infrastructure and defense spending, reduced regulatory burdens and the likely repatriation of hundreds of billions in overseas corporate cash are all expected to boost economic activity and inflation in 2017. However, there are also definite economic headwinds. It is highly likely that Congress will reduce the size of any tax cuts and spending increases sought by President Trump, blunting their impact. In addition, legislation takes time to pass and, after passage, there will be lengthy lags before the money begins to impact the economy. Also, the already rising dollar will hurt manufacturing activity by raising the cost of exports. Lastly, any attempt to slap tariffs on imports is fraught with the risk of precipitating a trade war, which has obvious negative growth implications. With all this uncertainty in mind, I expect full-year 2017 GDP to come in at 2.3%, slightly higher than the 1.9%
growth experienced last year and the 2% average rate of growth since the end of the Great Recession. Headline inflation looks to pick up from roughly 1.5% to near 2% in 2017, while core inflation (which excludes food and energy) will edge up, but only slightly. Because of the slow rise in inflation, the Federal Reserve will have the luxury of time to raise the federal funds rate from where they are now, at 0.625% to, at most, 1.375% by year end, with a rate increase coming roughly every three months and starting no earlier than June. Turning our attention to the labor market, I expect net new monthly job growth to average 160,000/month, which, while down, from 188,000/month in 2016, is excellent given that we are late in the business cycle and there are relatively few potential workers still on the sidelines. Thus, the unemployment rate will probably fall from 4.6% today to 4.3% or possibly 4.2% by year end. As the labor market tightens, nominal wage growth should increase further in 2017 with average annual wage increases rising from 2.4% to as much as 3%: a healthy rise. Because of better GDP growth and falling unemployment, 10-year Treasuries will end 2017 at 2.70%,
and the rate on 30-year mortgages will be 4.6% as the yield curve rises and steepens due to faster rising long-term rates. But, continued easing of credit conditions and rising consumer spending due to continued good employment and wage growth will keep the economy and housing market on track. Housing starts should increase by about 7.5%, to 1.25 million. Singlefamily starts will likely total 850,000, up from 760,000, while multifamily starts should hit 400,000, up from 390,000. New and existing home sales should collectively rise by about 3% and end the year at 6.15 million, with mortgage purchase volume advancing by $100 billion and refinance activity falling by about $400 billion due to the rise in mortgage rates. Housing inventories will, regrettably, remain unchanged, and combined with limited new home building, home prices will rise by 5%. Lastly, I put the chances of a recession in 2017 at a low 15% to 20%. 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.
Builders Outlook International On the Scene Builders Show
2017 Interational Builders Show provides fun, sun and education The 2017 International Builders Show and National Association of Home Builders (NAHB) meeting were held in Orlando, Florida in January. The NAHB moved the IBS to Orlando this year and next to the east coast. Orlando is home to the largest group of movie themed parks and other attractions that add to the value of the event according to NAHB. Education and business meetings for NAHB started on the weekend before the show opened and our representative Bobby Bowling IV and Demetrio Jimenez reported a good turnout. “Our NAHB board meets at the IBS every year and this year we were able to accomplish some important things there,” Bowling told the Outlook. “This gathering is also when we installed our latest Texas builder as Chairman of the NAHB as Grainger McDonald took the helm”. “It’s our feeling that having him there gives Texas and in particular El Paso leverage in being recognized on the national scene,” he continued. The NAHB Annual Membership meeting had some items that were of interest including an economic outlook presented by the Chief Economist from
NAHB. In that report two things stuck out for us, first and foremost is that new home construction has not made up the serious losses encountered during the Great Recession; and secondly that studies are showing regulations cause about 25% of the cost of new home. That is one of the areas that the NAHB is hopeful will be helped by the Trump Administration as they review and hopefully do away with regulations that are ineffective, outdated or impede construction. Speaking of President Trump it was also revealed that he was the only Presidential candidate to actually appear in front of the membership at the last NAHB meeting. The NAHB is in contact with the Administration on issues important to housing. In other news from the meeting Barbara Corcoran of Shark Tank fame was the featured speaker. Her relationship with President Trump isn’t as rosy she told the crowd. “I have known Mr. Trump for a very long time and not all of it has been good,” she said before breaking into a rather nonfriendly rant on what she meant. Corcoran, who is credited with starting a billion dollar real estate
conglomerate with a $1000 loan from her “boyfriend” is successful in many areas. She told the audience that Shark Tank is a terrific avenue for her business but it was hard work and determination that made her. Corcoran took questions from the audience after her talk. The “fun part” of the IBS is looking at the hundreds of displays and product demonstrations on the show floor. This year the IBS didn’t disappoint as your reporter found items both big and small that will make builders and suppliers happy. Virtual reality is a big buzz word for builders as the idea of showing clients a tour of a plan moves into the word of 3D. Many companies now offer software and programs that can take a potential customer into a home that is just a concept, move around in it, and see if that is what they want all before a sing nail is hammered on the home. Other items included new and dramatic colors and textures of wall coverings, flooring, and tiles. Metallic is the newest color schemes including new combinations of bronze, gold, and copper shaded plastics and paint. In the appliance world the new buzz is
“black stainless” a darker variant of traditional stainless steel that is smudge resistant. Delta faucets had a huge display with their products in all kinds of colors and shapes. Whirlpool demonstrated their version of black stainless to the thousands in attendance. It wasn’t all big companies either as some smaller manufacturers or suppliers tried to make an impression on the visitors. Entire delegations from countries like China, Korea and others had multiple displays and products on display. The European contingent showcased with such items as appliances, cabinetry and glass. Canada showed off its wood and wood products, while innovators brought in their new ideas and concepts to the show. The distances between halls at the show was a big sore spot for many as the Orange County Convention Center isn’t linked together like the Las Vegas CC. A lot of walking for attendees regardless of where the showcase is at but if you are intending to go to the 2018 IBS begin your training regimen now.
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Join your friends and colleagues at this important event as we make an imact with our elected officials in Austin. Rooms and other accomodations are getting booked quickly, please call EPAB now to reserve your space.
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Take a look at this quick video to get a sample of what it is about. Rally Day 2017.
https://www.youtube.com/watch?v=UmqsOisqAkM &feature=youtu.be
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Builders Outlook
Lending Fannie Mae will back Blackstone's rental homes debt
Mortgage giant Fannie Mae is getting into the single-family rental business in a big way. The government-backed agency said it is going into business with private equity giant and major housing player Blackstone by backing $1 billion in debt. Blackstone's Invitation Homes filed for an initial public offering this week, and the Fannie Mae relationship was disclosed afterward. Blackstone is looking to raise $1.6 billion by selling shares to the public. Fannie Mae, currently under government conservatorship, will back $1 billion in debt collateralized by rental homes owned by Blackstone. Invitation Homes currently has a portfolio of about 50,000 single family rental homes, most of which it purchased during the foreclosure crisis. Invitation Homes, in the filing, reported $9.7 billion in property and $7.7 billion in debt. The homes that will go into the Fannie Mae are, according to sources, low risk, with very low loan-to-value ratios. This first-ofits-kind debt deal is something of a test in what is a growing and maturing singlefamily rental market. Both Fannie Mae and Freddie Mac have long been big players in the multifamily apartment market. Following the foreclosure crisis, when investors bought thousands of distressed homes,
the single-family rental market grew and now accounts for more than 50 percent of the rental market nationally. This is likely why Fannie Mae is testing this market with the first deal. "This transaction is a great opportunity to continue to serve the growing singlefamily rental market," according to a statement from Fannie Mae. "Invitation Homes is a strong partner with deep experience managing a large volume of single-family rental properties. This transaction helps us gather data and test the market to ensure we are delivering the right solutions that meet the increasing demand for single-family rental housing across all demographics. Fannie Mae is committed to continuously finding better ways to meet the changing needs of families, whether that is through rental options or homeownership." In the deal, Invitation Homes is in a first-loss position for the first 5 percent of any losses. After that, Fannie Mae and Wells Fargo are in a risk-sharing partnership. The homes are all in geographically diverse areas, which sources say mitigates the risk, but the rental market does fluctuate, and rents are particularly high now, as more rental stock comes on line. In the IPO filing, the company noted that it would continue to buy more homes to turn around as rentals.
Some have already voiced concern that the deal puts taxpayers on the hook yet again, should the rental market end up in a "bubble." Rental demand is high and rents are high currently, but homebuying demand is also strong and home sales have been rising steadily. There is still very short supply of listings, which favors the rental market now, but that will not always be the case. This could also bring more investors into the rental fold, making financing easier, and potentially lowering rents. "Blackstone is a market-leader when it comes to securitization innovation. Other corporate landlords will soon jump on this bandwagon, and demand for rental
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properties will rise," wrote Andrew Roalstad, senior analyst at TIS Group. "We predict the increase in these type of government-guaranteed securities will grow exponentially in the coming four years, and the impact on the rental property market will be extraordinary," added Roalstad. "We suspect these are the types of changes that the market is pricing in with its 'Trump Rally.' Shifting corporate risk to taxpayers has been a profitable business over the past few decades, and throughout history. We expect we will see more of this shift in the coming years."
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Granger MacDonald Elected NAHB Chairman
2017 Issue 1
Granger MacDonald, a Kerrville, Texasbased builder and developer with 40 years of experience in the home building industry, was elected as the 2017 chairman of the National Association of Home Builders (NAHB) during the association's International Builders' Show in Orlando, Fla. MacDonald is chairman and CEO of the MacDonald Companies, a diverse development, construction, and property management enterprise with nearly 50 neighborhoods completed and managed throughout Texas. "We look forward to working with incoming Trump administration and Democratic and Republican leaders in the new Congress to promote policies that will boost home ownership and rental housing opportunities for all Americans," said MacDonald in a press release. "Specifically, we will seek to reform the regulatory process and ensure any tax reform efforts protect vital housing tax incentives that are needed to keep the economy moving forward. We will also urge Congress to enact comprehensive housing finance reform, with the federal government acting as a backstop in times of crisis, to protect the 30-year mortgage and bring the flow of private capital back into the marketplace."
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Builders Outlook
MacDonald has been active in the NAHB leadership structure at the local, state and national levels throughout his career. A senor life director, he has served on the NAHB Board of Directors for more than 30 years and is a member of the NAHB Executive Board. He has also served as chairman on several influential NAHB committees and councils, including the Federal Government Affairs Committee, the State and Local Government Affairs Committee, the Housing Credit Group, the Multifamily Council and BUILD-PAC, the political action committee of NAHB. MacDonald was elected president of the Texas Association of Builders in 2010 and is a member of the Hill Country Builders Association, the Greater San Antonio Builders Association, and the Home Builders Association of San Angelo. Actively involved in his community, he has had years of experience working with and serving on governmental commissions and boards. He served on the Kerrville/Kerr County Airport Board and the City of Austin Planning Commission. He was also chairman of the City of Austin Environmental Board and president of the Upper Guadalupe River Authority. He and his wife, Kathy, reside in the Texas Hill Country. His partner in the MacDonald Companies is his son, T. Justin MacDonald, also a long-term member of NAHB.
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Builders Outlook
2017 Issue 1
Builders: How to be a better customer Somewhere there’s a long list of expectations and improvements that custom home builders wish their building materials suppliers would make to the way they do business. In a recent survey by sister publication Professional Builder about builders’ and architects’ sentiments regarding their suppliers, many expressed a yearning for a personal relationship with suppliers that would help builders solve problems. Also high on the roster of desired traits: having suppliers who are knowledgeable about the business of newhome construction, and reps who listen to builders and understand their issues before they start selling. But what could builders do to be better customers for their supplier partners? In a white paper about ways to build great and lasting vendor relationships, Ron Lewis, president of RB Lewis & Associates, a Chestertown, N.Y.-based consultancy for the construction industry, noted that builders and general contractors sometimes perceive material suppliers with contempt and blame them for poor performance rather than embracing suppliers as partners who add value. He wrote that occasionally the roots of poor supplier performance can be traced to “poor buyer performance,” such as poorly written purchase orders, last-minute demands for materials, constantly changing expedited orders, and claims that invoices reflect incorrect prices, among other things. Decades ago, supply houses primarily perceived themselves as agents for the manufacturers or their wholesale vendors. But that business model started to change as some builders grew into national and multiregional companies, demanding terms and practices that would make their projects more efficient and cost-effective. Also, suppliers looking to differentiate themselves from their low price–driven competition sought to solve problems for customers by specifying products and services that could reduce waste and rework. Today, more lumberyards and building materials suppliers see their company as an extension of their customers’ home building operations. “If I were a builder, I would be constantly soliciting ideas from my salesperson,” says Greg Brooks, president of Building Supply Channel, in New Albany, Ind., and editor of LBM Executive, a newsletter and blog about matters concerning the building materials supply channel. “Some salespeople are going to be very knowledgeable about what they can do to help you,” Brooks points out. “Other guys are not going to have a clue, and there are others who know what to do, but they think you don’t want to hear it from them.” So is it the supplier’s duty to initiate collaboration or is the builder responsible for asking questions? Both parties have to push each other, which calls for clear communication and information sharing. “We need to know where do we add value,” says Van Isley, CEO of Professional Builders Supply, in Morrisville, N.C. “Tell us, do you want our rep on the jobsite doing an interior trim take-off after he does a walk through on the doors, or do you not want that? For the lumber take-off, is it going to be handled by your folks or by our folks? We have access to resources that can do that cost estimating for you, but if you’re going to do it anyway, then there’s no reason to be redundant. That’s a cost that we can take out of the equation and share the savings.” Brooks adds that if builders solicit suppliers for information about products and methods that can help them work more efficiently, two things will happen. First, the builder will get good ideas because the salesperson may be working with dozens of clients and learning from them what is and is not working in the field. Second, there are a lot of salespeople who don’t
routinely stay up to date with those developments, but the fact that you’re asking is a clear message to them that that is what they should be doing. “The best suppliers will almost always have a regular meeting or a quarterly meeting with the builder and say, OK, what can we do better—because if I can save you cycle time, eliminate waste, eliminate mistakes or reviews, you’re going to make more money,” Brooks says.
Price
Competitive pricing will always be a factor because a builder isn’t going to pay 10 percent more just because the builder likes the supplier, says Mark Scherer, chief operating officer of Scherer Bros. Lumber Co., a third-generation supplier serving Minnesota and western Wisconsin. “Everyone wants value,” Scherer says. “If we’re streamlining the process for [the builder] and they see the value they get, then great. Otherwise [builders] will defer to price. Price is always a factor, and we are committed to that. It’s a matter of how can we be competitive and eliminate some of the additional cost from the supply side.” However, builders with a habit of hammering suppliers for price reductions won’t be endearing themselves to the channel. Indeed, Keith Coleman observes that his most profitable clients are those who spend less time shopping price and more time selling their houses and additions. “My favorites are the guys who trust us from a price standpoint and aren’t constantly shopping numbers and coming back to us, asking if we can do better,” says Coleman, CEO and owner of Hamilton Building Supply, in Hamilton, N.J. “There’s an understanding up front that you’re going to get a good number from us, and we’re going to do whatever we need to do for you.” Among the value-added extras included with Hamilton Building Supply’s numbers are free deliveries, no order minimums, and no charge for returns. Those services, Coleman says, are among the tangible benefits for builders that pay dividends toward establishing trust and bringing some relief from worrying about whether his company is going to lose someone’s business because his quote was a nickel too high. However, there are builders out there who think they have to shop every quote and get a firm price every 30 days, or they’ll secure 90-day pricing one time and 30-day pricing the next because they think they’re smarter than the market. Isley says that practice is not very productive. He’s
seen customers rotate from one supplier to another, and suppliers eventually figure out that doing business with that builder is cost prohibitive. Yet his company’s biggest frustration is the customer who makes apples-to-oranges comparison between his quote and a competitor’s. The customer isn’t willing to dig into the details and see that his company is bidding with top-of-the line AdvanTech flooring as spec’d in the plans while the competitor is quoting runof-the-mill ¾-inch plywood. The builder buys from the cheaper supplier and doesn’t realize there’s a problem until the floor is nailed down and the material is swelling and cupping. “Once again, it comes down to who is going to win the take-off,” Isley says. “Is it the customer who sends the list [of materials] to the supplier, or is it the supplier? And if you give two suppliers a set of plans, chances are the take-offs are not going to be the same, so right out of the gate you’re not comparing apples to apples. If the customer does it, and he sends the list, is he taking time to compare the lists to make sure that the spec is the same and the quantities are the same? In most cases, the builders are moving fast, and they’re not willing to do that.”
Preconstruction
Nothing destroys a construction schedule faster than forgetting to order the windows, the counters, or whatever. Consequently, the project runs late because delivery is pushed out. A supplier salesperson’s job is to manage the flow of materials to the jobsite, according to Brooks, so that person knows that if a builder is framing today, the project is going to need windows in a certain number of weeks. When it comes to scheduling, suppliers find it immensely helpful when builders include them with the subcontractors in a preconstruction meeting. One common scenario that could be avoided if the supplier had an opportunity to talk with the builder’s framing subcontractor at a preconstruction meeting involves misusing the sticks in a lumber package. Even though the package has the accurate quantity and lengths of 2x4s, the framers may pull out the 16-foot lengths and cut them down for where the 14 footers are needed. Eventually the crew runs short of 16s and find the 14s when they get to the bottom of the package, and the builder has to order more lumber. “I would say it is unusual to see [preconstruction meetings] happen routinely, but it does happen when the builder and supplier are working together
for a long time and the supplier has had a chance to learn what the builder wants and where the usual breakdowns could occur,” Brooks says. Several builders do invite Scherer’s sales reps to preconstruction meetings, and he wishes more customers would do the same. “For me, the most successful customers and the easiest customers to deal with are the ones that engage us in the design process,” Scherer says. “If I can be on the front end looking through the plans as they are going through them, we can make a lot of suggestions and eliminate a lot of problems down the road, but only if we are part of the process.” Scherer’s company typically participates as the truss supplier and will attend preconstruction meetings along with HVAC subs, plumbers, framers, and electricians to scrutinize a plan. Occasionally, Scherer’s people catch something that could stop a project for half a day or introduce a change that will help the crew avoid reworks. “That’s just taking that whole definition of communication to another level because it’s anticipatory; it’s proactive,” Scherer says. “I love it when my customers communicate when they see a problem, and we work through it. If we eliminate the problem before it exists, that’s huge. We save the builder a lot of money, and it saves us a lot of stress.” Customers who invite Hamilton Building Supply reps to a preconstruction session often receive valuable engineering or logistics suggestions that can make everyone’s life easier. For example, Hamilton may make suggestions for building materials staging on the jobsite, ensuring that materials are close to where they are actually going to be used, and arrive on site when they’re needed. “Everything is about efficiency today,” Coleman says, “and as long as you give us an opportunity to comment, a lot of times we can bring in additional efficiency.” Isley adds, “There’s got to be give and take on both sides, but it comes down to collaboration. What are your problems, how can we help you solve those problems, and what do you need? What role can we play that adds value and minimizes distractions? Those are the kinds of things that we are able to bring to the table. We don’t know the answer to those questions. You know the answers. We can show you what we’ve done for other people. We can show you what we can do that we think will be beneficial, but it has to fit your process.”
2017 Issue 1
Association News & Events
UPCOMING EVENTS FEBRUAY 8 11:00 BOARD MEETING 12:00 GENERAL MEETING EL PASO CLUB CHASE BANK BLDG. FEBRUARY 15 SPEED SELLING 2:00- 4:00 EPAB OFFICE 6046 SURETY FEBRUARY 22 RALLY DAY AUSTIN, TEXAS
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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
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Builders Outlook
Community Outlook
The El Paso Association of Builders (EPAB) members are generous to a tee, and sometimes beyond. Such is the case every time we have an installation and we ask attendees to bring a toy as a donation to needy children. This year the toy donations were once again super generous. The toys ran the gamut of dolls, stuffed animals, cars, trucks, blocks, and even a painting set. The thing that we are asked every year is “who is this for?� Unfortunately the need in our community, as in most others is bigger than what can reasonably be taken care of. That need is demonstrated every year as many organizations run toy drives all for the very good cause of
2017 Issue 1
making a child happy. In our case we have teamed up with the Junior Women’s Club of El Paso, a group of professional women who volunteer for the good of the community. The Club is now 82 years old and continues to do outstanding community work. We received this letter of thanks from the Junior Women’s Club and felt that we shoud share it with our members:
Congratulations on your 70th Anniversary. We were here when you started back in
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Builders Outlook
Issue 1 2017
6046 Surety Dr. El Paso, TX 79905 915-778-5387 • Fax: 915-772-3038
■ExECuTiVE OFFiCERS PRESiDENT Don Rassette ViCE PRESiDENT Edmundo Dena SECRETARY/TREASuRER Sergio Cuartas ASSOCiATES ViCE PRESiDENT Sam Shallenberger ExECuTiVE ViCE PRESiDENT Ray Adauto PAST PRESiDENT Carlos Villalobos
■TAB STATE DiRECTORS Randy Bowling - Life Director Sam Shallenberger Edmundo Dena
Honorary Life Members Mark Dyer Wayne Grinnell Don Henderson Anna Gill Brad Roe Rudy Guel
Finance Committee Kathy Carrillo Henry Tinajero
■ADViSORY TO THE BOARD Jay Kerr, Firth, Johnston, Bunn & Kerr
■BOARD OF DiRECTORS Antonio Cervantes BiC Homes Bret Thompson Foxworth Galbraith Fernando Torres Metro Homes Henry Tinajero West Star Bank Jay Kerr Firth, Johnston,Bunn & Kerr Joe Bernal Employer Benefits Ep John Chaney Passage Supply John Dorney Dorney Security Kathy Carrillo Pioneer Bank Kathy Parry Hunt Companies Leti Navarette Bella Homes/Custom Dream Linda Troncoso TRE & Associates Leslie Driggers-Hoard Homes By Design Robert Foster Southwest Land Dev. Services Walter Lujan Dawco Builders Edgar Garcia Bella Vista Custom Homes Jason Cullers Cullers Homes Samira Gonzaelz icon Custom Homes Sal Masoud DRE Development Ted Escobedo Snappy Publishing Patrick Tuttle Legacy Real Estate Services Sam Trimble Lone Star Title Luis Rosas Hub international Delton Deal Deal -2-Deal Homes J. J. Vasquez Pacifica Homes
 
 
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Past Presidents Committed to Serve Edmundo Dena Edgar Montiel Frank Torres Frank Arroyos Greg Bowling Randy Bowling Bobby Bowling iv Doug Schwartz John Cullers Robert Baeza Mark Dyer Kelly Sorenson Rudy Guel Brad Roe Herschel Stringfield Bob Bowling iii 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. © 2016 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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