On Not Being Nouriel Roubini
Some days, there’s just not that much to be thankful for. So we have to find a way to be thankful for less. For instance, the milk with these Cheerios is tasting wonderfully fresh this morning. See? If you practice, it’s not that hard. Try again. Hmmm. Well, I woke up today to discover I’m not Nouriel Roubini. There you go.
Here’s Dr. Doom spreading his cheer among the smart and the powerful in the mountains of Davos. Click on the photo to view. Keep Kleenex at the ready, for you may weep.
Nouriel Roubini, aka Dr. Doom, click and be sobered.
“Certainly starting a war with China on the issue of the currency is very, very dangerous,” he said. “The US is relying on the kindness of strangers — Russia, China, the Gulf States … to finance a huge, and growing, twin current account and fiscal deficit,” Roubini said.“If China were to pull the plug on financing the US dollar, then we’d have a freefall of the dollar,” he added.
Count your blessings
Credit: CNBC Coverage of the World Economic Forum, Davos, Switzerland.
What Happened in Vegas, for Once, Leaves Vegas
Click here for full line-up of Builderonline Coverage of the International Builders Show.
On the ground at the International Builders Show in Las Vegas last week, Hanley Wood has been a hive of activity. Correspondents from a dozen or more of Hanley Wood’s titles roved the inner and outer rings of hell at the convention, capturing the many faces of the show for a spectrum of audiences with an array of information needs and enthusiasms that range from what’s new in nails to what makes a home builder want to get up in the morning.
Builder TV introduced daily news coverage of IBS proceedings, with editorial director Boyce Thompson leading a team of staff correspondents, producers, and videographers on the show floor. Analysis of industry data, face-to-face interviews with home builders, products and materials suppliers, consultants, and analysts, and product demos populate the line-up of reports and video segments. Have a look.
- EcoHome’s staff scoured the show floor for standouts among the hundreds of new planet-friendlier products on display last week. Here’s where to go to see their report.
Click pic for Yaussi's IBS-alog.
Big Builder senior editor Sarah Yaussi weaves observational, analytical, and personal data and insights in her five-part Baedeker from Las Vegas. In addition to round-the-clock reporting among home building executives, market intelligence analysts, and sales and marketing gurus, Yaussi’s daily journal takes her conversation out among some of the Las Vegas Valley’s new communities–each struggling to strike a chord among the few home buyers trolling for new home dreams come true. Here’s a snippet for example.
I asked Barry Gross, founder of Developers Research, this question following the close of the session. Sitting at a table in the corner of Starbucks, the first thought out of his mouth was that builders and developers needed to rethink their existing land plans; they’ve already retooled the product, but it’s not enough. There are ways to cut significant costs by thinking about development in a different way, generating more pocketable cash for the builder/developer that can help them wait out this stalemate between banks and the builders.
The key to achieving that is understanding relationships, Barry explained. Point in case? Barry said he sees builders and developers spend money on grading land to save paving costs, not realizing that it’s going to cost them more per square foot for the necessary landscaping post-grading.
But after a few moments of thought, Barry had a couple more words of advice for builders struggling with this issue:
- Get a quality control department that can review the documents you submit to the municipalities. Will save you time, money, and aggravation.
Click Webb photo to access Craig's blog.
ProSales magazine editor Craig Webb and his staff went the extra mile, literally, in Vegas. Here’s a link to the package of reports they put together from the trenches, along with sister titles Building Products and ebuild. What’s more, Craig posted an analysis of housing economics with a bit of a silver lining in his blog earlier this week. Here’s the link, and a sampling of his commentary.
Signs of an economic recovery could start showing up as early as May, led in part by what could be a surprisingly strong rebound in residential housing, a veteran economist told insulation dealers Saturday.
Kenneth Mayland, president of ClearView Economics, Pepper Pike, Ohio, was both optimistic and dour during his presentation in Las Vegas at Guardian Building Products’ Installed Sales Program conference. For instance, while he said that a vigorous housing market recover “could be the surprise for this year,” he is only forecasting 810,000 housing starts for this year, about 10% fewer than in 2008, and doesn’t believe starts will top 1 million again until 2011. He also expects non-residential construction activity to slow in 2009 and “languish at the bottom” in 2010.
On the plus side, Mayland noted that the typical recession lasts about 10 months. The group officially responsible for declaring when recessions start said the current one began in December 2007, but Mayland believes the downturn came in earnest only in August or September of 2008. Assuming this recession also will last 10 months, that would point to a turnaround around May.
In light of the fact that the NAHB reported that attendance at the show dropped off by almost 50% from last year, the Hanley Wood team pushed to give non-attendees access to highlights and hot-points at this year’s show.
- Here’s a link to Patrick Duffy’s HousingChronicles blog from IBS.
- Jonathan Smoke’s HousingIntelligence blog provides a take on home builder sentiment from Vegas.
- “From Browsers to Buyers” author and sales dynamo Mike Lyon weighs in with a show wrap on his DoYouConvert blog.
Question is, do you feel you missed anything by not going this year?
Oh Lord, Won’t you Buy Me a Mercedes Home
In the wide world, a four-letter word rules the headlines: Jobs. Lost jobs.
Earnings [or rather, quarterly financial results] pour in, reflecting an economy that ground to a halt in the fourth quarter. Gloom’s parked itself like an inverted weather front, with no where else really to go.
Then, to make Monday just about as bleak as one can be, we learned that our friends, the Buescher family, needed to file for Chapter 11 bankruptcy protection. Big Builder reported the filing yesterday. Builderonline.com has compiled a list of public and private companies that have gone under, or are struggling for survival under re-org.
In the filing, Mercedes requested that the court consider its bankruptcy and that of its subsidiaries as one case. They include Space Coast Truss, Mercedes Homes of Texas Holding, Suntree Office Complex, Engineering and Drafting Services, Mercedes Homes of the Carolinas, MHI Holding Company, Mercedes homes of Texas LTD, MHI Building Products, Solid Wall Systems, and Dairy Towns Community Developers.
It also asks the court’s permission to hire a handful of consultants to help the company reorganize. Odyssey Capital Group is being asked to help value the company. Alvarez & Marsal North America is proposed as the chief restructuring advisor, and Michael P. Kahn Associates is suggested as a special advisor to help the company raise financing. Richard M. Williamson, a managing director with Alvarez & Marsal and co-head of the firm’s West Region, is proposed as chief restructuring officer.
Mercedes, which builds in Florida, Texas, and North and South Carolina, has built more than 40,000 homes since its start in 1983. That year the company, founded by Howard Buescher and his daughter Susah Girard, built 35 homes.
A brief statement from the company, published in Monday’s Palm Beach Post, lays the blame squarely at the feet of the Federal Deposit Insurance Corporation.
“As is the case throughout the nation and in the entire residential construction industry, the company has suffered from the prolonged weakness in the economies of the markets where it does business,” Mercedes says in a statement. “In addition, the company has also suffered liquidity strains due, in part, to the takeover of one of its lenders in its lending syndicate by the FDIC.”
We’d heard that the real reason for the company’s demise was the classic “too long on land” noose that has and will asphixiate many of the companies doing business as home builders for the better part of the last two decades. Howard Buescher, who’d earned his stripes as a super salesman in the Ryan Homes company during the 1970s, paid close heed to Ryan’s ultra-conservative land and lot strategy into the first few years of this decade.
Then, amid giddy growth, the company popped out of its conservative cocoon and started showing up at the land buying dance in 2005 and 2006. The demographics and the “fundamentals” then supported the aggressive moves. Believing one’s own hype was practically a part of every home building company’s mission statement.
The correction, deflation, and ultimate reset of new-home prices and costs will transform home building. Harshly, the nation needs new homes cyclically, but not necessarily now. And the economy needs new home building cyclically, but it doesn’t necessarily need the ones who’ve been the power houses up to now. It’s a manufacturing, merchandising, and marketing skill set that doesn’t necessarily reward long years of experience.
The question now is, which of the following power houses [based on 2006 performance] in home building will not make it on our list of power outages in 2009?
Big Builder's 2007 List of Private Home Building Powers -- Click to Expand
The other question is, who but Pearl could do justice to the requiem in this case?
Fix Housing First’s Two-Minute Drill
It’s do or die time for the fledgling coalition of home builders, materials and products suppliers, trades, and related industry organizations who’ve been stumping Capitol Hill’s newly refreshed precincts for a home-buying stimulus sooner than later.
The most the President Obama-backed measure that’s made its way through the House of Representatives–and is largely mirrored in the version due for mark-up in Senate Tuesday–can offer is that it drops the recapture aspect of the already-in-place $7500 tax credit on the purchase of a home by a first time buyer. Even if that removes complexity from the equation to actually obtain the benefit, it’s not considered a big enough dollop of help to bump prospective home buyers off the sidelines and into the market.
Ken Gear, Exec Director, Fix Housing First
“We’re disappointed that that’s as far as they’re going right now,” said Kenneth Gear, executive director of the Fix Housing First coalition of 600 organizations. “It’s far too modest an amount to get at the underlying problem of our economy’s crisis, which is the lack of demand in home buying.”
Gear said that the next two weeks are “critical,” a 24/7 blitz of Congressional members to try to get them to see that the Obama plan to get money to the states, and get money into infrastructure projects, is still only dealing with symptoms, not the causes of the economic slide. For the brand-spanking new Administration and Congress’s part, it’s a question of pragmatism and priorities.
“The Coalition formed in October, and if anything, the situation in housing and in the broader economy has dramatically worsened since then, so if anything, it should be clearer to our elected officials that this stimulus is a must,” said Gear.
Gear noted that the push-back to date from targeted members of Congress comes primarily over the perception that the stimulus will help businesses rather than middle-class citizens, and the fact of the cost of Fix Housing First’s tax credit proposal, which would give purchasers of homes from $10,000 to $22,000 on the cost of a home purchased within a one-year period of enactment (were it to happen). The estimate of the cost to tax payers would be $75 billion for the tax credit portion of the “ask.” The second key component, a mortgage-buy-down to below 4% on home mortgage financing, is being shunted over to Treasury for consideration, and is now off the table in the push for inclusion in a stimulus package.
“The cost of doing nothing far exceeds the $75 billion this would cost,” said Gear. Cognizant that the coalition’s leadership may have to shift from its push on Capitol Hill into marathon mode, where it would need to sustain its support base for a longer run effort for stimulus legislation, Gear is realistic. “We’re going to try around the clock over the next two weeks. But if it doesn’t make it on this go round, we’ll be back with it later in the year.”
For Home Builders, It’s All in the ‘Tude
Can things get better even as they deteriorate?
The economic news headlines grow more dire by the day, but some of the home building executives trodding the Las Vegas Convention Center show floors may just prove that good attitudes trump bad metrics and measures as they find ways to survive the next leg of the disaster flick that is home building.
One of the more commonly spoken sentiments during the National Association of Home Builders International Builders’ Show is along the lines of “I read the obituaries every day, and I haven’t read mine yet.” 2008 was the worst year in home building in the lifetimes of anyone still in the game, and yet, here they were at IBS trying to learn how to manage through another whopper of a year.
Two noticeable positives are getting some chatter, even as realistic home builders understand that the coming 10 months are not likely to offer much encouragement in the way of home buying demand. One is that banks seem to be moving off their positions of inflexibility with regard to re-terming their loans with home builders. The reasons for that are relatively obvious: a). they don’t have much choice but to adopt a more flexible mode, providing they can stay clear of regulatory missteps in managing their loan portfolios; and b). they’d really rather not take land assets on to their books, as there’s no market of buyers out there who covet land at any price.
The other positive getting talked about is that after a 10-year boom, you’re actually seeing some innovation come into the products and processes area of home building that likely would never have happened had things kept up so strong.
For Irvine, Ca.-based MBK Homes president Tim Kane and his team, walking the floors of IBS this year has been a refreshing change from the previous several. People actually have time for one another, so conversations can be more expansive and solutions can be developed carefully as opposed to the rushed herd mentality that ruled prior years’ home builders’ show.
Kane, whose company is making strategic moves to become a best-practices environmentally smart builder, says one of his discoveries at this year’s event will “pay the price of admission.” Kane, you see, wants to do green right, and to that end he’d rather not even use the term green to describe the company’s efforts.
“We should say we’re being energy smart, or water-efficiency smart, or health-smart, but to say ‘we’re green’ is not necessarily the truth in what describes our efforts,” says Kane. So, he and his folks scoured the show floors and came up with a piece of engineering that he’d only hoped existed… a tankless water heater with a recirculation pump that saves both energy and water, manufactured by a company called Navien America. The product will solve both environmental and cost problems, and it’s likely that if the slowdown hadn’t happened, Kane and his folks might never have had the time to sleuth it out at the IBS.
So, fewer people in the aisles at the show may wind up making up in part for the absence of the throngs of possies here in the past. And the attitude, no matter what the latest homebuilder index of sentiment says, is intrepid, determined, positive.
Pardee Time at Home Builders Show
Here’s a “green” guru, Joyce Mason, vp marketing for California-based home builder Pardee Homes, speaking for a couple of minutes on the role energy, water, and resources conservation has taken in her company’s plans for the present and future.
They’re doing things differently now at NAHB
“My forecast is built upon an imbalance of supply and demand,” said David Crowe, chief economist at the NAHB, who estimates the country currently has more than 1.5 million existing and new homes available for sale or for rent that no one wants or can afford to buy.
Building a forecast based on understanding supply and demand is, apparently, a brand new idea at the National Association of Home Builders.
Calculated Risk has just two words to sum up a litany of negative prognositications offered as the show kicked off Tuesday:
Grim and grimmer. Must be a fun convention.
Place this type of insight into the “we don’t need a weather man to tell which way the wind blows” category.
Housing’s downturn is four years in. What’s the likelihood that the NAHB has it’s predictions right now?
For many denizens of the home building industry, the point for the past 24 months or so has been to get an ever shorter list of critical agenda items done and done well.
For production home builders, the big challenge has been to get the cost of their dirt out of the way of selling new homes into the teeth of the crisis. That’s a financial management tactic, but they also need a story because even home shoppers who are able to buy right now won’t unless there’s a story.
82 year-old Pardee Homes, which has been building in Las Vegas since the 1950s, believes “green” is an essential part of its recovery story, and it’s taking a run at embracing the strategy well in advance of recovery’s glimmer… This way, green won’t be a faddish bolt-on tactic, but an anchor to the company’s business plan.
We spent much of Tuesday driving the four far reaches of Las Vegas’ expansive desert valley, visiting Pardee communities at Lake Las Vegas, Vista Verde, and Eldorado Highlands, which happen to be diametrically far apart from one another in the city’s periphery.
Our hosts for the tour were Pardee vp of marketing Joyce Mason, marketing director Kathy Hilty, Adrian Gonzalez, marketing coordinator, and their public relations consultant Linda Faiss.
Here’s Adrian demo-ing some new technology they’re using in their model homes at Pardee’s new Horizon community at Eldorado Highlands, one of Pardee’s original master planned communities in Vegas.
Adrian Gonzalez, Pardee Homes
Holding on in Las Vegas–Pulte Goes Solar
Scott Wright, Pulte Division President, Las Vegas Southwest Area
Pulte Las Vegas Division President, Southwest Area, Scott Wright
We journied off the Strip today, into the jaws of the nation’s housing debacle, miles and miles of developed and undeveloped home building lots, ready for phantom customers with phantom downpayments and phantom household incomes that come of secure employment and prudent management of their means.
What’s striking about the new-home stock in Las Vegas is its lack of distinction. Rooftops stretch across rough desert terrain toward the snow-tipped ridges that surround the valley. So when a home builder finds something, anything, to distinguish its offerings from the masses of other builders offering mostly oversized neo-Mediterranean bungalows, it’s noteworthy.
Pulte Homes has struck on such a position in two of its newer communities that got underway with sales since the market seized up in late 2006, early 2007, and gotten worse since.
From poured insulation to tankless water heaters to metered water and energy use, Pulte’s partnership on a Department of Energy grant with University of Nevada at Las Vegas gives the company an edge as it addresses the challenges division president Scott Wright mentions above.
- Ecohomemagazine‘s Jennifer Goodman has this analysis of the features of the Villa Trieste home community, and details of the UNLV grant.
This take from the Ecohomemagazine story:
Venezia Model at Villa Trieste
Each Villa Trieste home will feature a SunPower SunTile roof-integrated solar-electric power system and a wall-mounted “touch-screen dashboard” that will connect to a solar and energy meter to allow homeowners to see how much energy they are generating and using in real time.
“As energy prices increase in the future, homeowners will have security in knowing that they will be less affected than most others,” said Scott Wright, president of Pulte’s Las Vegas division, adding that the dwellings come with a three-year heating, cooling, and temperature comfort guarantee. “Villa Trieste is kind of like our version of the Toyota Prius, we like to refer to Villa Trieste as being a community of hybrid homes.”
Wright said the homes in Villa Trieste, ranging from 1,487 to 1,960 square feet and priced from the $200s, will cost substantially less to operate than traditional homes. The advanced construction methods used in Villa Trieste should reduce homeowners’ electrical and gas bills by more than 60 percent, versus a 15 percent reduction for a typical Energy Star home.
They’re doing something right. Within an hour’s time on the afternoon of Martin Luther King day holiday observances, no fewer than 6 groups of prospective buyers toured the new community’s three models. That’s more traffic than we saw going on in any other neighborhood out here yesterday.
Wall Tumbles
Word just in that another of our friends–Steve Wall of Wall Homes–has filed BK for his company, backed by $50 million from private equity partner Warburg Pincus.
- The Fort Worth Star-Telegram covered the story this weekend.
- Builder senior editor John Caulfield offers this analysis of Wall’s collapse, plus Steve Wall’s plans to reemerge from Chapter 11 a stronger company.
Stephen Wall, the builder’s president and CEO, said that his company’s goal is to complete houses under construction and come out of Chapter 11 leaner and better positioned for when the local housing market recovers. Indeed, Wall Homes’ bankruptcy filing states that it expects to close at least 25 homes within the first 20 days after filing. The company also intends to continue selling homes while it reorganizes under Chapter 11. (When it filed, Wall Homes’ lenders were refusing to provide capital for any homes that haven’t already been sold.) The builder and its subsidiary Wall Homes Texas LLC (its field operations) entered Chapter 11 with 92 employees, of whom 68 are superintendents, salespeople, and other field personnel.
Perhaps the most sobering aspect of Wall Homes’ concession to the moment’s hostile environment is that it’s a Texas builder, where the margins run tight but where the volumes stayed steady for longer than most of the bubble markets. Maybe recent weakness in oil prices has made it so that even that dog won’t hunt.
On the Road Again
Martin Luther King, Jr.
As the nation honors one of its leading sources of inspiration today, and prepares for a new leader to swear in as U.S. chief executive tomorrow, Housingcrisis.com takes to the road.
We’re in Las Vegas today, Jan. 19, through Thursday, Jan. 22, and will start proceedings here with a community tour of Pulte Homes’ Azure Canyon and Villa Trieste communities in the Valley.
We’ll post updates as we get them during our travels in Las Vegas, bringing you reports from the National Association of Home Builders’ International Builders’ Show as they come in.