Builders Outlook 2018 Issue 9

www.elpasobuilders.com

Third Quarter 2018

National, State & Local Building Industry News 2018: Issue 9

Four indicators provide insight where US housing market headed demand," the mortgage giant wrote.

Here's what's happening in the housing market now.

1. New home construction New home construction surged following the recession, but has moderated in recent months. That has left many markets with a persistent lack of supply. That's not just true in the forsale market — the rental vacancy rate is also nearly as low as it's been since the early 1990s.

A slowdown in new construction and a short supply of existing homes for sale have pushed housing prices so high that would-be buyers are either finding themselves in bidding wars or sitting on the sidelines.

"We're hearing things from our real estate agents that we haven't heard in three years about homebuyers stepping back from high prices," said Redfin CEO Glenn Kelman on the real estate firm's second quarter earnings call this month.

What's eating the housing market, in the midst of what otherwise looks like upbeat growth? In part, it's a victim of the economy's success: The Federal Reserve is seeking to keep inflation in

check by raising interest rates, making mortgages more expensive.

Meanwhile, a crackdown on immigration as well as tariffs on imported lumber have made it more difficult and expensive for builders to obtain the labor and materials they need to construct homes. That's especially true in hot urban markets, where land is expensive and zoning can be restrictive, according to the National Association of Home Builders.

Freddie Mac forecast on Monday that the housing market will stay slow for the rest of the year. But it doesn't see any real trouble on the horizon. "The healthy economy and robust labor market should support homebuyer

2. Housing prices The slow growth of new housing stock has driven up home prices quickly, especially in hot markets like San Francisco and Miami. (Other markets, like Detroit, still haven't regained the value lost during the Great Recession, according to data collected by the Federal Housing Finance Agency.)

Although the closely-watched CaseShiller Index showed on Tuesday that home price growth slowed slightly in June, the 20-city composite measure topped its pre-recession high at the beginning of 2018.

3. Existing home sales Low inventory and high prices have slowed down the entire housing market, which is mostly made up of previously owned homes.

Existing-home sales fell for the fourth straight month in July to their lowest level in over two years, the National Association of Realtors reported last week.

"Additional inventory will help contain rapid home price growth and open up the market to prospective homebuyers who are consequently — and increasingly — being priced out," National Association of Realtors Chief Economist Lawrence Yun wrote on Monday.

That creates a drag on the job market as well, since it makes it more difficult to pick up and move to a new city for better employment opportunities.

Americans are already relocating far less than they used to.

4. Foreclosures Foreclosures plagued the housing market during the financial crisis as borrowers struggled with loans they couldn't afford and homes prices plunged. These days, borrowers are in much better shape, but there are signs that foreclosures are on the rise again.

The housing analytics firm Attom Data Solutions found that foreclosure starts are increasing again for the first time since 2015. The trend is particularly visible in hurricane-hit cities like Houston, but also increasingly expensive places like Los Angeles.

"We're seeing enough in these bellwether markets that I think it's an inflection point," says Daren Blomquist, senior vice president for communications at Attom.

But as with the rest of the housing market, that turn in the numbers likely isn't a sign of impending collapse. The loans having the most trouble are those that the Federal Housing Administration insured in 2014, when the agency was backing off on the very tight standards it had imposed during the great recession.

"In '14, what you begin to see is a loosening of the underwriting, but not an irresponsible loosening," says David Dworkin, a former Treasury Department and Fannie Mae official, who is now president of the National Housing Conference. "I think we're seeing a return to a more normal market."

CNNMoney (New York) First published August 28, 2018

PRSRT STD U.S. POSTAGE PAID EL PASO TX PERMIT NO. 429

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Builders Outlook

2018 Issue 9

2018 Issue 9

Builders Outlook

President’s Message Edmundo Dena

President el Paso association of Builders

i have a hard time understanding how someone is not a member of the association if they are even remotely involved in construction or supply to the industry. i can’t ever imagine not being a member as many of you feel as well. i was so glad to hear that we got a new member from outside the county, yes a new builder member from Presidio, Texas. We want to welcome Spanish oaks custom Homes, and owner Juan Saenz to the association. it’s interesting that Juan turned to us via the Texas association of Builders who in turn told him about us, his closest local. Turns out Juan was looking for an association to join that would help him be better. as in be better informed, educated, and connected. He turned to the association because he wants to be a professional.

So, allow me to get to my point. el

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PRINT & INTERNET PUBLISHING

El Paso continues to be family friendly

Paso is my home and i’m proud to be here. i think that all of us who live and work here are blessed with the feeling of security and a beautiful multi-culture population. The el Paso association of Builders reflects our population and i think we are way ahead of other local and state associations in that respect. i had a conversation with Ray and he was telling me about how our national association is trying to figure out how to become more diverse in membership, the same as is the focus for the Texas association of Builders. and it boils down to how we value our local specialists and make them feel welcome to join us. during the recent membership drive we had heard some of our more “seasoned” members surprise themselves by recruiting new members. i heard that over and over, “i didn’t think they would join.”

Honestly, i think all of us has said the same thing in the past. But as we can see by the results of the drive we should ask, we should invite others to join us. if we want to continue to have el Paso as a great place to live, if we want to have our association grow and prosper, then we must ensure that we continue to be forward thinking and relevant. our el Paso association of Builders under the slogan Real Texas Builders places us in a unifying position to showcase our members. Builder or associate there are other associations in the country that wish they were more like us. Remember this when you tell the story of why you’re a member. and remember that no matter what, there are builders and associates out there waiting to join. ask them.

Social Media & WeBSiTe conTenT ManageMenT e-Mail neWSleTTeRS coMMUnicaTion STRaTegY ediToRial SeRViceS

Get Creative. Make it Snappy.

915•820•2800 www.snappypublishing.com

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Executive’s Message Ray Adauto, Executive Vice President EPAB

Builders Outlook

2018 Issue 9

Plenty of work to do at the association There a lot of things going through my mind right now, most of them work related. We are busy and sometimes busier than we think we can handle. First and foremost, I want to thank the members who entered our first Real Texas Builder Awards event.

Originally, we had looked at doing the awards at our installation, but frankly that was a poor idea. We will now be doing the awards in mid-January, place and time to be announced.

Secondly, we are having our Fall golf tournament presented by Haskins Electric Company once again. This is the first time we will use Butterfield Trail GC for the Fall event after having a great Spring tournament there. We look forward to a successful outing on October 25. We’ll have pictures in the next issue.

Third we have upcoming board nominations and elections. Always interesting more so this year as we look to our leadership for 2019 and the Sergio Cuartas administration.

Sergio and I are into deep discussions and planning, so be ready for some exciting things.

The installation is on for Friday December 7 at the Marriott El Paso (Airport). More information on that soon.

Meanwhile we will be traveling to Austin in November for TAB Winter meetings and preparing for next years IBS and Rally Day events.

Another important item is that our Association health plan is going through some changes as well. Our members will find a new provider and perhaps some exciting news on other great changes for the betterment of our members.

I would like to remind all our members of the new slogan you are hearing and seeing. Real Texas Builders™ is our new trademark, using a unifying consumer friendly slogan to identify us and separate us from non-members. Real Texas Builders decals on your doors or vehicles will tell the world that you are a part of the industry association and care about new home construction. Our advertising on radio and billboards is telling the consumer they should be doing business with you rather than some non-member. We think the message is clear and we know it’s uniting us under one banner.

Please, use the decal or logo in your advertising, marketing, web page or electronic media. Tell the world you’re a member. Afterall why wouldn’t you.

National Builder News

2018 Issue 9

Construction Labor Market

With a dearth of women in the construction industry, NAHB members call for increased recruiting efforts to help address labor shortage

n According to labor force statistics from the Current Population Survey and analyzed by the National Association of Home Builders (NAHB), the share of women in the construction industry is currently at 9 percent, although women make up almost half—47 percent—of the total working population. While female construction employment slowly picked up to around 970,000 in 2017 after the Great Recession, it is still below the pre-recession level of 1.1 million in 2007.

In recognition of Professional Women in Building (PWB) Week from Sept. 17 – 21, members of NAHB are calling for an increase in recruiting efforts to attract women to the home building industry. As the residential construction industry continues to grapple with a severe labor shortage, PWB members say bringing additional women into the construction labor force represents a potential opportunity for the future.

“Right now more than ever is the time for our industry to not only increase our recruitment efforts, but to also change the way we talk about careers in home building to show women this industry has so much to offer them,” said Judy Dinelle, CAPS, CGP, chair of the NAHB PWB Council and building ambassador of 84 Lumber in Asheville, N.C., serving as the company’s liaison to home building associations. “We need to help the public, guidance counselors and parents understand that the industry provides a high income, significant work values, job security and a sense of accomplishment.”

One of the ways PWB members hope to accomplish introducing more females to the industry is to create more pre-apprenticeship programs throughout the country and develop leadership paths within their organizations.

“We’ve seen examples of preapprenticeship programs that are really quite successful, so we need to replicate those programs and implement them into more communities across the country,” said Dinelle. “We should all promote and offer to help the programs and organizations that provide training for women. It’s our responsibility to put our words into action.”

Builders Outlook

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6 CNBC

Mortgage & Banking

• Home renovation demand is soaring, and so are the costs to do it, thanks to a new round of tariffs on goods imported from China.

• The latest round hits about $10 billion worth of Chinese products exclusive to homebuilding and remodeling, according to the National Association of Home Builders.

• To start, it is a 10 percent tariff, but then could rise to 25 percent by the end of the year.

That would be equivalent to a $2.5 billion tax increase on the industry.

Home renovation demand is soaring, and so are the costs to do it, thanks to a new round of tariffs on goods imported from China.

The latest round hits about $10 billion worth of Chinese products exclusive to homebuilding and remodeling, according to the National Association of Home Builders. The tariff starts at 10 percent, but could rise to 25 percent by the end of the year. That would be equivalent to a $2.5 billion tax increase on the industry.

Contractor Justin Sullivan manages home renovation projects in the Washington, D.C., area and says costs are going up so much so fast that he is doing something he has never done in his more than a decade in the remodeling business.

"Clients and contractors are having to set contracts with escalation clauses for projects that are being scheduled for six months from now, largely because we're not sure how far prices are going to go north," he said.

Sullivan said it is a quick education for new clients, who were already fighting to get projects scheduled, given the high demand and labor shortage. Higher home values have given homeowners more ready cash and more incentive to improve their investment. Now his clients have one more worry.

"It makes them want to do the project more quickly, trying to get it done. Then it's looking at ways to save money that will bring down the costs so the overall budget doesn't increase," he said. "It puts a little bit more pressure on everyone to try and be as diligent about the costs as possible."

Tariffs have already increased the costs of Canadian lumber as well as steel and aluminum imports. The new round adds everything from wall and floorboard to light fixtures, cabinets, heating and cooling equipment, and the tile for bathrooms and backsplashes.

David Benson is vice president of sales at Maryland-based Architectural Ceramics. He says his prices will go up, especially for mosaic, glass and patterned tile, most of which is not made in the United States.

"It would impact the cost on ceramic and natural stone and glass materials, and it would increase the cost at least 15 to 20 percent of our import duties on those items so costs will go up for sure," said Benson.

The latest tariffs will also impact materials for countertops, like granite, marble and especially quartz. The U.S.

Builders Outlook

2018 Issue 9

Chinese tariffs to make home renovation more expensive Commerce Department just announced the results of an investigation into illegal "dumping" of Chinese quartz into the U.S., finding, "that exporters received countervailable subsidies ranging from 34.38 to 178.45 percent," according to its release.

As a result it will impose import duties on the quartz in addition to tariffs. In 2017, U.S. imports of certain quartz surface products from China were valued at an estimated $460 million, according to the Commerce Department.

Price jumps for quartz That is already increasing quartz prices, just in anticipation of the new duties.

"I know for fact that one of my distributors stopped ordering three quartz colors because prices are jumping high enough so it's not worth it anymore," said

Goran Zucik, sales manager at Rockville, Maryland-based Stone & Tile World.

"China was producing them by hand and no one can copy the way they were making some colors. Some of my cabinet companies want to use these colors in their remodeled showroom, but I have to tell them that these will not be available."

The move, however, will benefit U.S. quartz-maker Cambria, which filed the complaint with the Commerce Department.

"This determination is the result of the agency's thorough investigation and confirms what the petition alleged—that China has unfairly subsidized quartz surface products to highjack the U.S. market and as a result these unfairly traded imports have flooded the U.S. market," said Marty Davis, president and CEO of Cambria. "This is a critical first

step toward restoring a level playing field within our industry, fulfilling the obvious axiom: there is no such thing as free trade without fair trade."

Chinese tile was generally cheaper than U.S.-made tile, so the tariffs will level the playing field for U.S. tile makers, even if it increases costs for consumers.

"There have been three or four manufacturers of porcelain tile right in Tennessee over the past two years that have popped up, so that business will increase, and I think it will help the American market for sure," added Benson.

—Edited by Diane Olick, CNBC producer Lisa Rizzolo contributed to this report.

nahb.org/MA

2018 Issue 9

Economic Forescast

Elliot Eisenberg Economic & Policy Blog

While there are many reasons why healthcare spending is growing much faster than the economy — including an aging population and the rising cost of prescription drugs — one problem that gets virtually no attention and is a primary cost driver is crosssubsidies. The reason crosssubsidies exist in the first place is because lawmakers want to subsidize healthcare costs for the poor, the sick, and other potential voters — which is well meaning — but lawmakers do not want to raise taxes to pay for these programs. So they hide the taxes they should impose in the form of cross-subsidies.

Let me explain. If someone with no money walks into an emergency room and needs care, they get care. But to recover the cost of services provided to the indigent, hospitals must overcharge everybody else. Making matters worse, Medicare and Medicaid do not pay the full amount of their service cost. As a result, hospitals must substantially overcharge everybody else, and that

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Builders Outlook

Why Healthcare Is So Expensive unlucky bunch is patients with private insurance and those who pay cash.

Of course, giving free or subsidized healthcare to some by overcharging paying customers is essentially imposing a tax on those who can pay in order to subsidize those who can’t or won’t. But — and this is the key — this hidden tax does not appear anywhere. As such, it is politically costless, and that’s why it is so appealing to politicians. If that were all, it would not be so bad. But it gets worse, much worse.

Cross-subsidies are much more inefficient than raising taxes and spending the revenue on, in this case, healthcare. Here’s why. In an ideal market, if a hospital or doctor is going to overcharge some patients, those patients will have an incentive to shop around for a cheaper insurance plan.

That insurance plan could be cheaper if it sends patients to hospitals and doctors who don’t overcharge. But if enough such plans were to exist, the entire system would fail because these new low-cost providers would

drive the high-cost providers out of business and the poor would not be served. Thus, the introduction of cross-subsidies must be accompanied by a prohibition on competition. One of the ways we see this lack of competition manifesting itself is insurance plans such as bronze, silver, and gold all offering the same services.

And once there is no competition, there is no incentive for any noncompetitive service providers to innovate for better care or lower costs, and that, in turn, drives up costs for everyone. If you are old enough, you remember that prior to the 1980s, local phone calls were cheap, often free. That was because long distance calls were very expensive; there was cross-subsidy from long distance calls to local calls. Of course, firms wanted to compete to provide overpriced longdistance calls, but the system would have unraveled. So the federal government gave AT&T a monopoly and, in that way, kept competitors out and prices up.

Once there is no competition, be it in telecommunications, airlines, trucking, banking, or stock trading, inefficiencies multiply and prices rise.

Returning to healthcare, because of this lack of any meaningful competition, consumers know the cost of nothing they consume and care even less. What kind of market operates well when prices are well hidden? If there were real price competition, consumers would be bombarded with ads boasting of better prices and outcomes and we would all be winners.

Increasing taxes and spending, while hardly ideal, sure beats crosssubsidies and the attendant monopolies that drive up costs, prevent firm entry, and eliminate innovation. Until cross-subsidies are eliminated, US healthcare costs will continue to spiral out of control and we will be able to do nothing more than wish for a competitive, innovative and efficient healthcare market.

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BUILDERS OUTLOOK • EPAB ON THE SCENE

Seminar focuses on residential foundations Any time you build a home you need to make sure your foundation is solid. It is after all the backbone of the entire building. Without a good foundation the house can fail. That was the subject of a recent seminar presented by Centricity, a third-party home warranty company. The name Centricity may be new to some readers since the company was formed from Bankers Warranty Group and Bonded Builders Warranty Group.

Brent Morgan, regional representative for Centricity was the point man for the seminar. “We had an opportunity to bring some experts in to the El Paso market and educate builders and engineers on foundations and what can happen,� he told the Outlook. “We feel that the more we educate the better the results, especially when a foundation

2018 Issue 9

repair or failure can cost tens of thousands of dollars,� he said.

The attendees were given the opportunity to ask questions to the experts.

Justin M. Bryant, VP of Builder Services and Sales for Perma Pier, has been providing foundation repair solutions to builders, homeowners, and engineers alike for 20 years across the state. He advises warranty companies, builders, and engineers on best practices and lifetime repair solutions. “El Paso is a little more stable soils wise than the clay we find in Dallas or San Antonio,� he said. “This seminar shows what things we see wrong and how a builder can help themselves by following simple rules of engineering,� Justin said.

Justin was joined by Centricity’s Morgan, Stephen Hooker, Liz Ahner and Brant Roeming for the seminar.

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El Dorado High School

Aztec Architecture Academy

The El Dorado High School student body has a new “club� to join, the Aztec Architecture Academy. Aztecs is the mascot for the school. The group is comprised of students in grades 9 to 12 and offers an intensive learning opportunity for the students wanting to get into architecture or drafting. Luisa Valenzuela who also handles the Young Designer Scholarship competition for El Dorado is the coordinator. “In my drafting classes I have found out that some students are really interested in designing their graduate work in architecture, so we created this Academy in order to meet the passion�, she told the Builders Outlook. “We have invited Mr. Ray Adauto to be one of our advisors along with other advisors from El Paso Community College and other schools in the district, as well as from the private sector� she continued.

The initial meeting was held September 19 at the school to introduce parents and guardians to the program. “We know that it is hard for parents to understand that sometimes their kids are going to be working on problems late into the evening. I want to make sure they know this is why sometimes.� Valenzuela said. Students presented the program to the audience. “I think we have a good thing going on here,� one parent said. “We appreciate the extra effort from Ms. Valenzuela,� the parent concluded.

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ATTEN ATT NTION BUILDERS!

SPRAY Y FO OAM INSUL LAT TION

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#Real Texas builders

Builders Outlook

2018 Issue 9

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The El Paso Association of Builders encourages you to work with our members.

Builder members as of September 1, 2018 Bain Construction Scott Bain Althon Investments, LLC Jose Luis Martin Bella Vista Custom Homes, Inc. Edgar Garcia BIC Homes Antonio Cervantes Blue Sage Homes, LLC Jaime Gonzalez Blue Star Construction Carlos Villasana Bowling Construction Randy Bowling Carefree Homes Richard Aguilar Casas De Leon, LLC Nick Bombach Cisco Homes LLC Francisco Arroyos III Classic American Homes Priscilla Hernandez Crown Heritage Homes Lydia Mlouhi Cullers & Caldwell Builders John Cullers Cullers Homes Jason R. Cullers D B Innovations LLC Dan Berry Dawco Home Builders Walter O. Lujan Deal 2 Deal Custom Homes Delton Deal Del Rio Engineering, Inc. Sal Masoud Diamond Homes, LLC Valerie Baquera Donald Ward Builder, Inc. Donald Ward E. Valencia Land Development LLC Eddie Valencia Eclat Homes & Designs Veronica Guerra Edward's Homes, Inc. Eduardo Fernandez EPT Bella Custom Dream Homes Leti & Javier Navarette EPT Land Communities David Bogas Everest Homes Edmundo Dena, Jr. Fortune Custom Homes Javier Andrade Gaddy Construction Charles Gaddy GMF Custom Homes, LP Frank Torres Guel Construction Rudy Guel Hakes Brothers, LLC Chris Hakes Hanson Asset Management, LP Russell Hanson Homes by Design Leslie Driggers Hoard Hunt Communities, LLC Kathy Parry ICON Custom Builder, LLC. Carlos Garcia Industrial Realty Group Incorporated Brent D. Harris JER Custom Homes, LLC Jorge E. Rodriguez Kayton Lee Residential, Inc. Brianna Barnes Lloyd Hamilton Contruction Lloyd Hamilton, III LMJ Construction Co., LLC Mike Lopez Loyalty Homes Gustavo Loy M A Builders & Design, LLC Mustafa Ali Maravilla Homes Victor Robles Medlock Commercial Contractors LLC Steve Medlock Metro Homes, Inc. Judith Arrunada, Fernando Torres

Millennium Homes Dan Ruth Pacifica Homes, Inc. Juan Jose Vasquez Padilla Homes Misael Navarrete Palo Verde Homes Edgar Montiel Pointe Homes Carlos Villalobos Porter Homes Albert Porter R.C. Baeza & Associates Robert C. Baeza R.E. Welch Contractor Gordon Welch Rassette Homes, Inc. Donald Rassette Rosewood Design and Build Brianna Barnes Santana Custom Homes Fernando Santana Southwest Land Development Serv.

Doug Schwartz Spanish Oaks Custom Homes Juan R. Saenz The Heritage Group David Bingham Trejo Construction Co. Juan Trejo Tropicana Building Corp.

Bobby Bowling IV Tropicana Development Greg Bowling Tropicana Homes Randy Bowling Tropicana Properties Demetrio Jimenez Vallance Construction LLC Oswaldo Prieto Villagi Homes, LLC Kristi Eddings Vista del Sol Archetectural Design Luis J. Lopez Will Harvey Development Will S. Harvey Winton/Flair/Accent Homes Herschel Stringfield Associate members as of September 1, 2018

150 Sunset Danny Heredia 2-10 Home Buyers Warranty James Hebert 4 Tech A/C Service Enrique Hernandez 84 Lumber Ernie Chavez 915 Siteworks, LLC Hugo Jasso A C Refrigeration, LLC Angel Cabrera A Plus Remodeling & Repairs Martin Arroyos ABC Supply Co., Inc. Larry Eck Acme Brick Company Steve Bush Adams Moulding & Lumber Tom Swahlen Agustin Favela Concrete Agustin Favela Alden R & R Services, LLC Alejandro Dena Allbrite Electrical Carlos Nunez Alvarado Plastering & Stucco, LLC Jose Enrique Alvarado Amelia's Janitorial Services Amelia Gomez Area Iron & Steel Works, Inc. Fred L. Edmonston Jr. Atrium Homes Ricardo Bocardo Jr. Bank of Texas Ray Owen Baron Supply David Trammell Barragan & Associates Benito Barragan

Barraza Drywall Corp.

Ignacio Barraza Barrett Airworks Alexandro Castro Bassett Woodworks Danny Murillo Beasley, Mitchell & Co., LLP Brad Beasley Bella Vista Realty Grisel Ortega Belmont's Air Conditioning, Inc. Rafael Belmonte Big A Construction Thelma Vasquez BMC Select David Quintana Boise Cascade Mike Flores Border Construction Specialties Ricardo Yvellez Border Solar Javier Ruiz Bordertown Carpets Brian M. Abraham Builders Source Appliance Gallery Sandra Lucero Bukaty Financial Companies Group Ruth Rivera C. D. Lee/Britton Insurance & Bonding Anthony Landavazo/Lisa Daniels Cabinet Masters Mike Robles Carpet Warehouse Erez Belkin Casa Ford & Casa Nissan Luke Lowenfield Castillo Electric Jose Del Val CEA Engineering Group Jorge L. Azcarate Central Texas Metal Roofing Supply Co.,Inc. Ben Garza, III Centricity Brent R. Morgan Century 21 The Edge Scott Kesner Citizens Loan Center Jim Easley City Bank Texas Bob Kotarski City Lights Thomas Brown CMF Carlos Munoz Cognent, Inc. Martin Paredes Commercial Insurance Brokers, Inc. Ken Foster Conde, Inc. Conrad Conde Copenhagen Imports Flemming Carlsen CQC Testing and Engineering,LLC Jaime Rojas David Hernandez Cabinets David Hernandez David J. Ellis Fee Office for Sierra Title David J. Ellis De La Torre Iron Works Alfredo de la Torre Delek US dba 7 Eleven Sonja Scanlan Demcon Disposal Management, LLC Maria Elena (Nena) Gomez Desert Quest Plumbing Hector Gonzalez Designer's Mart Valerie Edmiston Diaz Services, Inc. Emmanuel Diaz Dominguez Insurance Agency Victoria Dominguez Doors and More Miguel Moran Dorney Security John Dorney Dunn-Edwards Paints Nathan Gordon DWS Building Supply Sabrina Voorhies E.F. Building Materials, Inc Efren Fraire

Eagle Custom Cabinets Juan Benabidez Eagle Roofing Products Scott Aguilar Edgar's Flooring Edgar Enriquez EDLR Platering Eduardo De La Rosa Edmund Esper Edmund Esper El Paso Audio Video by Design Joe Gutierrez El Paso Building Materials Ken Wade El Paso Disposal Irma Parsons El Paso Mortgage Bankers Association Gilbert Pedregon El Paso Times Sal Hernandez, Justin Riley El Paso Truss Luis Mendiola El Paso Winnelson Rene Goldfien Electrolux NA Adger Colley Elizardo Garcia Electric Elizardo Garcia ERA Sellers & Buyers Karla Reyes ESS Environmental and Safety Solutions Jose L. Garcia Ramirez EZE-R-DESIGNS Leticia Mata Farmers Ins.-Mercedes Ruiz Mercedes Ruiz Felipe Rocha Construction Felipe Rocha Ferguson Enterprises Inc. Albert Holguin Fire Smoke N' Grill Bill Owen First American Bank Louis Sauceda First Light Federal Credit Union Lorenzo Revelez First National 1870 Haley Merritt Firth, Johnston, Bunn & Kerr Jay Kerr Forge Factory Strength & Conditioning Edmundo Portillo Foxworth Galbraith Lumber Dan Villarreal Franklin Building Materials Ricardo Aguilar or Cristina Sheldon G & G Enterprises Gen. Contractor Juan F. Garcia G2 Ram Electric Luis Cano GCC Sun City Materials,LLC Antonio "Tony" Chavez GE Appliances Christine R. Villanueva GECU- Greater El Paso Credit Union Danny Galindo GEPAR-Greater El Paso Assoc. of Realtors Jason Sanchez Go Pro Refrigeration Humberto Diaz Goodman Mfg. Jorge Guajardo Great American Insurance Group Julie Tomlinson Greater El Paso Chamber of Commerce David Michael Jerome H P Roofing & Construction Heriberto Prieto Harris Real Estate Group Lane Harris Haskins Electric Charles B. Haskins, Jr. Hector De.La Canal Real Estate Group Hector De. La Canal Hector Phillips fee Office for Sierra Title Hector Phillips Hercules Industries John Chaney Hernandez Roofing Concepcion Hernandez Home of Texas Amanda Eason

2018 Issue 9

Home Pros Real Estate Group Penny Moore Homes of El Paso Riley Stephens HUB International Luis Rosas Imperial Construction Alexandro Garcia Inter National Bank Natalie Ojeda Interceramic Tile & Stone Gallery David Holguin J & H Concrete & Post Tension Jorge Herrera J. B. Laminates Gina Rodriguez J. C. Balcorta Painting Cruz Balcorta J. F. Plastering Juan Florez Jack White Building Specialties Claudia Lardizabal James L. Ellis, CPA, PC Jim Ellis JFM Enterprises, Inc. Jaime Flores Jimmy Garza Emergency Water Removal Jimmy Garza Jobe Materials, LP Charlie Tellez Joe Bernal Insurance & Financial Services, Inc. Joe M. Bernal Jose Moreno Dry Wall Jose Moreno Juan Carlos Perez Grading Juan Carlos Perez Keenan Supply Nancy Rivas Keller Williams Mo Goodarzi Keller Williams Susan Flores L & P Building Supply Denise McConnell LCR Resource, Inc. Ralph Sanchez Legacy Real Estate Services/TTi Prop. Man. Patrick Tuttle Leon Real Estate Jorge Leon LOI Engineers Bernardino Olague Lone Star Title Co. of El Paso Sam Trimble Love Engineering, Inc. Montez Love Lowes Home Improvement Johnny Rodriguez Loyas Shutters Alfredo Loya MagicStone Marco Gomez Majestic Realtors Patti Musshorn

Builders Outlook

MAK Roofing & Construction Felix Vizarreta Marlo Building Services Roberto Martinez Masco Contract Serv dba Gale Insul William Homan Massey Johnson Josie Ledesma McCoy's Building Supplies Doug Danner Merrill Lynch Thomas Gabriel Miguel Sanchez Cano Miguel Sanchez Cano Minerva Al-Tabbaa Realtor Minerva Al-Tabbaa Mini Concrete Materials Joe Soto Moen Frank Graf Monster Link Marketing Raul Mendoza Moreno Cardenas, Inc. Roberto Moreno Morrison Supply Sam Shallenberger MTI Ready Mix, Inc. Tony Mullen New American Funding Tania Guzman New Era Foam George Tollen New Start Insulation Jose Carreon Oropeza Concrete Angel Oropeza Parra's A/C and Heating Service Aureliano Parra Pate & Appleby, LLP Richard De Santos Patriot Mortgage Randy Bowling Pella Windows Jason Bates Performance Glass & Aluminum Hector Hernandez Perl Mortgage Stephen Sepulveda, Gilbret Pedregon Polar Mechanical LLC Francisco Amezquita Post Tension Steel Dennis Moore Powerfoam Insulation Arnie Pedersen Prewire of El Paso, Inc. Steven Drury Pride industries dba Pride Ascend Dr. Lonny Wright Q Martins Plumbing Jose Martinez Quality Granite Hector Porras Ramon Romero Painting Ramon Romero

Randall Smith, CPA Randall Smith Rebath of El Paso/Las Cruces Lisa Walling Remcon Self Storage Will Harvey Rey Construction Manuel Reyes RGR Roofing, LLC Marco Rodriguez Richman Group Affordable Housing Corp.

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Builders Outlook 2018 Issue 9 12 A 10-Year Anniversary Highlights Need for Housing Finance Reform “Comprehensive legislation that incorporates these elements will ensure that housing credit remains readily available and affordable in the future, provide the foundation for a stable housing finance system and protect taxpayers,” said Noel.

“And as Congress deliberates, the administration needs to ensure that reforms put in place during conservatorship that have enabled Fannie Mae and Freddie Mac to better facilitate mortgage liquidity are not cast aside.”

With Fannie Mae and Freddie Mac now marking their tenth year of conservatorship, the National Association of Home Builders (NAHB) called on Congress to make it a priority to enact comprehensive reform to the nation’s housing finance system.

“To ensure a stable housing finance system that will support the future of homeownership and affordable multifamily housing in America, Congress must fix the structural flaws inherent in Fannie Mae’s and Freddie Mac’s government charters that contributed to the housing finance crisis,” said NAHB Chairman Randy Noel, a custom home builder from LaPlace, La. Today, House Financial Services Chairman Jeb Hensarling (R-Texas) and Rep. John Delaney (D-Md.) issued a draft of a housing finance reform bill that includes a federal

government backstop to maintain stability in the market during times of economic turmoil.

NAHB believes a federal backstop is a critical element that must be incorporated into any overhaul of the housing finance system.

NAHB is also urging Congress to enact further reforms that would:

• Preserve the successful multifamily housing finance framework; • Continue the roles of the federal government housing agencies; • Provide an equal playing field for small lenders; • Restart a fully private mortgage-backed securities market; and • Enhance the activities of state and regional sources of housing funding.

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ABOUT THE 2008 CRISIS The 2008 financial crisis is the worst economic disaster since the Great Depression of 1929. It occurred despite Federal Reserve and Treasury Department efforts to prevent it.

It led to the Great Recession. That's when housing prices fell 31.8 percent, more than the price plunge during the Depression. Two years after the recession ended, unemployment was still above 9 percent.

That's not counting discouraged workers who had given up looking for work.

Causes The first sign that the economy was in trouble occurred in 2006. That's when housing prices started to fall. At first, realtors applauded. They thought the overheated housing market would return to a more sustainable level.

Realtors didn't realize there were too many homeowners with questionable credit. Banks had allowed people to take out loans for 100 percent or more of the value of their new homes. Many blamed the Community Reinvestment Act. It pushed banks to make investments in subprime areas, but that wasn't the underlying cause.

The Gramm-Rudman Act was the real

villain. It allowed banks to engage in trading profitable derivatives that they sold to investors. These mortgage-backed securities needed home loans as collateral. The derivatives created an insatiable demand for more and more mortgages.

The Federal Reserve believed the subprime mortgage crisis would remain confined to the housing sector. Fed officials didn't know how far the damage would spread. They didn't understand the actual causes of the subprime mortgage crisis until later.

Hedge funds and other financial institutions around the world owned the mortgage-backed securities. The securities were also in mutual funds, corporate assets, and pension funds.

The banks had chopped up the original mortgages and resold them in tranches. That made the derivatives impossible to price.

Why did stodgy pension funds buy such risky assets? They thought an insurance product called credit default swaps protected them. A traditional insurance company known as the American International Group sold these swaps. When the derivatives lost value, AIG didn't have enough cash flow to honor all the swaps.

Banks panicked when they realized they would have to absorb the losses. They stopped lending to each other. They didn't want other banks giving them worthless mortgages as collateral. No one wanted to get stuck holding the bag. As a result, interbank borrowing costs, known as Libor, rose. This mistrust within the banking community was the primary cause of the 2008 financial crisis.

By Kimberly Amadeo Updated August 02, 2018

2018 Issue 9

13

Builders Outlook

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Builders Outlook

2018 Issue 9

Market Watch www.marketwatch.com

We’re probably at peak housing. Here’s what that means.

A decade after the housing crisis, sales may have reached an unimpressive top.

In May, sales of previously-owned homes slumped, the second month in a row of declining sales. The National Association of Realtors, which tracks those sales, pointed to the same culprit it’s blamed for the past few years: not enough supply of homes to buy.

Shortly after the Realtors released their data, Regions Chief Economist Richard Moody wrote this in a research note: “Given that we see little reason to expect meaningful relief on the inventory front over coming quarters, we think it reasonable to conclude that we have passed the cyclical peak for existing home sales.”

Ten years after the financial crisis, the notion of a housing “peak” – which would naturally be followed by a downturn – seems downright spooky. The trauma of the last correction is still with us: more than 1.1 million Americans are still underwater, according to Black Knight, many foreclosures are still wending their way through the system, and ultra-tight lending standards put in place when the pendulum swung hard after the correction continue to lock many Americans out of the market.

But under normal circumstances, a correction in housing, like in any market, is normal, foreseeable – and possibly, though not certainly – upon us.

(It’s also worth noting that many voices have spent the last several years, seemingly ever since the last bubble burst, squawking about a new bubble. And it’s true that prices in many metros keep pushing higher and higher, defying the laws of logical market dynamics. But that’s been driven by outsize demand and lean supply that can’t keep up, not speculation.)

For the handful of economists calling the present moment a cycle top, it simply means that from here on, sales will stop growing, and possibly even decline, as will home prices.

Here’s how Nationwide Chief Economist David Berson put it in May, in response to the Realtors’ April sales figures: “We project that existing home sales will edge up by around 1% in 2018 to around 5.56 million units, which would be the strongest pace of sales since 2006. We expect that this will be the high-water mark for sales in this cycle.”

There’s widespread agreement among housing-watchers that the biggest problem facing the market is the supply-demand imbalance referenced in the May existinghome sales data.

Where analysts disagree is on what impact that will have. Moody and another economist, Ian Shepherdson of Pantheon Macro, believe that if supply remains stifled, it will continue to push home prices higher and higher. Add that to rising mortgage rates, and at some point demand will wane.

“You can withstand some further increase in mortgage rates, but at some point, eventually you hit a tipping point on mortgage rates where it does erode affordability,” Moody told MarketWatch.

But Sam Khater, chief economist for mortgage finance provider Freddie Mac, thinks there’s still room to run. Khater thinks existing-home sales have “hit the speed limit,” and recognizes that rising rates will at some point price many people out of the market.

Still, he said, “Total sales should continue to go up.”

Usually, over-supply is what causes a housing downturn, Khater said. Remember home builders throwing up development after development in 2005-2006, farther and farther away from city centers, in the expectation that there would be an endless supply of people to buy them?

“Here we are nine years in, we’ve had

three straight years of inventory decline,” Khater said in an interview. “It’s not only notexpanding, it’s contracting. The consensus is that if there’s a recession, it’s a modest, plain-vanilla recession. If that’s the case, I think what it might do is cause inventories to rise modestly and home price growth to slow. My base case is that – an economic recession but not a real estate recession.”

For economic history wonks, Khater likens his “base case” to the 2000-2001 downturn, which was a recession caused in part by the implosion of the dot-com sector – but which didn’t really hit the housing market.

Khater is reluctant to forecast details about something he thinks won’t happen for another two years or so, but he did point out that markets that are the most overvalued would likely be the ones that get hurt the most in any kind of downturn.

Picture a mild economic downturn, in which hundreds of tech workers along the West Coast lose their jobs. Many would be

unable to make their mortgage payments, or might decide to take a different job in a different city. That would prompt many people to sell their homes at cheaper prices than the houses might be valued at if the economy wasn’t under pressure. At the same time, there would be less of the frenzied demand for homes that bid prices higher. (As Khater emphasizes, it’s impossible to know which sectors of the economy get hurt the hardest in the next downturn, and it’s possible the pain could be widespread, nationwide.)

In Richard Moody’s outlook, a housing downturn before we get to an economic downturn, demand would “settle back,” as he puts it, and “that would be reflected in less upward pressure on prices.”That is to say, prices across the country could even continue rising – just more slowly.

That’s what happened in Houston when oil prices collapsed in 2014. Yearly home price gains decelerated from 12% to 4%,

Khater noted, “but never went negative, and the impact on performance was fairly minor.”

That is, people were able to continue to make their mortgage payments on time.

There are, again, lots of caveats. In a nationwide recession, some areas that aren’t as hot as Houston (over 104,000 out-ofstate residents re-located there in 2016) won’t fare as well.

Still, homeowners generally have built up more equity than at any time in American history, and they’re staying in homes longer.

That should provide a good “cushion” for most homeowners in a downturn, as Khater puts it.

Put another way: the most vulnerable homeowners in the next downturn could be people in pricey coastal markets who bought recently and have very little equity in their homes, either because they made small down payments or because they’ve taken it out.

By Andrea Riquier

Builders Outlook

2018 Issue 9

6046 Surety Dr. El Paso, TX 79905 915-778-5387 • Fax: 915-772-3038

â– â– ExEcuTivE OFFicERS PRESiDENT Edmundo Dena vicE PRESiDENT Sergio Cuartas SEcRETARY Edgar Garcia ASSOCIATES VICE PRESIDENT Sam Shallenberger ExEcuTivE vicE PRESiDENT Ray Adauto PAST PRESiDENT Don Rassette

â– â– cOMMiTTEE cHAiRS Membership Ted Escobedo Patrick Tuttle

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■TAB STATE DiREcTORS Randy Bowling - Life Director Sam Shallenberger Edmundo Dena

â– NATiONAL DiREcTORS Bobby Bowling, III Demetrio Jimenez Leslie Driggers Hoard -Alternate Antonio Cervantes - Alternate

Finance committee Kathy Carrillo/Treasurer Henry Tinajero

Honorary Life Members Mark Dyer Wayne Grinnell Don Henderson Anna Gill Brad Roe Rudy Guel

Community Outreach Angelique Roman Brenda Aguirre Patricia Martinez

Land Use Council Sal Masoud

Education Kelly Sorenson Delton Deal

■■ADviSORY TO THE BOARD Jay Kerr, Firth, Johnston, Bunn & Kerr ■■BOARD OF DiREcTORS Builders: Delton Deal, Deal 2 Deal J.J. Vasquez, Pacifica Homes Leti Navarrete, Bella Custom Dream Homes Bud Foster, Southwest Land Development Kathy Parry, HUNT Communities Lee Gillett, Classic American Laura Loy, Loyalty Homes Walter Lujan, Dawco Homes Fernando Torres, Metro Homes Leslie Driggers Hoard, Homes by Design Carlos Garcia, ICON Custom Sal Masoud, Del Rio Development Fernando Santana, Santana Custom 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 Carlos Villalobos

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. Š 2018 Builder’s Outlook is published and distributed for the El Paso Association of Builders

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