Today [Wednesday, March 10], Meritage Homes Chairman and CEO Steve Hilton addressed the Alliance’s Great Energy Efficiency Day (GEED), in the Capital’s Dirksen Senate Office Building, as part of a daylong agenda that put building and communities in the spotlight:

Building for the Future: EE Technologies Today and Tomorrow

• Moderator: Robert Dixon, Senior Vice President & Global Head, Efficiency & Sustainability, Siemens Industry, Inc.
• Steven J. Hilton, Chairman and Chief Executive Officer, Meritage Homes Corporation; Chairman, Energy Committee, Leading Builders of America
• Faren Dancer, Principal, Paradigm Development Partners
• Steve Hochhauser, President, Residential Systems, Ingersoll Rand
• Michael Lawrence, Vice President & General Manager, Johns Manville

“The key for us is getting appraisals to properly value the increased value of more efficient homes and recognizing the value of energy efficiency in the mortgage process so highly efficient homes are affordable,” says LBA executive director Ken Gear. ”We have created a unique partnership with the Alliance to Save Energy to help make new homes as efficient as possible without pricing them out of the market.”

Here’s the transcript of Hilton’s remarks, which gives good background on the Leading Builders of America and its policy initiatives, which we wrote about earlier.

[Bob Dixon will introduce Steve as Chairman & CEO of Meritage, and welcome LBA to the Alliance as part of the introduction]
Thank you for the kind introduction, Bob.

I want to thank the Alliance for the opportunity to speak here today, representing the Leading Builders of America.

Leading Builders of America is a new trade group that includes sixteen of the largest home builders in the country. Combined, we delivered about 129,000 new homes in 2008, representing approximately 25% of all homes built in the U.S. that year, so we bring to the table a broad and deep understanding of home buyers across the country. We also account for more than 367,000 jobs nationally through our employees and sub-contractors.

LBA members are driving energy efficient practices and materials into the mainstream of homebuilding. We have been instrumental in helping ENERGY STAR reach 1 million qualified homes in the U.S., and our members are active partners in many other energy efficiency initiatives, including the DOE’s Building America Program. Through our collective efforts with trade partners and other organizations represented here, the homes we build today consume one-third less energy than homes built just 10 years ago.

Meritage Homes has been a member of LBA since its beginning, and I head the organization’s energy bill working group. As CEO of Meritage Homes, I am proud to say that Meritage is committed to energy efficiency and sustainability. This year, every home we build will exceed the EPA’s ENERGY STAR requirements, providing lower costs of ownership and healthier living environments to our home buyers, while reducing their energy consumption. Meritage’s commitment to sustainability is underscored by the fact that we are incorporating energy efficient features standard in every home we build, rather than making them optional at an added cost to the home buyer.

We are here today because we are all convinced that building energy efficient features into homes is the right thing to do, and we want to play an active role in formulating strategies to reduce energy consumption while also preserving and creating jobs to help strengthen the economy. Most importantly, consistent with LBA’s mission “to preserve home affordability for American families,” we want to ensure that homeowners realize a net benefit from the added costs of building more energy efficient homes.

Energy efficiency should be a win-win situation for everyone involved.

So why aren’t home buyers embracing energy efficient homes more than they are today?

There are several reasons.

It’s no surprise that energy efficient features cost more, but most buyers today aren’t willing to pay more for a new energy efficient home, given the choice of a lower-priced but less efficient home, unless they can clearly see the value and afford the higher price.

We are working with our trade partners to reduce the costs of building in more energy efficient features, in order to keep prices down. In addition, we see several opportunities to encourage buyers to opt for more energy efficient homes when buying.

Energy efficiency must be easier to quantify and compare, affordable, and provide a net positive benefit to a homeowner, in order for them to purchase a more energy efficient home.

LBA believes there are three key opportunities that we support in that regard:

(1) The first is to adopt a uniform standard for measuring and labeling the energy efficiency of homes.

So much of what we do to make a home consume less energy isn’t seen as you walk through a prospective home, and there is a great deal of confusion in the marketplace about how to quantify the benefits of an energy efficient new home.

Use of a standard efficiency measurement such as the DOE’s EnergySmart Home Scale is an essential first step to provide a basis for comparing the energy efficiency of homes.

(2) The second opportunity we see is to translate the additional energy efficiency into dollars, to be used commonly by buyers, appraisers and lenders. Energy Efficiency should make homes more affordable, not less.

In order to substantiate the increased costs associated with higher efficiency construction and components, the additional value of an energy efficient home should be reflected in its appraisal. That is not the case in today’s appraisal process.

Additionally, underwriting guidelines should allow for lenders to give a buyer credit for lower projected monthly energy costs when qualifying them for a mortgage.

This is an area where federal leadership is absolutely essential. If FHA and the other GSE’s address energy efficiency in their underwriting and appraisal standards, they will move the entire market.

(3) Third, we must use a cost/benefit analysis in setting energy efficiency targets and standards, to ensure that additional costs can be fully offset by reduced operating expenses.

LBA has studied this carefully and done extensive cost/benefit analysis, and we believe significant improvements can be justified in the near term. These improvements are achievable by carefully coordinating federal goals with the code development cycle, in order to ensure that builders and local governments have sufficient time to comply with and enforce any new requirements.

To summarize, if we want consumers to buy more energy efficient homes, we must address three issues:

 First, give home buyers the tools they need to understand and compare new energy efficiency.

 Second, ensure that energy efficient homes are affordable, by reflecting their higher value in the appraisal process and by incorporating energy savings into mortgage qualification standards.

 Finally, ensure coordination between the federal government, code bodies, state governments and builders, working together to develop a realistic timetable for increasing energy efficiency in new homes.

I have additional handouts that provide a much more thorough discussion of these points, which I would be glad to share with you.

In closing, I want to let you know that LBA member companies are committed to energy efficiency. And we are committed to working with groups like the Alliance to help advance this very important national priority.

Thank you for your time.

Looks like the LBA is looking to buy time to comply with what it foresees becoming energy efficiency mandates sooner than later. In its phrasing, it seeks to coordinate “federal goals with the code development cycle,”  and wants to tie energy efficiency to a tangible “net value” gain for a home buyer, which can involve tricky cost and savings over time analysis to get at. And, as Gear points out, if the government gives credit (in terms of appraised value) to home buyers with energy efficient home solutions, the finance-ability of homes becomes more achievable.

All in all, a strong positive message from a group whose stakes may differ on this issue from the short list of priorities the bigger NAHB builder group is pursuing in its lobbying efforts.

Housing itself, last we looked at the title of this blog platform, is in crisis. Policy, which may or may not have a past, present, and future role in the depth and duration of the crisis, seems to be intent on continuing its intervention in housing as it seeks faster progress on the broader economic front.

So why shouldn’t powers in housing–large and small–find ways to unify when it comes to the issues that affect the housing economy?

Good question.

Industry observers frequently trace last year’s break-up to a clash of big egos all around, after several near-splits dating back  two years or more. Reports of the formation of the new organization followed the ups and downs and ins and outs of large home building companies’ disenchantment with NAHB leadership’s handling of Capitol Hill matters, particularly around the extension of corporate tax benefits on net operating losses.

The NOL carryback extension, which carried the day in last November’s legislation that also extended and expanded tax credits for home buyers, remains a bright line of controversy that sharply delineates the interests of publicly traded home builders from private ones.

Public companies collectively retrieved more than $2 billion in cash thanks to the NOL extension measure, the consequence being a mini-frenzy of finished lot pursuits that very likely drove land prices up above where they should have been for the past year.

What happens when a few players can write checks that  drive up land prices? A bunch of smaller players who can’t write those checks have to go somewhere else or apply for jobs at Lowes and the Home Depot is what.

That’s Darwinian reality. The biggest grow in a downturn, at the expense of the smaller.

What’s also reality is that egos and brush-ups between large home builders and the NAHB don’t matter in the end of the day. What matters really is that the more government policy infiltrates the day-to-day of the housing business, the more inevitable it would be that large home builders need their own “direct connect” to Capitol Hill, which is what they say is at the root of their reason for being.

KB Home CEO Jeff Mezger, a year ago, might have thought he was going to succeed former Centex CEO Tim Eller as chair of the NAHB’s High Production Builders’ Council. That was the plan.

But instead, the HPBC has been disbanded under the NAHB, and Jeff is chairing the new Leading Builders group. As has been reported, the group’s member companies retain their local, regional, and state building industry association affiliations with the NAHB.

“On 99.9% of the issues, we agree,” says Joe Robson, immediate outgoing chairman of the NAHB, who founded and runs Tulsa, Okla.-based Robson Companies. “We’re still talking with the big builders at a staff to staff level on a regular basis, and I talk to Jeff [Mezger].”

Robson acknowledges that in “just about any industry you look at,” large corporate players tend to team up themselves when it comes to lobbying on issues. “Where we [the NAHB and the Leading Builders] diverge is probably more on corporate taxation, on publicly traded company issues vs. private company ones,” Robson says.

Mezger, and some of the other Leading Builder executives who’ve spoken off the record, doesn’t disagree that critical issues as they regard consumer home buyer demand will continue to unite the interests of both the NAHB and the Leading Builders of America.

“If it’s a topic that brings us together with a common interest we’ll go for it,” said Mezger, who chaired the group’s first in-person meeting in Scottsdale, Az. last week. “We’re still in our formative stage, but the intention of the group is to focus on key issues that are specific to the larger builders’ interests. There’s always two or three things at any given time where the sensitivities and needs of the larger companies may be different from an agenda that encompasses commercial multifamily apartment builders, contractors, etc.”

Right now, he says, three hot-buttons–apart from the overriding need to continue to work on ways to jumpstart the housing economy–separate the Leading Builders from the priority list of the NAHB, according to Mezger.

• Energy legislation–”The House passed its energy bill, which has tremendous implications on the cost to build over time, and we’re working with Congress to make sure the standards it’s looking to meet match up in a cost benefit analysis,” Mezger says.
• Protecting the water supply–”Storm water run off is another area where the EPA has new standards, and we’ve been working with education around the need to comply with them, because we do a pretty good job at that.”
• The Florida Home Town Democracy amendment–”Most of our initiatives will be at the federal level, but all but two of our companies have operations in Florida, and we felt that this one was important enough for all of us to make it part of our priority list,” Mezger says.

The question, then, might be how would the big builders’ interests differ on these issues from those of the broader NAHB constituency.

The answer might come down to two simple factors. One is that size matters. So whereas energy legislation and its new mandates bear significance for all home builders, however large, when you start to scale upward, the implications on cost to build vs. the need for affordability become potential stress points.

The other factor is “nimbleness,” a notion the Leading Builders of America group brings up frequently in discussing its mission and structure. The “direct link” to Capitol Hill proved it worked when it came to home buyer tax credit policy and tax carryback policy, according to Ken Gear, the association’s executive director.

“We need to be able to act decisively and fast on some of these issues, and there are times we couldn’t do that within the voting and approval structure of the NAHB,” he said.

The way we see it, the two groups will tend to work as one with respect to the demand side of the housing equation, and separately when it comes to some of the supply or cost-factor issues.

That makes sense, although it’s not easily explainable.

You have heard and seen in other reports that the sentiment among attendees was positive although attendance at last week’s International Home Builders Show was middling at best. File them under wishful thinking–if optimism turns out to have been well-placed, it will be less the result of what challenges are likely to play out, and more to do with what lucky turns of events are unlikely to play out.

As for take-aways, here are a  half-dozen IBS show nuggets you can’t make up if you try:

• 1) A senior management executive from one of the fastest-growing, most successful private home building companies in the country right now says this:

“So, do you think this ‘green stuff’ is here to stay?

You’d think that might be a rarity to hear among home builders, but it’s surprising how widespread an attitude it is among those who believe that if home buyers won’t pay for energy performance, then it’s not a consideration. Period.

• 2) Carl Mulac, whose JEN Partners-backed Joseph Carl Homes is about to grand open CantaMia, a 1,700-unit sustainable (solar and thermal standard in every unit) active adult community in the Estrella, Goodyear, Az. master-planned development has been out presenting to potential capital partners. At one such event, the former Engle Homes’ Phoenix division president had his “You Lie!” moment. Opening his power point preso recently, he says to a roomful of prospective lenders and investors:

“My name is Carl Mulac, and I’m starting a home building company.” A heckler, whose name will go unpublished, responded: “You’re crazy!”

Still, in an environment where bank funds to go vertical are as rare as rocking horse dung, Mulac and company got $2 million to build on from National Bank of Arizona, so expect the sound of saws and hammers out at CantaMia to echo through the foothills of the Sierra Estrella Mountains.

• 3) Lewis Ranieri is said to be raising $2 billion to buy up distressed home mortgages, write down the principal, and keep people in their homes … yes, the same Lewis Ranieri who’s credited to be the inventor and father of mortgaged backed securities. A home building capital specialist comments:

“[The Selene Residential Mortgage Opportunity Fund] It’s his attempt at atonement. But $2 billion is $2 billion, and there are hundreds of billions of home mortgages in distress right now, so it’s not going to put a dent in foreclosures.”

• 4) One of the Las Vegas Valley’s most active entry level home builders may have pulled a fast-one with former lenders. He shuttered one company, but not before he drew down a big check from a bank facility in the days before. Within weeks, he was plunking down cash on tracts of finished lots, right up there with the big boys, and has never looked back. Or maybe he is looking back. Says one local land specialist:

“There’s talk he withdrew cash from the credit facility set up for the old company and is using it for the new company. How he’s going to wind up getting away with that is anybody’s guess.”

• 5) One large bank equity home building and building materials analyst noted that we wrote here about how private home builders would best consider exploring secondary and tertiary markets to find the volume opportunity they need to navigate through the next 24 months or so. This way, the privates wouldn’t have to compete in the bidding for land parcels against multiple other strategic bidders, driving up the purchase price for the lots. Says this analyst:

“You talk about privates, but why would public companies continue to counter-bid one another and drive their own land acquisition prices up? Who’s going to be profitable this year? NVR, yes. Maybe, Meritage. Who else? How insane is it for them to be overpaying for lots just like they did three years ago just because they all want the same parcels?

• 6) Woodside Homes, which agreed to meet conditions of its plan for reorganization on Dec. 31, 2009 after 14 months of bankruptcy, emerged from Chapter 11 on Jan. 14, 2010. With 83 current communities, and 10,000 lots in various stages of development in 11 markets across the U.S., Woodside no sooner surfaced from its lengthy reorganization process than it caught the eye of public home builders covetous for finished, lower-price lots, with billion-dollar treasure chests of “dry powder” cash. Third-generation home building scion Joel Shine, who’s taking over as chairman and CEO of Woodside, and fully intends to operate the company, has this to say to public builder CEOs who are around kicking the tires:

“We’re in the process of developing a strategy to operate the company and generate value as an operator going forward. We’re not for sale.”

That’s not to say that scores of lenders and creditors who retain significant influence on what Woodside’s asset portfolio should ultimately do to generate them value won’t ultimately push for sale of the company.

Still, they worked through a long, painful process to come to new terms as a top-five private builder operator, so it seems likely they should at least give Shine a strong crack at his strategy:

“A private builder culture that looks like a public builder.”

Sounds like he might be aiming to navigate the balance of the market downturn and position Woodside to go public when the right moment comes along in the months ahead. Still, that doesn’t stop Woodside from being–like the North American home building operations of Taylor Wimpey, including Taylor Morrison–assets that may find high regard among public builders.

Other than these take-aways, about all we know is that exactly no one is sleeping easy about what happens to the market come the sunset of the the extended and expanded home buyer tax credit on April 30 for sales, and June 30 for closings.

After the Colts-Saints bash-fest on Feb. 7, 2010, in Miami, Saturdays and Sunday afternoons reopen as that traditional time for couples of many ages to renew their nesting instincts. Spring selling season this year, should it actually occur, may reset the bar of expectations for whether the housing recession can end this year or drag on into 2011, where the IBS venue will return to Orlando.

The IBS this year was populated by a group of intrepid believers in the industry, ones who tend to drop into a disaster scene as soon as possible after a calamity ends. They’re the ones who say, “we’re going in,” and they start the mission of stabilizing the place for a more concerted recovery operation. We didn’t hear optimism at the show. We heard determination. We heard urgency. We heard in the voices of many we trust, this message:

“The time to hesitate is through.”

Face it, practicing with the short stick might make the puts go straighter, but not too many folks we spent time with wouldn’t give up some birdies for a string of quarters operating in the black.

The three we’d pick–whom we believe have the best understanding not only of the direct cost-benefits of the program, but of the multiplier effects of the new construction dimension of the impact–would be Moody’s Economy.com’s Mark Zandi, the National Association of Home Builders’ Robert Dietz, and independent Thomas Lawler.

Here Lawler talks with CNBC’s David Faber about the home buyer tax credit’s impact in 2009. He cites Calculated Risk’s widely quoted estimate of $40K per incremental home sold.

If all that $40K or thereabouts did were to stimulate about 350,000 purchases that would not have occurred, then the current program measures out as too expensive. But that $40,000, or rather the total cost of the $8,000 tax credit for first time home buyers running from Jan. 1 to Nov. 30, 2009, is actually paying for far more than moving home buyers off the sidelines.

In addition, it’s actually paying for hiring, consumer spending, corporate earnings, and a reduction in excess inventory, all of which exert both a psychological as well as mathematical force.

Anyway, we’d like to see this debate.

There are at least four proposals and resolutions with varied amounts of support in both Houses of Congress, awaiting the return of our esteemed representatives for further consideration among the urgencies of healthcare, energy, and financial system regulation. Huge stakes. Already, it looks like our grandchildren will take the brunt of the pain for federal programs flying at the financial system’s woeful state today.

We only know the author of the Calculated Risk blog by his first name, Bill.

We know that his blend of economic analytical discipline, common sense, and a deadpan, just-the-facts-maam writing style make his observations work as insights. Often enough, Calculated Risk’s analysis leads to mind-changing, light-bulb-illuminating, calls to action.

Where CR does the math, it’s alway in English, not Numblish. A reader doesn’t need an advance degree in economics or finance to grasp the point. For instance, on the cost to American taxpayers of the $8,000 tax credit, his tally goes as follows:

Here is the math: 1.9 million buyers qualify for the credit (the NAR estimates between 1.8 and 2.0 million) = $15.2 billion.

The NAR estimates the tax credit resulted in 350 thousand additional purchases. So divide $15.2 billion by 350 thousand = $43,000 per additional home.

The conclusion we’re to draw from the analysis is that the cost of the program outweighs the benefits. CR’s own conclusion is this:

And the numbers will get worse if the program is extended.

But to be fair, we don’t think “the numbers” here are correct.

CR’s math assumes National Association of Realtors data on sales of “existing homes” and NAR estimate of the incremental boost to sales during the term of the $8,000 tax credit to first time home buyers.

NAR “existing home sales” do not include new home sales; so there’s a factor, albeit maybe only 10% of the “existing home sales” market, that has been left out of the addition.

NAR’s home builder counterpart, the National Association of Home Builders, estimates the incremental jolt from this year’s $8,000 tax credit for first time home buyers is not 350,000, but 383,000, or 33k more than the NAR estimate.

Let’s say that delta of 33,000 home sales–a little less than 10% of the 350,000 boost in existing home sales NAR says the tax credit program stimulated–represents the number of new homes sold that would not have sold during that time period without the $8k tax credit.

So, go back to the NAR estimate that 1.9 million home buyers will avail of the tax credit, get the $15.2 billion figure CR arrived at, and divide not by 350,000, but by 383,000, which includes new homes sold [that wouldn't have without the tax credit boost], as well as incremental existing home sales.

A more accurate cost of the program, using CR’s assumptions then, would be $39,686 per home, not “$43,000 per additional home.”

Also, when you factor in the almost $7 billion in revenue produced by just the 33,000 new homes in the equation, and take a look at the multiplier effect of jobs gained or saved, tax revenue generated to localities, business created, etc., the cost per additional home goes down significantly.

CR analysis argues against extending the tax credit for home buyers, which traces back to data that housing supply exceeds demand, and therefore, stimulating demand with incentives only stalls a necessary real estate price correction.

Our argument here is that demand destruction factors have overshot normalized demand, which makes supply look disproportionately excessive.

Congress needs to weigh the “cost per additional home” sold factor carefully and holistically–including the multiplier effect of new homes sold–if it is going to make a sound decision on whether to continue a tax credit or not.

The NAHB says that extending the deadline by 12 months and opening eligibility for the tax credit to all home buyers would account for an incremental 383,000 home sales, and an added 80,000 starts in the tough year ahead.

• We’ve written here earlier about the initiatives the NAHB is drawing attention to in its release.

Maybe the optimal time to call on Congress to do anything is when they’re home, away from the malarial marsh that is the District of Columbia in August. Away from the cacaphony of their own voices, perhaps they can hear better, and see better, and witness more truthfully what the hell is going on in their own back yards.

That’s what they’ll need to do.

Maybe the NAHB’s timing is deliberate. If not, perhaps it’s inadvertently brilliant. During time off, our elected [yes, here we did typo the word "exected" a couple of posts ago] officialdom may count their lucky stars that we may not be heading for the same kind of September and October we endured in 2008. They may actually try to take the pulse of their constituents on the issues hovering like massive dirigibles that on-and-off blot out the sun light–i.e. healthcare reform, the climate bill, and paying for it all.

If elected representatives actually listen, we wonder what convictions they will return to Washington with after September 8th.

What a fascinating time to believe in a government like ours. We elect Senators and Congressional representatives to serve our collective long-term interests and then spend all our time–deservedly–not trusting them to do just that.

If Senators and Representatives listen during their recess, what will they hear? Will they hear the NAHB calling on them to extend measures the trade group would succor an industry sector that pumps as much as 15% into the Gross Domestic Product?

Will they listen to people who’ve lost their jobs and have little hope of finding new ones commensurate with their skills and experience? Will they listen at all to small businesses–you know, the ones that accounted for all the new jobs added to the economy during the run from 2002 to 2007, that have now been gutted unceremoniously from the economy?

If Senators and Representatives listen to small and medium sized businesses during their three weeks’ recess, how will they feel about health care initiatives that will weigh so heavily on mid-sized and smaller business employers? How will they assess the impact of cap-and-trade measures that will add cost, time, and regulatory obligation to every turn when it comes to construction of anything habitable?

Oddly, the smartest economists cast doubt on our elected officials for not going far enough with their regulatory powers and responsibilities? Here’s Princeton University professor, Nobel Prize-winner and New York Times columnist Paul Krugman–if economists had tabloids at the checkout counter, he and Nouriel Roubini would be the Brad Pitt and Matthew McConoughey of their covers–waxing on on CNBC today about how the government has only begun the job of righting what has gone wrong with the economy and business.

We find it strange that those who are blessed with the intelligence and technical training to understand the most about how the wheels came off the financial system are mostly ones who say that more government is the answer.

Thing is, more government only means a higher price to pay and more time to wait for regulators and inspectors to finish what they need to do so that business peole can go about the business of repairing what is wrong with the economy, which is that there’s an over capacity of workers and too little consumption.

We find it to be interesting timing indeed that the NAHB–which should  live, eat, breathe, and sleep the small to medium-sized business interests the trade group represents–should “call on Congress” for more government when more government only lades more of the onus on home builders that hire people and build carbon-emitting dwellings of one sort or another.

As we said, maybe the timing is brilliant, unintentionally. 

• Builder Liability (including the Chinese drywall issue)
• Construction codes and standards (including green building)
• Environment (the climate cap & trade issues)
• Federal tax and trade policy
• Housing finance
• Labor/Safety & Health

Around page 80 of the 95 pages of the memorandum comes a series of Amicus briefs that state the association’s position in litigation for everything ranging from “takings,” to endangered species, to fair housing, to effluent limitation guidelines.

Which is to say that housing’s worst stretch since the Great Depression hasn’t slowed down the onslaught of advocacy issues, battles, and policy challenges the NAHB and many of its trade association peers have had to deal with these days.

As a dramatic overhaul of the nation’s health care complex begins to reel under its own weight even as President Barack Obama pushes to bring a revolutionary new plan home, Obama has begun to have to reckon with America’s capacity to adapt in so many ways at once.

Were the economy not so afflicted, focus on the health care system, energy sourcing and economics, regulation of finance, and rebuilding the country’s infrastructure could get a fair shake. Despite high levels of urgency around each of these issues and challenges, neither exected representatives, agency officials, nor the public at large have the capacity to reinvent everything about everything.

Maybe each of these matters is a high priority. But, for the moment, we’re dealing emergently with events and consequences that put us in triage mode, which trumps or at least disrupts prioritization.

We believe the same goes with the NAHB. The question is how many of the initiatives and endeavors the trade group is allocating its resources to will wind up being academic if the vicious circle of home price deflation, foreclosures, bank losses, profitability declines, job losses, and more foreclosures keeps up at a significant pace?

How many home builders will there be to represent in Washington, D.C., if the focus here doesn’t lead somehow to a stabilization of the value of what consumers pay their life’s earnings to come by. Even as more and more sound and disciplined economic analysis posits that at least a few of housing’s multiple bottoms are coming into plump view.

Here’s Tim Iocono’s well-argued and well-illustrated case for green shoots mixed with grains of salt.

Even Bill at Calculated Risk–who holds that we haven’t seen nearly the end on home price declines–has had positive observations creep into his analysis over the past several months.

As policy and free enterprise do their double-helix thing in the next six to 24 months, the NAHB’s mission walks an increasingly delicate line. Look at one of the lines in Iacono’s piece:

Don’t feel too sorry for the homebuilders – they had a few very good years.

This is a widely held view.

Home builders’ representation of their industry’s interests on Capitol Hill need to drive for what will structurally help economic recovery: jobs, jobs, jobs. At this point, reality looks as if the government and free enterprise are forced bedfellows and they’re going to have to get used to it fast if they want to ward off years of less than anemic economic activity.

We understand that–like home building and home builders–the association is facing one of its biggest survival challenges ever.

Some of the executive committee members Jones’ memo addresses believe that that the seriousness of the challenges call for measures more drastic than prioritization.

Very likely, by the trade group’s Fall Board meeting in Chicago, a dramatic restructuring of the NAHB may surface. Just as some of the big home builders have had to relook at how they rationalize operations in markets–and in many cases, have chosen to exit some–the NAHB may have to look at all of its resource allocation with a sharp eye toward making the best with less.

Advocacy is the what home builders need most. That’s where the group should hunker down and do what it does best.

A friend was talking with us about reinvention. Let’s assume reinvention is necessary. Picture the business world with its financial system, government structures, households as three spinning  platters, rods balanced on the nose and two outstretched hands–sort of Ed Sullivan meets Charles Darwin.  It’s all deleveraging, but without the benefit of growth or money.

So we’ve got  wonder, “how much will reinvention be by choice and design, and how much will it take place as a result of intelligence that doesn’t obey human intentions or control?” How much evolution has ever been intended?

We’re averse to change. We only do it when it’s change we design, and even then it’s tedious and uncertain. We know home building’s business must change.

HMI–the National Association of Home Builders’ sentiment index among its home builder universe– is out today, and up from 15 to 17. Simplistically, it means that in July–a k a now–2 more builders per 100 in the NAHB sample are optimistic about prospects for selling homes than were at the same time this past June. This puts us roughly even with the figure for last September, before the financial system imploded and then-Treasury Secretary Henry Paulson started going on TV on Sunday evenings to ruin what was left of the weekend.

Headwinds everyone still talks about are these: foreclosures keep crashing against the shoreline, bringing down home prices; companies and governments keep on reducing the count of who they’re paying and how much they’re paying them; banks don’t want to lend money to make money because they know it’ll lead to losing money. The government, meanwhile, has a mimimum of one and often as many as four programs designed to mitigate each of these issues, but the programs aren’t working exactly as designed. Some say they’re too big, some too small; some say they shouldn’t be there at all.

Meanwhile, we’ve got mini firestorms over who should “appraise” the value of a house so that buyers, sellers, and lenders each have the right collateral for their money, and the right money for their collateral. Many builders are flummoxed that appraisers are counting too many compromised foreclosure properties and their price in the comp mix to fix a fair value on a new home in the market.  To the plaint, “we can’t cover our hard costs with the amount the appraiser’s putting on the property,” the unsympathetic–and dammit, correct–response is, “Then don’t build there.”

A wide perception is that the appraisal firestorm is Realtors and home builders against, well, you and me, if we’re not Realtors or home builders. Why is that the case? Well, many people look at the NAR and the NAHB as villains who were part of perpetrating a conspiratorial run-up in home prices that got them rich to the detriment of society.

This is hogwash. But, hey, we’re prone to believing hogwash. (Look at what we believed during the past 10 years).

Point is, yes, you’re going to have to change to survive. The question is how much the change will be of your design and choice, and how much of it will naturally select, or worse, deselect you.

Think of issues–beyond making the bills that will keep you open or shut you down–that are bigger than Stimulus, bigger than Capitol Hill, bigger than appraisals, bigger even–although its proponents will object the most–than green.

The issues are where and for how much. Too much of home building’s business — right now especially, and for all of the time it will take volume sales to stabilize — involves guessing at where and not controlling how much. It’s inherently speculative, and it’s expensive, and it’s subject to people in droves waiting for you to expire just so that prices can come down a few more dollars. They’ll do it that way even at the risk of eventually losing their job because the economy can’t support enough activity to make their company profitable.

There are not one but two essential Vs for value that are in question. One is the dollars paid for workers, and one is dollars paid for property. They’re like unidentical twins, connected but different.

For home builders, reinvention most likely needs to be more than streamlining sourcing, flattening organizations, sucking out inefficiencies, improving up-and-down-and-across communication, introducing trust, and sharpening best practices.

That’s the reinvention home builders would design for themselves. But even that means waiting for the market to come around and for the pulse of demand to reemerge.

But we think it might be more profound. Reinvention may mean dramatic differences in “where” and for “how much.” Where people want to live as opposed to where they have to go because that’s where you can get land for less may reinvent you. How much it costs to be there, to own there, to build there, to permit there, and to make a community there may reinvent you.

There is a place where appraisers won’t appear to make arbitrary subtractions from the Value of a home, because there will be a volume of comps.

• There might be scattered urban
• There might be adaptive reuse
• There might be brownfield
• There might be public-private partnership with longtime faith-based landholders

It might be less grandiose, more painstaking, less autonomous, more political. It may change your DNA, which might be the reinvention we’re talking about.

Here’s a Calculated Risk summary on the latest Bureau of Labor Statistics jobs report:

 For the current recession, employment peaked in December 2007, and this recession was a slow starter (in terms of job losses and declines in GDP).

However job losses have really picked up over the last 9 months (4.4 million jobs lost, red line cliff diving on the graph), and the current recession is now the 2nd worst recession since WWII in percentage terms – and also in terms of the unemployment rate (only early ’80s recession was worse).

Elected officials–assuming they’re opting for re-election–want to take job creation or at least job preservation wins back to their constituents this Fall.  As home building companies drop like flies, and there aren’t enough people buying houses right now to keep them in business (as employers), the NOL Carryback has emerged Hyrda-headed as a measure that could offer liquidity as a cash tide-over to keep some businesses in business.

The Senate and House are each working on legislation that would change tax laws to allow companies to carry their losses back, and apply them to taxes paid on profits up to five years ago.

Here’s the Senate version of the NOL Tax Carryback Act, introduced in Senate on April 2, by Olympia Snowe (R-Maine) and Max Baucus (D-Mont).

As she introduced the bill, Senator Snowe said:

Click to access Finance Committee lineup.

“While the recently enacted economic stimulus bill included a modest NOL carryback provision to assist smaller firms, this legislation will help any company that has losses from 2008 or 2009 carry back those losses to offset taxes paid in the previous five years when they were profitable. This will go a long way in helping to keep more workers on payroll and stabilize overall operations.”

Senator Baucus heads up the Senate Finance Committee, and he and Senator Snowe have gotten traction enough in the Senate with 28 co-sponsors to make passage highly likely. Identical legislation in the form of H.R. 2452 has been introduced by Representative Richard Neal, (R-Mass.), and so far, 58 House co-sponsors have signed on in support. Which means there’s a summer worth of work to do if there’s hope for an NOL extension to win the day sometime this Fall.

Leading the charge on the latest NOL push for the home building sector is Ken Gear, executive director of a coalition of home building companies called Homes for America Alliance.

Per an article in Floor Daily:

The new entity, the Homes for America Alliance, includes about 75 big and small builders. It will focus on passing a net operating loss (NOL) measure that was included in the House and Senate stimulus packages earlier this year but was removed in conference.

An NOL extension got this close to passage in February 2009, but never made it into the reconciliation bill handed over by Congress to President Obama as the 2009 stimulus program. Why?

Long story short, leadership at the NAHB felt that changing the NOL rules would unfairly advantage the largest, mostly public builders over smaller, rank-and-file players in residential construction. NAHB chief Jerry Howard appealed in the 11th hour to Rep. Nancy Pelosi, speaker of the House, and, lo and behold, the NOL was declawed so that only businesses whose sales are $15 million a year or less could avail of the extension. That revenue constraint cuts out a lot of home building businesses.

To debrief on what’s past in the relationship between big builders and the National Association of Home Builders on NOL, have a look at previous posts here.

Most everybody’s moved on since then. Now, we’ve got a new “coalition”–the Homes for America Alliance–that is working on lobbying Congress for NOL independent of the NAHB. The NAHB has agreed to support the bill this time, right through the vote expected sometime in the Fall.

A testy relationship–between big builders and the broader NAHB leadership, which has to try to represent small to medium size companies as well as national enterprises–is getting its test with NOL this Fall.

The initiative that seems to unite real estate companies large and small is (R-Georgia) Senator Johnny Isakson’s S. 1230, which would extend the current home buyer tax credit into 2010, expand it to include all home buyers (not just first-time buyers) of primary residences, and increase the actual credit to $15,000.

This month’s commentary is the most optimistic we have seen since the survey began one year ago. 

In our post last week about Wachovia housing senior analyst Carl Reichardt’s Neighborhood Watch survey of sales managers, he too struck a it’s-better-than-when-it-was-worse chord in his remarks.

We now believe that field conditions saw their low ebb in early 2009.

In his comments about the one-point slippage in today’s June NAHB/Wells Fargo Housing Market Index (HMI), Reichardt’s “Takeaway” repeats his conviction that the “field conditions” bottom has come and gone.

The NAHB’s attributed June’s decline to conditions in the South. We note this was supported by market commentary in our monthly Neighborhood Watch Survey where Southeast and Texas (including Atlanta, Charlotte and Houston) saw the weakest conditions. With some state housing stimulus winding down (i.e. California) and mortgage rates beginning to climb, builders remain cautious about the future despite better traffic and current sales rates than seen earlier in 2009.

We don’t know about you, but we’re seeing a de-coupling going on, between the NAHB sample and the respondents to both Burns’ and Reichardt’s surveys.

The HMI set appears to reflect a high sensitivity to the very recent move up in interest rates, an angle the Wall Street Journal report on the index’s release today takes with it’s headline: Higher Interest Rates Sap Builder Confidence.

Confidence faltered in June among U.S. home builders, left uneasy by a rise in mortgage rates.

A market sentiment index published monthly by the National Association of Home Builders dipped this month. The gauge reflects builder confidence in sales of new, single-family houses.

The drop in the NAHB’s housing market index reported Monday, to 15 from 16 in May, followed two months of increases that had nurtured hopes of a bottom to the housing crisis. Signs have surfaced this spring indicating the worst of the recession is past.

We don’t quite follow the logic, as the “June HMI” reflects responses to the NAHB survey in May. The interest rates bumped up starting May 27, so how could they have sapped builder confidence ahead of when they occurred.

The slippage in the HMI vs. more sanguine attitudes and outlooks in the Burns and Reichardt surveys probably underscores the difference in the respective sample bases.

As Hanley Wood Market Intelligence senior VP for products and innovation Jonathan Smoke has noted, the NAHB hasn’t trued up its survey sample since a massive consolidation of home building took place in the first part of the decade. 

Since it hasn’t updated its sample, the pulse it’s taking on the industry may miss the fact that large builders are making progress in a number of markets, where the smaller ones are still getting pummelled by tough home mortgage credit conditions and a brutal construction lending environment.

Whereas John Burns’ and Carl Reichardt’s reports are coming in from production builders’ communities and companies–those with a whole different capital structure or access, and motivation to price their product to sell on the double.

We think that while housing is certainly not out of the woods, we’re going to see the very first inklings of recovery among production builders vs. those who ply their trade on a house by house basis.

While residential real estate is local, money is hardly that right now. While money is stuck in the Fed and Treasury coffers, it’s the bigger players who need it less who’ll move housing’s near-term future along the bottom. 

Here’s a two-minute video from CNBC’s Diana Olick that focuses on the NAHB/Wells Fargo HMI.