NAHB Briefs: April 2007

Grow Old Together

The boomers have arrived, and they know what they want.

The great post–World War II baby boom generation—people born between 1946 and 1964—is now beginning to reach retirement age. And just as their numbers and buying power have shaped everything from pop culture to mass marketing, they are shaping the market for new homes in profound ways.

A new awards program co-sponsored by the NAHB and AARP will recognize builders, remodelers, and developers who are most effectively meeting the needs of this growing market.

The Livable Communities Awards program was announced during February's International Builders' Show in Orlando, Fla. It will recognize creative and unique home and community projects that improve the daily comfort, ease, and safety of their residents. The program will also highlight the critical elements needed for a livable community.

This is the first time that the NAHB has joined in a project with AARP, which represents 38 million people aged 50 and over, and we are very pleased to be cooperating with them on such an important initiative. This awards program will recognize homes and communities that are thoughtfully designed and carefully executed to accommodate various needs and priorities.

The AARP & NAHB Livable Communities Awards will be presented annually to three professional groups—builders, remodelers, and developers—for projects that incorporate such aspects as:

• Design elements that accommodate the needs of all residents with all levels of physical ability from children to grandparents;
• Easy access to community services and features such as retail, restaurants, medical care, social and cultural activities, as well as viable transportation options;
• Improved energy efficiency and enhanced site design;
• Better communication with key stakeholders.

  The awards are not limited to homes and communities designed for the 55-plus market. Any design that effectively incorporates aging-in-place and universal design features is a potential winner.

  THE CONTENDERS

  The NAHB and AARP are looking for applicants that reflect the full diversity of the home building industry. Categories include: builders (single-family or multifamily), with separate winners chosen for units of 2,500 square feet or less and units of more than 2,500 square feet; remodelers, with winners chosen for projects up to $25,000 and for projects costing more than $25,000; and developers, with winners chosen for development projects up to 250 units and for developments of more than 250 units. Projects must have been completed and opened or been eligible for occupancy between Jan. 1, 2005 and June 1, 2007.

  A panel of expert judges appointed by the NAHB and AARP will review the applications and select the finalists. Judging criteria vary from category to category, but elements that will be rated include universal design features, ease of maintenance and energy efficiency, and stakeholder involvement. Other judging criteria include exterior design, landscaping/site design, and incorporation of livable community design features. Winners also will be reviewed to determine that they are good corporate citizens and in full compliance with all applicable laws and regulations at the federal, state, and local levels.

  Applications for the first Livable Communities Awards are due June 1, 2007, and I urge members to enter this important new awards program. Not only will it provide recognition for builders, remodelers, and developers who do an exemplary job, but it will also provide great examples for people in our industry to emulate.

  Winners will be announced in a gala event in December in Washington and will be featured in AARP The Magazine, the largest circulation magazine in America. Winners will also be recognized at the 2008 International Builders' Show. For more information, contact Blake Smith at bsmith@nahb.com, or go to www.aarp.org/livablecommunitiesaward.

  Brian C. Catalde, PRESIDENT, NAHB WASHINGTON, D.C.

NAHB Briefs

Home builders looking for clarity regarding Clean Water Act regulations got a step closer March 8 when the 9th Circuit U.S. Court of Appeals reversed a lower court ruling in San Francisco Baykeeper vs. Cargill Salt Division, and decided that a pond is not subject to the Act. The NAHB submitted an amicus brief in the case, and NAHB president Brian Catalde cheered the decision. “These regulatory burdens translate into expenses that increase the price of homes. We need to stop this bureaucratic expansion on behalf of our home buyers,” Catalde says. In Baykeeper, the district court had ruled in 2006 that a holding pond used to deposit waste saltwater from Cargill's salt-making business was subject to regulation under the Act because it is next to Mowry Slough, a navigable tributary of the San Francisco Bay. However, an earthen berm separates the pond from Mowry Slough. “We conclude that mere adjacency provides a basis for [Clean Water Act jurisdiction] only when the relevant water body is a ‘wetland,'” Judge William C. Canby Jr. says.

The rental apartment market shows signs of rebounding following the condo construction and conversion exuberance of recent years. The return of developers to the market-rate apartment sector—the low-rent government subsidized apartment sector never really faltered—is being fueled by increased household demand for rental units and depleted supply due to the earlier conversion of rental apartment buildings to condominium ownership. “We are forecasting that the rental and for-sale sectors of the multifamily market will rebalance during the next two years, with about one-third of multifamily starts representing condos and nearly two-thirds representing rentals by the end of 2007,” says David Seiders, the NAHB's chief economist. “Last year, the for-sale market had grown to represent nearly half of all multifamily starts, a record share, and a correction now is under way.”

Condo builders reported somewhat better market conditions in the fourth quarter of 2006 than in the previous quarter, according to the latest results of the NAHB's Multifamily Condo Market Index released in early March. The current-conditions index remained substantially lower than it was at the same time last year, but builders and developers are more optimistic about what they think the condo market will be doing six months out. Traffic of prospective buyers also rose slightly from the previous quarter. “The condo market is coming back toward balance following the previous four quarters when the pendulum swung from red-hot to seriously cold,” says NAHB chief economist David Seiders. “What we are looking for—and likely to find in 2007—is a healthy and sustainable level of condo production.”

Lax Lending

The relaxed mortgage lending standards of the boom years are coming home to roost.

The unsustainable housing boom that began in the latter part of 2003 and ran into the early part of 2006 was fueled by extraordinarily stimulative financial market conditions, including a historically low interest rate structure in the U.S. We also saw a progressive relaxation of mortgage lending standards as the financing community sought to maintain growth in mortgage debt in the face of rapidly rising house prices, while both prospective homeowners and investors/speculators eagerly participated in the process. But the environment has changed dramatically, and we're now dealing with deteriorating mortgage credit quality and a snapback in lending standards—developments that pose new risks to our projected housing market recovery.

Various “affordability” mortgage products were developed and marketed during the boom. These included nontraditional mortgage loan structures, such as deeply discounted interest-only adjustable-rate loans and payment-option ARMs that permit buildup of loan principal (negative amortization). Other risky features often were layered on top of such loans, including piggyback second mortgages and underwriting procedures that required little or no documentation of the income or assets of borrowers.

The prospects for home price appreciation have weakened dramatically and the investment community has been learning about the real risks of mortgage securities issued against pools of various affordability products. Indeed, the subprime mortgage market is in disarray, the financial rating agencies are in the game, and regulators of depository institutions have moved against the nontraditional ARM structures as well as subprime ARMs that promise to generate serious payment shock. Freddie Mac also has spoken out on the latter topic.

The snapback of mortgage lending standards gained momentum early this year in the subprime component of the market, and the shift toward firmer standards inevitably has percolated up into the Alt-A segment of the market where credit scores are somewhat higher but where little or no documentation of borrower income and assets has been required. The quantitatively dominant prime mortgage market has been affected primarily by pressures on lenders from federal and state regulators to underwrite interest-only and payment-option ARMs at their fully indexed and fully amortizing interest rates.

As long as the overall economy continues to perform reasonably well and interest rates remain close to current levels, further deterioration of house values will be limited and credit quality problems will be contained. Furthermore, the wide dispersion of mortgage credit risk will keep this problem from generating financial market crises in either national or international markets—contrary to well-publicized contentions by some pundits.

The real issues for the housing market are twofold: first, the number of mortgage foreclosures that will put homes back onto the markets, adding to the already heavy inventory overhang; second, the number of prospective home buyers that will be filtered out of the market by stricter lending standards in subprime, Alt-A, and prime components of the mortgage market.

History provides only limited guidance in these areas. The NAHB's current forecast assumes that the foreclosure/inventory issue will not turn out to be a major weight on the market and that the firmer lending standards will not put a heavy hit on home sales over the balance of the year. We're still projecting modest upswings in home sales and housing starts from recent lows, although breaking developments on the mortgage front obviously could pose additional downside risk. Stay tuned!

David F. Seiders, CHIEF ECONOMIST, NAHB WASHINGTON, D.C.

Flex Your Pex

The NAHB Research Center's new guide eases design and installation of residential PEX water supply plumbing systems.

The flexible, polymer pipe known as PEX (cross-linked polyethylene) has gained popularity among home builders in recent years as a cost competitive alternative to traditional rigid piping materials. While PEX water supply systems can offer a significant savings on labor and materials, some hurdles to its widespread use still exist.

Some building professionals have reported challenges in adopting PEX due to the lack of a comprehensive field resource to help them properly design and install the systems. To meet this need, the NAHB Research Center has developed the “Design Guide for Residential PEX Water Supply Plumbing Systems,” a new resource to help increase the adoption and proper use of PEX water supply plumbing systems.

Released at the International Builders' Show in February, the guide provides design concepts and installation guidelines that builders, designers, and contractors need to properly install PEX systems in residential buildings. Homeowners working with a custom builder or serving as a general contractor on a home construction project may also find the guide useful.

Easy-to-follow instructions on installation and joining methods, as well as guidance on code acceptance make the guide a reliable, must-have reference for builders. The guide is also intended as a resource for code inspectors and homeowners wanting to learn more about the performance characteristics and benefits of the technology.

Ease of installation; mechanical connections that eliminate the solder and flame; resistance to scaling, corrosion, and freeze damage; and applications for water conservation and optimal system performance are some benefits covered in the guide. PEX is approved in all the major building codes, but has not yet received local code acceptance in some areas of the country.

The guide was created by the Research Center in partnership with the Plastics Pipe Institute, the Plastic Pipe and Fittings Association, and the Partnership for Advancing Technology in Housing, and is available for free download at www.ToolBase.org/pexdesignguide.