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Builders Outlook ISSUE 9
Building El Paso’s tomorrow today
Working on the economy NAHB has lowered its forecast of growth through the end of the year as the early indicators of weaker-than-expected economic activity have accumulated. Nonetheless, the forecast still sees improvement in the next two quarters as the economy gains momentum, producing growth rather than stagnation.
PRSRT STD U.S. POSTAGE PAID EL PASO TX PERMIT NO. 429
The Bureau of Economic Analysis (BEA) has revised growth of the gross domestic product in the second quarter down from 2.4% to 1.6% percent, indicating that the decline from the first quarter’s 3.7% was worse than originally thought. The revisions primarily raised imports and lowered private inventory investment and exports, subtracting from growth, but also increased personal consumer expenditures, partially offsetting the decline. The downward revision suggests that there is now a greater possibility of the economy suffering a double-dip recession, although most economists continue to believe that this will not occur. There were some positive signals in the GDP report. Signs of improvement in personal consumption and income bode well for coming quarters, as do continued increases in corporate profits.
Improving demand overall can be seen in growth in real gross domestic purchases — purchases by U.S. residents wherever produced — which increased 4.9% in the second quarter and 3.9% in the first quarter. The growth in imports subtracts from GDP growth, but it is a signal that demand is there. The home buyer tax credit helped lift residential fixed investment (RFI) 27.2%, which contributed 0.58% to overall secondquarter growth. However, the boost from RFI will fade and become a drag on GDP in the third quarter due to the slowdown in construction following the expiration of the tax credit. RFI is expected to make a positive contribution to growth once again starting in the fourth quarter, as activity picks up and gains momentum through 2011 and 2012. New-Home Sales Hit a Pothole Falling 12.4% from June, new-home sales in July were at their lowest level since they started being tracked in 1963. The three months following the April 30 deadline of the home buyer tax credit were the three worst for new home sales in history. All four census regions recorded declines, with the largest in the West (-25.4%) and Northeast (-13.9%) and smaller declines in the Midwest (-8.3%) and South (-8.7%). Inventories of unsold new homes held steady at 210,000, the lowest level since September 1968. The months’ supply rose to 9.1 months because of the slow sales pace. The median sales price fell to $204,000, down 4.8% from $214,200 a year earlier, attributable to a combination of price reductions and a shift in the marketplace to more modest homes. Homes sold in the $150,000 to $300,000 range, which is where most first-time home buyers make their purchases, picked up share. The slump in sales has been primarily due to consumer reluctance in the face of recent softness in job formations and economic activity. The housing market itself remains relatively attractive, characterized by historically low mortgage interest rates, stability in house prices and continued pentup demand from the delayed household formations of the last several years. Depending upon various assumptions about longer-term household growth, the
recession reduced household formations by between one-half million and 1.5 million as individuals remained in their parents’ home, doubled up, moved in with relatives or otherwise postponed the normal transition from a dependent to an independent household. To date, the housing recovery has not been evenly distributed across the country. States that have traditionally accounted for a large share of U.S. housing production have fallen the farthest from the “normal,” or pre-boom average annual production levels of 2001 to 2003, and have yet to recover. States that have represented a small share of total U.S. residential construction are getting back to normal, but with only a minimal impact on the national numbers. Three states that typically account for onequarter of U.S. housing production — Florida, California and Georgia — are unlikely to produce one-third of their normal level of housing in 2010. With the exception of Texas, which is both large and recovering, the seven states closest to their long-term normal levels make up less than 4% of production in a normal year. Until the larger housing markets begin to heal and begin their long march back toward normalcy, the national numbers will remain weak despite the healthier markets where demand is good, vacancies are low and house prices are stable. Existing Home Sales Drop as Well The National Association of Realtors® (NAR) reported a sharp 27.2% drop in existing home sales in July to a seasonally adjusted annual rate of 3.83 million units, down from a downwardly revised 5.26 million units in June. A decline of this magnitude was foreseen by pending home sales — a leading index based on contracts signed — which fell 30% in May. Unlike new home sales, existing home sales numbers are based on closings, not signed contracts, making July the first month to reflect the impact of the expiration of the home buyer tax credit on resales. (The closing deadline for the credit was June 30, which was since extended to Sept. 30. Slowing economic growth and consumer uncertainty compounded the effect of the expiration of the tax credit. Given near-term economic weakness and high
unemployment, existing home sales are likely to remain soft in August and September. However, with economic growth back on track in the fourth quarter of 2010, existing home sales are expected to recover much of the ground they lost in the third quarter. The rate of decline in July was consistent across housing sectors and regions of the country. Single-family home sales fell 27.1% to 3.37 million and condominium and coop sales declined 28.1% to 460.000. Regionally, home sales were down 29.5% in the Northeast, 35.0% in the Midwest, 22.6% in the South and 25.0% in the West. Consumer Confidence Inches Upward Consumer confidence remained weak in August, with the University of Michigan Consumer Sentiment Index inching up only a slight 1.1 points to 68.9. This followed a sharp 8.2 point downturn in July. The index found consumers feeling a bit more comfortable about the current situation, which increased 1.8 points to 78.3, than about their future expectations which gained only 0.6 points, rising to 62.3. Among the 76% of respondents who said they believed that current home buying conditions were good, 65% cited low prices and 46% low interest rates. Although most consumers recognize that the housing market offers some of the best housing affordability opportunities in a generation, that view is not reflected in actual home buying activity. The Conference Board’s Consumer Confidence Index painted a similar, but slightly more positive picture. The August index rose from July’s 51.0 to 53.5, moving back toward June’s 54.3 level. Although the index measuring current confidence reflected frustration and dissatisfaction in the state of the economy and job market, dropping from July’s 26.4 to 24.9, the index on expectations rebounded to 72.5, up from 67.5 in July and almost matching June’s 72.7. Also, those who said they planned to buy a home in the next six months edged back up to June’s 2.0%, from 1.9%. Those who plan to buy a new home in the next six months rose to 0.4%, up from 0.3%, the highest since April. Article provided by NAHB
2 SEPTEMBER 2010
Builders Outlook
3 President’s Message Randy O’Leary President, El Paso Association of Builders
The past 30 days has been stellar for our association with the completion of our first annual Pro Am Golf Tournament, the annual Membership drive, continuation of negotiating the new code with the city, and the city’s commitment to support our association with FEMA issues in the upper valley. Adams Pro AM Our first Pro AM golf tournament has been a huge success for the association. Eric Lowenberg, John Chaney, David Bogas, and Ray Adauto led the charge which was definitely hitting on 8 cylinders. From sponsorship, sales of teams, to advertising, everything played out well as our Association has received great press and at the same time generated revenue. What a great win- win. I want to thank all of those who worked so hard to see this success, as well as those who contributed $$ and played in the tournament. The foundation has been set for continued success in the years to come. Membership As this is being written we are just completing our membership drive and I want to thank all of those who participated for making this a HUGE success. Exceeding last year’s numbers was not something I thought could be done until I watched Mike “El Matador” Santamaria in action. I have never met an individual more committed and with more talent than Mike, he is awesome to see in action. At this time we have 113 new members and I am
confident that when all the numbers are tallied we will once again lead Texas with our drive. In addition to Mike, I would also like to thank the team leaders for a wonderful job – Greg Bowling, Hector Montoya, Kelly Sorenson, Eric Lowenberg, Sam Shallenberger, and Joe Ortiz. Also a thank you to Ned Munoz, Texas Association of Builders who came to cheer us on. FEMA Our Government Affairs/ Land Use Council has once again shown their commitment to our industry. The issue at hand is FEMA and the issuance of new flood maps. The direction currently being taken by the FEMA will require flood insurance for thousands of current homeowners as well as stopping many of the developments on the board at this time for the west side of El Paso. Our team is trying to show our Local and State leaders that letting these maps be accepted today is not an option, when in fact, we are currently making corrections to the river. These corrections will then remove this area from the flood zones. It appears that we may have convinced our local city council to help us with this fight. The problem is that once adopted and even after corrections are made, it could take up to 10 years for FEMA to reverse the maps. Read Sal’s article for more information. I thank all of you involved in this, for your efforts for our industry, and for the entire City of El Paso. Code We are only a couple of weeks away from what should be a resolution to the new code adoption. The team working on this feels we are very close to a compromise. Greg Bowling, Kelly O’Leary, and Kelly Sorenson have expended a great deal of resources getting us to where we are today
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and we thank them. Meeting weekly with the city since the beginning of the year has been a huge commitment of time,but it appears it will be paying off. Market update The market seems to continue its improvement throughout the City as well as all price points. The information we are receiving confirms what we had all expected and that there was a lull in the market after the tax credit. This is no different than the lulls we have seen following any of the down payment assistance or other programs which stimulate home sales. We saw the increase starting about the middle of July –wherein the last 15 days of the month saw almost a 30% increase in traffic at model homes. This increase has followed up throughout the month of August. This increase in traffic has brought about a larger than normal increase in sales as those prospective
" homebuyers out looking seem to be better prepared to purchase. We did a drive through on most of the upper end housing communities as we have seen an increase in starts in those communities both on the West and East Side of El Paso. This increase in the upper priced homes is the first we have seen in several years. The El Paso market has hit the sweet point of having only 6 months of unsold inventory on the ground for both new and used homes. I want to thank all of those who have participated in all of these as well as many other worthwhile projects which support and improve our Association and our industry. For those of you who wish to get involved, please contact Ray Adauto or myself.
4 SEPTEMBER 2010
Builders Outlook
Perspective
Customer service should be more than just a slogan rocks, dirt… gave them a real test. I found that on this particular style I probably needed a little more room for the toes. So eight days after I bought them I returned them. Would you believe that the same type of shoe in a different model was offered, and as I slid them on I knew these were going home with me. Within two minutes I was the proud new owner of a second new pair of “tennies” as my mom used to call them. What a neat experience to have been treated with respect and professionalism. These weren’t doctors or lawyers or some high dollar sales team. Why would someone buy there? Because the shoe wasn’t the deciding factor, it was the seller and the guarantee. In this instance the guarantee was honored without a hitch. So how does this relate to new home or remodeling sales? How do you react when a customer comes calling back an asking you to back up your guarantee or promise? I can tell you that if you don’t then I’ll
probably get the call or worse yet you’ll get a call from an attorney. When you do follow up you may not ever hear from a customer again. It’s a judgment call on your part and yes not every customer is as nice as they can be. But in today’s competitive market let the story of my hundred dollar sneakers remind you that you can be different and can compete even with the biggest when you do something that stands out. Salesmanship is more than just making the sale. It’s in the follow up and the promise. When you do something right customers rarely tell others. Don’t do the right thing and see how many people will hear it. Remember my pair of sneakers. Thousands of them all over the city and I am here telling you about one store with great customer service. After all is said and done it boiled down to doing the right thing. Your turn now.
I recently purchased a pair of “tennis shoes” noting of course that since I use that term it ages me completely. Trying to select from the hundreds of shoe designs, labels, endorsements, or brand names is more confusing than trying to buy a cell phone (there I go again, it’s a “mobile device” now). Finding the support and cushion I need is just something that’s jumped to the top of my “needs.” I will shop, then compare on the internet, then shop some more and then finally
decide to plunk down the money. My buddy Sam calls me cheap, but I have to remind him that I like being sure I got the absolute best buy. So having laid the ground work for you the question remains, did you buy the shoes on line or here? Well surprise surprise. I bought them at the mall, the regular mall with all the high dollar per square foot stores. I found three pairs of shoes that I thought might just work but more importantly I found a salesperson and franchise that made my choice easier. After trying the different shoes on I decided to try the Reeboks. My choice was made easier with a 15 day- “walk on it” offer from Finish Line store. I thought to myself what a deal, I can try these and if they don’t work I’ll return them. So I paid and wore them out the store. They felt great but often new shoes do and then you find out there’s a problem. In this case I wore them pretty much all week inside and outside. On concrete, grass,
Guest Perspective
Fort Bliss ideal location for President Obama’s visit
Ray Adauto, Executive Vice President EPAB
I joined President Obama during his recent visit to Fort Bliss to mark the end of combat operations in Iraq. After seven years of conflict in Iraq, the end of combat operations is an important milestone for our nation, and it is fitting that the President chose to mark this occasion at Fort Bliss
Guest Perspective
County authority in areas outside municipality still at issue
Silvestre Reyes US Congress
Chente Quintanilla State Representative In last month's article, I shared with you information about the Texas Association of Builders' testimony given by Scott Norman on ordinance making authority outside of municipalities. You may recall there were two basic issues that were driving the issue. Here in El Paso, the county authority to pass ordinances in unincorporated areas is driven by the need to prevent unsafe neighborhoods to once again flourish. This county, and other border counties, have wanted the authority to control development for the purpose of preventing colonias where people build without water or electricity. In more wealthy counties, Travis for instance, the debate on ordinance authority is driven by the desire of homeowners to have the same protections as they had inside municipalities. When upper middle class or
upper class neighborhoods are developed, the buyers save money because the costs don’t include typical fees and expenses normal within municipalities. The desire for ordinance authority in these developments has more to do with nuisances. New residents don’t welcome the freedom of others to be as noisy as they please. Also, there are no restrictions preventing the establishment of less desirable entities such as drag strips or adult clubs. Along the same vein, a bill was passed, setting building codes, last session that gave counties the option to impose a very minimal level of authority outside of municipalities. Originally, the bill was bracketed exclusively to El Paso County. But a last minute amendment weakened the original bill and affected every county in Texas except one. The new law did not provide any true authority to counties but laid the foundation for some oversight on new home construction. As with any new law, improvements can be made in subsequent sessions. It just so happened that the El Paso County Commissioners brought this law up for consideration the week after this article was written. After much deliberation, the Commissioners voted 3 to 2 against adopting any of the provisions in the building codes bill. The reasons for the failure to adopt were
Freedom in 2003, fifty one soldiers deployed from Fort Bliss have died from wounds received in combat or noncombat related incidents. About 1,000 Fort Bliss troops will remain in Iraq as part of the less than 50,000 soldiers who will continue to train Iraqi security forces. The base was a major staging area to train and deploy soldiers from throughout the nation. Since 2003, Fort Bliss has deployed more than 200,000 servicemembers to support the Iraq mission. Next year, with the completion of BRACrelated growth, Fort Bliss will be one of the largest military installations in the nation. By next year, all of the transfers from the 2005 BRAC process to Fort Bliss will be in place. In all, Fort Bliss’ troop population will grow from 9,330 in 2005 to an estimated 34,000.
We should all be proud of the many sacrifices that our troops and their families, particularly those here at Fort Bliss, have made and continue to make in this effort. We also have a solemn obligation to take care of our troops when they return home and ensure they have access to the care they need and all the resources necessary to return to civilian life. During his visit, President Obama shook the hands of every soldier in the audience, and met with many spouses and family members who have lost their loved ones. The President was warmly received by everyone in attendance, and left a lasting impression. I am pleased the President chose to mark this historic moment at Fort Bliss and recognized the many contributions our troops and their families have made.
before he addressed the nation from the Oval Office. I had the opportunity to sit down with the President aboard Air Force One as we traveled to Biggs Army Airfield. President Obama’s visit underscores Fort Bliss’ importance to America’s national defense. Fort Bliss troops have played a critical role in the War in Iraq from the very beginning. Air defenders operated Patriot Missile Systems to protect coalition forces staging areas throughout the Persian Gulf, and 3,600 Fort Bliss soldiers participated in the initial invasion in 2003. Of course, we will never forget that terrible day on March 23, 2003 when nine soldiers from the 507th Maintenance Company at Fort Bliss died when their convoy was ambushed by enemy forces. Since the beginning of Operation Iraqi
based on two arguments: there is no need for the county to impose its authority outside of municipalities; and the provisions in the bill were not strong enough. El Paso County was not alone in refusing to adopt the new law. Out of the 256 counties in Texas, only 30 counties have voted to adopt some or all of the provisions for setting building codes and requiring inspections. I expect to see more legislation that addresses county ordinance authority outside of municipalities. I don’t expect those bills to get much traction, however.
The legislature gave 255 counties the opportunity to adopt a minimal amount of authority in the unincorporated areas but only 30 did so. Since the original bill was filed by the El Paso delegation, it was important that El Paso County adopt it; but that was not the case. Those two arguments will have a big affect on any new legislation proposed for allowing counties any authority outside municipalities.
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Builders Outlook
SEPTEMBER 2010
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Builders Outlook
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Builders Outlook
SEPTEMBER 2010
Housing remains highly affordable Bolstered by favorable interest rates and low house prices, housing affordability remained near its highest level nationwide for the sixth consecutive quarter since the series was first compiled nearly two decades ago, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index (HOI) released today. The HOI indicated that 72.3 percent of all new and existing homes sold in the second quarter of 2010 were affordable to families earning the national median income of $64,400. The index for the second quarter was slightly more affordable than the previous quarter and almost equaled the record-high 72.5 percent set during the first quarter of 2009. Until 2009, the HOI rarely topped 67 percent and never reached 70 percent. “Homeownership is within reach of more households than it has been for almost a generation,” said NAHB Chairman Bob Jones, a home builder from Bloomfield Hills, Mich. “Interest rates continue to hover at historic low levels, the economy is beginning to rebound and with house prices starting to stabilize, conditions are beginning to draw home buyers back into the market, which is a positive step on the path to recovery.” Syracuse, N.Y., was the most affordable major housing market in the country, edging out Indianapolis-Carmel, Ind., which had held the top ranking for nearly five years. In Syracuse, 97.2 percent of all homes sold were affordable to households earning the area’s median family income of $64,300. Also near the top of the list of the most affordable major metro housing markets were
Detroit-Livonia-Dearborn, Mich.; YoungstownWarren-Boardman, Ohio-Pa.; and BuffaloNiagara Falls, N.Y. Among smaller housing markets, the most affordable was Springfield, Ohio, where 96.6 percent of homes sold during the second quarter of 2010 were affordable to families earning a median-income of $56,800. Other smaller housing markets near the top of the index included Mansfield, Ohio; Bay City, Mich.; Monroe, Mich.; and Lansing-East Lansing, Mich., respectively. New York-White Plains-Wayne, N.Y.-N.J.,
continued to lead the nation as its least affordable major housing market during the second quarter of 2010. There, 19.9 percent of all homes sold during the quarter were affordable to those earning the New York area’s median income of $65,600. This was the ninth consecutive quarter that the New York metropolitan division has occupied this position. The other major metro areas near the bottom of the affordability scale included San Francisco-San Mateo-Redwood City; Santa Ana-Anaheim-Irvine, Calif.; Los Angeles-
Long Beach-Glendale, Calif.; and Honolulu, all metro areas that have lingered among the bottom rankings for several quarters. San Luis Obispo-Paso Robles, Calif., was the least affordable of the smaller metro housing markets in the country during the second quarter. Others near the bottom included Santa Cruz-Watsonville, Calif.; Ocean City, N.J; Santa Barbara-Santa Maria-Goleta, Calif.; and Napa, Calif.
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SEPTEMBER 2010
EPAB ON THE SCENE Membership Drive Seven teams brought in 113 new applications for membership in a 48 hour period August 25 & 26. The cochairs for the event were Mike Santamaria and Greg Bowling, both of whom cheered on the other 5 teams on to an exciting finish. The new members were approved by the Board of Directors on September 8 and are now receiving their new member kits produced by Montoya PR. President Randy O’Leary congratulated all the team members for the valiant effort especially during a tough economic time. “I congratulate the captains and send our thanks to all of the members and staff on a super job of recruiting ,” he said. “We now have the need to ensure that they become active and that we retain them for years to come,” O’Leary continued.
Welcome to our new members! Captain Mike Santamaria, “Los Matadores” KB Realty, Preston Brown Elite Realty, Raquel Vargas Words Auto Company, Bill Word El Paso Truss, Luis Mendiola Rago Law Firm, Jeff Rago Raw Envisions, Roshelle Winkler Frank X. Spencer & Assoc., Keza Valenciana Mingos Painting, Eric Chavarria Commercial Screen Printing, Roxane Schubele Or Dawn Rew Materials, Hugo Morales Painted Dunes Desert Golf Course, Anthony Belon Salvador Guereca, Salvador Guereca Luis Lopez, Luis Lopez GCR Tire Center, Howard Schmitt Pedro Ramirez, Pedro Ramirez Agustin Sanchez, Agustin Sanchez Antonio Martinez, Antonio Martinez Cesar Gonzalez, Cesar Gonzalez D. Chevalier Electric, Inc., Manny Chevalier Jorge Martinez, Jorge Martinez Manuel Gordillo, Manuel Gordillo Jose Hernandez, Jose Hernandez VJE Plumbing, Victor Porras Gabriel Higareda, Gabriel Higareda Alfonso Maese, Alfonso Maese Juan Manuel Rivera, Juan Manuel Rivera Mountain Vista Realty, Mike Santamaria KLAq/KROD, Brad Dubow Raymundo Tapia, Raymundo Tapia Metro Mix, John Mullen Barraza Realty, Jesus Barraza Sun City Builders, Claude Sapien Southwest Mata Drywall, Joe Mata Master Cuts Lawn & Tree Service, Llc, Sid Steadman
Pauter Enterprises, Inc., Edgar Hernandez Rudolph Chevrolet, Debbie Bowden
Captain Sam Shallenberger, “Los Chingones” Century 21 The Edge, Scott Kessner One Stop Print Shop, Victor Tarin Nationwide Advertising Specialty Co., Joe L. Montelongo Haddad Mortgage Group, Gus Haddad Sunwest Distributing, Albert Holguin Impco Air Coolers, John Kaponen Cedar Ridge, Pat Durkin J.R. Homes, Joel Ramos Embers, Ken Scholten Tops Tire & Wheels, Romano or RJ Vidal S. Robert Iron Works, Rene Roberts Master Plan Designs, Eric Madrigal Kitchens By Mobilia,LLC, Arturo Iglesias Blown Insulation Products, Jack St. Jacques DCS / Fisher & Paykel, Sonny Marak Gateway Air Conditioning & Sheetmetal, Juan Ortiz
Captain Jose Ortiz, “Los Misterios” Dakota Premium Hardwoods, Sandra Serrano Moen Inc., Steven Reeve Captain Greg Bowling, “Los Nachos Libres” Mortgage Masters, Reann Gonzalez Cielo Vista- West Tex Custom Payroll, George Saenz Loretta Blankenship CPA, Loretta Blankenship Mills Escrow, Joye Mills
A & A Air Conditioning, Filiberto Fuentes Barragan & Associates, Benito Barragan Martinez Brothers Landscaping, Eddie Martinez Blanco Tile Co., Eduardo Blanco JB Laminates, Ben Rodriguez Castillo Electric, Jesus Castillo E. C. Plumbing, Inc., Enrique Castro GC Mirror Company, Gabriel Cortez CMF Enterprises, Carlos Munoz Southwestern Alarm Services, Jose Trejo New Start Insulation, Jose Angel Carreon Redco, Bob Cook Metro Signs, Richard Nacim K Trinity Real Estate Consultants, T. J. Karam Bank Of America Home Loans, Jessica Cardon Tropicana Properties, Demetrio Jimenez Moscato Homes, Inc., Susana Baquera Captain Kelly Sorenson, “The Queen Bees” Custom Dream Homes, Leti & Javier Navarette Palms West Homes, Clint Armstrong ERA- Sellers Buyers & Assoc., Jack Bumgardner CSS (Constrc. Serv. Supply), Jesse Valadez Captain Hector Montoya, “The Blues Brothers” Team Trim, Juan & Kris Hernandez Agustin Favela, Agustine Favela Jaime Torres, Jaime Torres Victor Torres, Victor Torres Gerardo Rodriguez, Gererdo Rodriguez Marlo Building Services, Roberto Martinez International Bank, Arlene Carroll Pat Brower PC,
Southwest Urgent Care,LLC, Dr. Sergio Ibarra Canales General Contracting, Jose Canales Four Seasons Construction, Mardi Crupper Enchantment Land Cert. Dev., Mirella Killenbec q Martin's Plumbing Services, Juan Martinez EBM Granite, Claudia & Sergio Jurado Professional Cleaning Service, Carlos Villalobos Elite Rod Iron, Monica Saenz G & C Mechanical LLC, Pablo Gomez/ Veronica Vega Montoya PR, Teresa Montoya Captain Randy O'leary, “Los Compañeros” Lopez Drywall, Tony's Cabinet, Tony Cobos Jesus Gutierrez, Jesus Gutierrez Jesus Garcia, Jesus Garcia Vasquez Ceramic, Gabe Vazquez Hernandez Electric, Fernando Medina H & H Concrete, Hector Betancourt Temp Line Heating & Cooling, Javier Silva Bernie's Heating & Cooling, Jerry Gonzalez Kay's Design, Juan Benandez Rodriguez Plastics, Henry Rodriguez L A Gardea Construction, Luis Gardea Luis Ceja, Luis O. Ceja M G Plumbing, Manuel Gutierrez Best Plastering, Javier Diaz Ceballos Roofing, Jose Ceballos Star Plumbing, Mike Rivas
10 SEPTEMBER 2010 LEGAL BRIEFS
By: Stephen L. Polozola Decker Jones Attorneys and Couselors Fort Worth, Texas There have been a number of articles over the last year that addresses a builder’s warranty obligations following the termination of the Texas Residential Construction Commission. However, over the last eleven months, I have seen a number of builders who have failed to amend their contracts and address their warranty obligations. In the current litigious climate, all builders should be aware of the risk to which they are exposing themselves if they fail to update their warranties. Prior to the enactment of the TRCC, Texas common law provided that new homes in Texas were subject to the implied warranty of good and workmanlike construction and the implied warranty of habitability. Historically, builders sought to waive these implied warranties to avoid the subjective and differing opinions of experts on what was the “correct” standard of care and manner to build a home. While many builders attempted to waive these implied warranties through their constructions contracts and avoid the battle of the experts, the question remained whether the contractual waiver was sufficient to comply with Texas law. On December 31, 2002, the Texas Supreme Court addressed this issue and settled conflicting State court opinions when it issued its opinion in Centex Homes v. Buecher, 95 S.W.3d 266 (Tex. 2002). In Centex, the Supreme Court was faced with the questions of whether the implied warranties were separate and distinct and whether such warranties could be waived contractually. The Court did opine that the two warranties were separate and defined each. In so doing, the Court held, the implied warranty [of good and workmanlike construction] requires the builder to construct the home in the same manner as would a generally proficient builder engaged in similar work and performing under similar circumstances. The implied warranty of good workmanship may be disclaimed by the parties when their agreement provides for the manner, performance or quality of the desired construction. The implied warranty of habitability can be waived only to the extent that defects are adequately disclosed. It may not be disclaimed generally. This latter implied warranty, however, only extends to defects that render the property so defective that it is unsuitable for its intended use as a home. Shortly after the issuance of this opinion, the Texas Legislature created the TRCC, which was designed to regulate residential construction, warranties, and building standards. The statutes that created the TRCC established statutorily required building codes (e.g., IRC and the NEC), performance standards, and most importantly waived and eliminated all implied warranties that governed residential construction. These codes, standards, and waivers were set forth in what was known as the Texas Limited Statutory Warranty and Building and Performance Standards (TRCC Warranty). Consequently, for the duration of the TRCC (September 1, 2003 – August 31, 2009), the Centex opinion had little, if any, application to residential
Builders Outlook
Protection Against the Implied Warranty of Good and Workmanlike Construction? construction defect cases. With the TRCC Warranty and waiver of implied warranties having no further application to new construction, it became imperative that builders address the application of the Centex opinion in their construction contracts and warranties. Some form construction contracts were rewritten to address these warranty concerns. For the reasons set forth below, home builders should incorporate a warranty similar to the TRCC Warranty into their contracts. First, by incorporating the TRCC Warranty, builders should be able to properly waive the implied warranty of good and workmanlike construction within its contract and legitimately argue such waiver in Court/Arbitration. Without such incorporation, builders are likely to be subjected to the implied warranty. Second, builders are cautioned about incorporating or relying on the “FHA” or other similar standards as their warranty. Such standards are likely insufficient for describing the manner, performance or quality of the desired construction required by Centex and would subject the builder to the implied warranty of good and workmanlike construction. In this author’s opinion, the FHA
standards are deficient in their application of and fall short of meeting the Centex requirements. Third, application of the implied warranties will necessarily increase the cost of litigation/arbitration and the builder’s risk because of the likely battle of the experts. Without question, in a construction defect suit, homeowner’s will retain numerous experts to opine on how the builder failed to construct the home in the same manner as would a generally proficient builder engaged in similar work and performing under similar circumstances. In response, builders will contradict such testimony with their own experts (and likely multiple experts) who will testify to the same from an opposing point of view. This contradicting testimony to establish the standard of construction ultimately will leave the decision of whether the builder properly constructed the home in the hands of an arbitrator or jury, who may or may not have the construction experience to make such determination. By leaving this decision up to the arbitrator/jury and not a definite set of performance standards for whether the house is performing properly, the builder’s liability
increases significantly and is solely dependent on what the arbitrator/jury believes to be the correct manner of construction. Consequently, should a builder not incorporate a warranty similar to the TRCC Warranty, risk management becomes increasingly more difficult, likely outcomes cannot be predicted, and case evaluations are judged on the basis of who is the arbitrator all of which exposes the builder to greater risk. Fourth, I believe that conformance with the TRCC Warranty also provides the builder a tremendous marketing advantage. Builders who offer shortened warranties or warranties that lack any detail are at a competitive disadvantage to those who do. It is likely that prospective customers who are evaluating competing builders are more likely than not to go with a builder who has a detailed warranty program. In summary and for the reasons set forth above, it is my opinion that at the very least, builders should incorporate a warranty similar to the TRCC Warranty into their construction contracts and such incorporation would likely waive and avoid application of the implied warranty of good and workmanlike construction in a construction defect case.
Builders Outlook
SEPTEMBER 2010
Homebuyer tax credit not likely anytime soon There's no serious talk of reinstating the homebuyer tax credit, the White House and real estate industry trade groups say, quashing speculation [1] that followed statements Housing Secretary Shaun Donovan made on a Sunday morning news show. Appearing on CNN's "State of the Union" on Aug. 29, Donovan said July's housing sales numbers were worse than expected. The Obama administration was rolling out a new FHA refinancing program targeted at underwater borrowers, he said, and an emergency loan program aimed at helping unemployed borrowers keep their homes. Pressed by host Ed Henry on whether the administration was also considering reviving the homebuyer tax credit "to try to prop this industry up," Donovan said, "I think it's too early to say after one month of numbers whether the tax credit will be revived or not. All I can tell you is that we are watching very carefully." In extending the tax credit for a third time last fall, lawmakers warned [2] that they would not do so again. But Donovan's remarks suggested that the strategy might come back into play. Two other guests on the show, Florida Gov. Charlie Crist and Rep. Kendrick Meek, D-Fla., candidates for U.S. Senate in November, said they'd welcome a restoration of the homebuyer tax credit program. Three days later, Donovan clarified that bringing back the tax credit "is not high on anyone's list that we have heard," Reuters reported [3]. "We have not heard Congress talking about renewing it." Donovan also told Reuters that the Federal Housing Administration's refinance program was "something that we have talked about before, so it wasn't any new program." FHA announced the FHA Short Refinance program [4] in March, and released guidance to lenders on Aug. 6 for a Sept. 7 launch. As for resurrecting the homebuyer tax credit, neither the National Association of Realtors nor the National Association of Home Builders -- industry groups who lobbied hard for its extension last fall -- want to see it come back now that
it's expired, the San Francisco Chronicle reported [5]. Before the tax credit expired, NAR was reportedly lobbying [6] for it to be extended through the end of the year, and an issue summary [7] posted on the Top 7 states for homebuyer tax credit claims California 261,302 claims $1.95 billion
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Texas 190,979 claims $1.39 billion Florida 149,066 claims $1.08 billion Illinois 84,559 claims $601 million Pennsylvania 83,627claims $591 million New York 81,867 claims $579 million Michigan 84,992 claims $538 million association's website still states that as the group's position. There's been considerable debate about whether the credit -- three different versions of which were in place between April 9, 2008, and June 30, 2010 -- was worth an estimated $22 billion loss in revenue through 2019. While more than 2.25 million homebuyers had claimed the credit in its various forms as of July 3, some critics say many of them would have bought a home anyway, and that the tax credit spurred only a fraction of those transactions. The U.S. Government Accountability Office (GAO) released a report [8] Thursday analyzing the number of claims received by state to date and the estimated dollar amounts of those claims. Claims topped $1 billion in California, Texas and Florida, and amounted to less than $50 million in less populous states like Vermont, Alaska, Hawaii, Delaware and North Dakota. By Inman_News
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Builders Outlook
Builders Outlook
september 2010
Membership News UPCOMING EVENTS September 22-26 NAHB Fall Board Meetings New York, NY
October 14-16 Sunbelt Builders Show TAB Fall Board Meetings Gaylord Texan Grapevine, Texas
September 28 Associates Council Meeting 12 Noon EPAB
October 13 Board and General Meeting
September 29 Land Use Council 12 Noon EPAB
October Treasure Tour of Homes TBD
September 30 Green Build Council 12 Noon EPAB
SODA SPONSOR Thanks to our September Soda Sponsor Lone Star Title
RENEWALS 3 – D Hauling 77 Stone Axess Homes Bonded Builders Capital Bank SSB Cardel Design Group Casa Carpet & Tile Complete Reprographics Donald Ward Builder, Inc. Excellent Kitchens, LLC GECU Heavenly Homes J & J Landscaping KTSM News Channel 9
LMC Design Group Mor Sheet Metal M Rentals New Era Spray Foam Insulation Palo Verde Homes Passage Supply ‘Rio Bravo Title Roy Lowns Classic Awards & Billiards Scott, Hulse, Marshall, Feuille, Finger & Thurmond, PC Servigas/ Ikard & Newsom Sierra Machinery, Inc.
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Builders Outlook
Land Use Council Linda Troncoso
Sal Masoud
www.elpasobuilders.com by Linda Troncoso
The Land Use Council is actively involved in local and/or governmental issues which affect the development community. This summer, the Federal Emergency Management Agency (FEMA) published the draft Federal Rate Insurance Maps (FIRMs), which began the 90-day appeal and protest period to the public. Engineering data must be provided in order to support the appeal or protest. A meeting is currently scheduled with City Representative Ann Morgan Lilly to discuss both the new FEMA Maps and the status of Levy Reconstruction on September 22, 2010 at City Hall at 10:30 AM. Following the appeal / protest period, FEMA will review the appeals and comments and make revisions as necessary to the maps. This is anticipated to be completed in late 2010. At that time, a public notice will be published in six (6) months in advance of the effective date. Six months later, the new Flood Insurance Rate Maps would become effective. As previously discussed on various occasions, the significance associated with the new FIRM maps lies in areas in the valley where hydraulic modeling has not been performed in order to support a protest on a technical basis. The scope and expense associated with such technical study would
EPAB ON THE SCENE
be overwhelmingly burdensome for individual property owners. As such, the development community has sought support from City leaders for technical modeling necessary to protest. In addition, the City is also in the process of modifying the Title 18, Chapter 18.44 (Grading) at the direction of the City leaders in order to reduce erosion, preserve open space, and reduce blowing dust which contributes to the non-attainment classification of the air quality in El Paso for PM-10 (dust particles of a diameter of 10 micrometers or less which are considered to be responsible for adverse health affects in the respiratory tract). City Engineering met with the Land Use Council and Governmental Affairs members in early August to review the ordinance and discuss the changes. The ordinance is still being revised to address how the grading restrictions would be applied to flow path areas. City Engineering is working with a subcommittee of the Land Use Council to more clearly define the requirements described in the code. We look forward to everyone’s participation and invite members to join us at the September Land Use Council Meeting.
August General Meeting
SEPTEMBER 2010
The August membership meeting was held at the Vista Hill country Club. Over 90 people attended the luncheon and heard from two outstanding members about the importance of home owners insurance. Joe Bernal of Bernal Financial Services and Jessie Estrada from Allstate Insurance gave the audience the inside scoop on how to look at insurance for the home or for the rental. The next general membership meeting will take place October 13 at a place yet to be determined.
6046 Surety Dr. El Paso, TX 79905 915-778-5387 • Fax: 915-772-3038 ■ execuTive officerS randy o’Leary, President Desert View Homes. Greg Bowling, vice President Tropicana Homes Hector montoya, Secretary/Treasurer Bella Homes eric Lowenberg, Associates council Emser Tile Kelly Sorenson, immediate Past President Dakota Homes, Inc. ray Adauto, executive vice President El Paso Association of Builders Sandy Mead, Executive Vice-President ■ couNciL/commiTTee cHAirS Affordable Builders Council Greg Bowling Associates Council Eric Lowenberg Build PAC El Paso Bobby Bowling IV Desert Green Building Council Javier Ruiz Government Affairs Council Pat Woods Industry Promotions Kelly Sorenson Land Use Council Linda Troncoso Sal Masoud Golf Committee Kathy Carrillo Eric Lowenberg Young Designer Award John Chaney ■ ADviSorY To THe BoArD Tony Guel, El Paso Electric Company J. Crawford Kerr, Attorney, Firth, Johnson & Martinez Alfred Moreno, Texas Gas Service ■ BoArD of DirecTorS Danny Andrus, Trinity Homes John Arranda, Southwest Securities Bank, FSB Joe Bernal, Joe Bernal Insurance Cindy Bilbe, Stewart Title David Bogas, EPT Communities John Chaney, Passage Supply Justin Chapman, Hunt Communities Sergio Cuartas, BIC Homes Edmundo Dena, Accent Homes Ted Escobedo, Snappy Publishing Art Garcia, El Paso Door Juanita Garcia, ICON Custom Home Builder,LLC Danny Gerard, Desert Agave Builders, LLC Nathan Gordon, Dunn –Edwards Wellborn Paints Miguel Herrera, Simply the Best Custom Homes Lorraine Huit, Cardel Homes Bob Kotarski, City Bank of El Paso Walter Lujan, Dawco Home Builders Yolie Melendez-Estrada, Teacher’s FC Union Robert Najera, Joseph Homes Kelly O’Leary, Desert View Construction Jose Ortiz, Foxworth-Galbraith Lumber Kathy Parry, Hunt Communities Bob Paschich, Oeste Homes Donald Rasette, Rassette Homes Ruben Rivera, the Taft Company Kathy Rose, Builders Source David Samaniego, Ferguson Regina Sanchez, Compass Bank Sam Shallenberger, Western Wholesale Frank Spencer, Aztec Contractors Frank Torres, GMF Homes Linda Troncoso, Gray-Jansing & Associates Javier Veloz, Zia Homes Lorraine Wardy, El Paso Sanitation Systems Paul Zacour, Zacour & Associates
■ TAB STATe DirecTorS ALTerNATeS (A) Doug Borrett, Karam Co. Randy Bowling, Tropicana Homes Frank Torres, GMF Homes (A) ■ NATioNAL DirecTorS Bobby Bowling IV. Randy O’Leary Greg Bowling
NATioNAL ASSociATioN of Home BuiLDerS (800) 368-5242
TexAS ASSociATioN of BuiLDerS (800)252-3625
2009 Builder member of The Year Jim Sorenson Classic American Homes 2009 Pat cox Award Doug Borrett The Karam Company 2009 Associate of The Year Kathy Carillo Pioneer Bank
Honorary Life members Wayne Grinnell Don Henderson Chester Lovelady Cliff C. Anthes Anna Gill Past Presidents committed to Serve
Mark Dyer Mike Santamaria John Cullers Randy Bowling Doug Schwartz Del Huit Herschel Stringfield Robert Baeza
Bobby Bowling, IV Rudy Guel Anna Gill Bradley Roe Bob Bowling, III Pat Woods EH Baeza
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 homes of excellence and value The El Paso Association of Builders is a 501C(6) trade organization.
© 2010 Builder’s Outlook is published and distributed for the El Paso Association of Builders by Snappy Publishing • 120 Paragon Suite 220 El Paso • Texas • 79912 915-820-2800
El Paso Desert Open Golf
EPAB ON THE SCENE SEPTEMBER 2010
El Paso Desert Open golf Pro Am was held at Painted Dunes Desert GC on Tuesday, September 7. The field of 28 teams was separated into two groups, morning and afternoon. A cloudless hot day with gusting winds did not damper the enthusiastic play of the teams. A professional from the Adams Pro Series Golf Tour joined three member teams in a rousing fun day of golf. Winners of the 1st Pro Am was the team from EPT Land Communities, Steve Haskins, Pat Espinoza and Joe Fulkerson. In 2nd place was the team from Mountain Vista Builders, Mike Santamaria, Bill Word and Ed Santamaria. Finally in at 3rd was the team from CEMEX with Ric Siefkas, Mike Harrison and Jaime Rosales. All teams won a cash payout. The winning closest to the pin awards went to Mike Santamaria and Bill Word, while the longest drive winners included Morris Wells on the Goff’s Appliance and TV team.
Our sincere appreciation to the committee John Chaney, David Bogas, Eric Lowenberg, Sam Shallenberger, Charlie Birkelbach and Ray Adauto. Painted Dunes staff led by Pro Mark Gonzalez and General manager Anthony Bellow. Our sponsors included Passage Supply and Goff’s Appliance and TV; caps provided by Western Wholesale Supply, tee box and flags by Hunt Communities; driving range by Bank of the West and Massey Johnson; putting green by JDW Insurance; carts by James Heard. The El Paso Times along with KLAQ/Kiss Radio, Greg Freyermuth all provided outstanding promotional support. Our thanks also to Teresa Montoya PR for their support and work on this project along with staff Angie DeLuna and Margaret Adauto. Get ready for the 2011 Adams Pro Tour Series Golf coming back to Painted Dunes. Team reservations are being taken now along with sponsorship opportunities.