I’ve been hesitant to stick my neck out on this, but now it is pretty obvious, the housing market is stabilizing, which means that if you plan to buy a home, or build a home, now is the time to do it. This time next year, prices will be higher, and interest rates will likely be higher. If you can’t afford to buy or build right now, then by all means, don’t. Be deliberate in what you do. But, if you have the money, or can get the credit, and building or buying makes sense for you right now, then do it. Don’t fall prey to the daily news shows that try to always spin things negative, because they know that “negative” sells better. Don’t miss out on the greatest opportunity to own a home that we have had in this Country in decades.

One thing that is very concerning, however, is the idea that an end to Government intervention would necessarily mean a drop in home prices, and even further, a drop in home prices that might even become permanent. This idea is pure speculation, and definitely not borne out by the facts. Following is my argument for why this theory is not based in fact:

The term “home prices” as defined by the Government and independent groups that track home price movement, is nothing more than average sales price, calculated by taking the total dollar value of sales for a particular period of time, divided by the total number of homes sold. Obviously, if you have a lot of smaller, less expensive homes sold during a particular time period, the average sales price will be lower. During the boom years, the proverbial McMansions were selling all over the United States. The average home being sold was larger, and therefore more expensive, than the average home sold a few years earlier. As the average sales price increased during the boom years, this was reported in the media, and interpreted as an increase in home values. People anxious to by a home before prices went even higher, were quick to pay prices that were simply not justifiable based on the cost to build the home. In a few areas of the Country, namely California, Arizona and Florida, the feeding frenzy for homes simply got out of control, and home prices rose to levels absolutely unsustainable.

Over the past two years, a combination of factors, but mainly the $8000 tax credit, has attracted first-time and lower cost buyers to the housing market. As a result of smaller, less expensive homes being sold, the average sales price has dropped significantly. Despite how the media may love to spin it because it makes for more exciting news, the 30% drop in “home values” that has been reported over the past two years, is actually much more accurately described as a 30% decrease in the average size of home being sold. That’s not to say that home values haven’t dropped in some areas. But it should also be noted that home values have definitely not dropped the same in all areas, mainly because some areas of the Country never had the unsustainable run up in prices during the boom.

The point that must be made here is that over the past two years, an onslaught of smaller, less expensive homes being sold, has played havoc with the average sales price numbers, and have artificially skewed the way we measure home values in this Country. Going forward, with the absence of tax credits and all the other incentives designed to help first-time home buyers, it seems likely that the average sales price will begin to tick up, not due to an increase in home values mind you, but because of an increase in the average size of home sold. Based on what I am seeing in our local MLS, the inventory of homes under $200,000 is tremendously low compared to a year ago, and the number of new homes under $200,000 is almost non-existent. For this reason, I believe that the basic law of supply and demand will actually push the price of smaller homes higher. So far in the month of September, it appears that the average sales price of homes sold will be significantly higher than in previous months. The difference: an almost total lack of the smaller home sales prevalent during the months leading up to the end of the tax credit.

Even more important than the fact that going forward, sales of larger homes will be more prevalent, and will push average sales prices higher, is the simple and provable fact that it is relatively impossible for home building costs to decrease. It is a fact that the cost to build a home today is more than the cost to build the same house in 2006. And, despite the rhetoric, even during the boom years, most builders in areas other than CA, FL and AZ, were making profits in the range of 12%-15%; certainly an acceptable profit level for any business. What this all means, is that with the exception of CA, FL, and AZ, most builders in most parts of the Country simply cannot afford to build homes for less than they were building homes for in 2006. So what is the likelihood of reducing direct and/or indirect building costs? Not very. One of the most significant costs related to housing is crude oil. The amount of freight involved in the construction of a home is tremendous. The raw materials have to be transported to a place of manufacture, then from the manufacturer to a distributor, then from the distributor to the actual home under construction. Then, there is the cost of fuel for construction equipment. But, the most significant portion of cost related to crude oil is in the use of petroleum based products used in homes; carpeting, plumbing pipes, vinyl flooring, vinyl siding, paints and finishes, roofing shingles and much, much more. The bottom line: unless we are likely to see crude oil prices at $35/barrel some time soon, it is a good bet that the cost for freight and petroleum based products will likely increase, not decrease. Other things contributing to the cost of a home are copper, lumber and lumber products such as OSB, and gypsum for drywall. There is absolutely no evidence that these items are likely to decrease in cost any time soon. In fact, there is evidence that as the housing market begins to eventually recover, there will be a lack of sufficient supply to cover demand. In the short uptick that the housing market saw in early spring, OSB more than doubled in price, mainly due to the fact that because of the housing crash, there are limited OSB manufacturers still in business. Any sustained recovery in housing will likely bring to light the fact that this Country no longer has the ability to produce the number of homes that will eventually be needed to keep up with population demand. The result will be a steady increase in costs, not a decrease.

The unfortunate part of all this, in my opinion, is the likelihood that the same people who are encouraging a total collapse of the housing market, know full well the facts that I have presented here, and they are very much aware that the long-term direction of home prices is up, not down. Those same people are positioning themselves to take advantage of the ultimate upward direction in housing. Meanwhile, the average buyer is still sitting on the sidelines, believing the myth that somehow, now is not the best time in decades to buy a home. No matter the ups and downs of the housing market over the next several months, the trend will continue to be upward, and at some point, when it becomes obvious that the housing market is not just recovering, but beginning to charge ahead, some unfortunate people will discover that they simply waited too long.

As a very simplified definition, Energy Star is a program designed to ensure that a home is at least 15% more energy efficient than a home that is built to the minimum standards of the International Building Code.  This energy efficiency is obtained in several different ways, but the main two ways are through the reduction of air flow into and out of the house (the building envelope), and through greater efficiency of the HVAC system. 

A third party will inspect the home at different intervals during the construction, and at the end of construction, the third party rater will create a set of documents that will show the overall efficiency of the home.  This documentation is sent to the government agency that oversees the Energy Star program, and if the documentation meets their approval, a certificate will be issued.  A sticker will be entered in the home’s breaker box to show that the home is certified as an Energy Star home.

Not only can the home owner enjoy a great deal of energy savings over the life of the home, but in many areas, the electricity provider offers a discount off the normal energy rate for the life of the home. 

The goal of the seminar is to draw a distinct difference between the process of buying a new or existing home, and the much longer, but in my opinion, much more fulfilling process of building a home designed specifically for a particular family’s needs and lifestyle.

No matter how you may feel about the future of the housing market, one thing is obvious; the near perfect environment of low interest rates, material supplier incentives and builder discounts will soon be changing. Just like the stock market, if you are trying to time the housing market, you are almost assured to miss the “perfect” timing. If you have the desire and the financial capability of building a new custom home, now is the time!

For more information regarding the Home and Garden Expo, call Custom Homes of Asheville at 828-645-0506, or the Asheville Home Builders Association at 828-299-7001. You can also go to the Asheville Home Builders Association website at www.ashevillehba.com

As the first few months of the Obama administration began to unfold, negotiations for an historic stimulus package were underway. When the final version of the stimulus package was revealed, those of us whose livelihoods depend on housing were tremendously disappointed to see that the $15,000 home buyer tax credit had been negotiated down to an $8,000 tax credit; only for first time home buyers. What we now know is that the economy was in far worse shape than anyone thought, and the lackluster effort to stimulate housing was simply not enough to jump start housing in those early months of 2009. In the last half of 2009, as it became obvious that the economy and housing prices were beginning to stabilize, first time homebuyers began to take advantage of the housing credit, and housing numbers, in general, began to look much, much better. What we may never know is just how much better 2009 would have been for housing, and the economy in general, had the original $15,000 tax credit for all homebuyers been passed. History will judge whether the $8,000 first time homebuyer tax credit was genius, or far less effective than it could have been. For those who are part of the currently 10.2% of Americans who are unemployed, most would argue that the stimulus package, in general, should have been far more aggressive, and should have included the $15,000 tax credit from the beginning.

Now, we must look forward. We will never know what “might have been”, but what we have to concentrate on is what we now know, and what we believe is about to happen in 2010. For the record, here are my thoughts:

In Buncombe County, NC, in December of 2008, there were well over 400 homes on the market that were classified as single family residential NEW homes; meaning that no one had ever lived in the home. As of the date of this post, there are only 273. What is even more encouraging is that very few new homes are being added to the market. The problem with the market is simply an oversupply of homes; new and existing. The only way to cure that problem is to increase sales, decrease inventory, or both. Sales have not increased, and with the current unemployment rate, it is unlikely to increase dramatically any time soon. But, the fact that the number of new homes on the market has decreased so significantly in the past year, even in this horrible economic environment, is very encouraging. Those who say that the drop in housing starts in October is somehow a bad thing for the housing market, are obviously not understanding the problem. The fact that housing starts are staying low while sales are picking up, though anemic in their increase, is a fabulous sign for the future of the housing market. As the economy begins to gradually improve in 2010, more people will begin to enter the market as potential buyers.
Despite the rhetoric that is constantly spewed by investors who would like to “talk” the market down for a few more months so they can get a few more good deals, Americans are beginning to realize that their window of opportunity is going to begin to close. Over the next 12 to 18 months, the perfect storm of the lowest interest rates in history, housing affordability at an all time high, government incentives to purchase, and the obvious move toward stability in prices, will slowly begin to fade away. If you are not financially able to take advantage of this historic time in the housing market, then by all means, sit this one out for now. The last thing we need are homebuyers continuing to struggle to pay for their homes. However, if you are financially capable of taking advantage of the very best time in recent history to build or buy a home, then DO NOT sit on the sidelines. A rising tide lifts all boats. Now is not the time to stay on shore!

Question: When is a Building Permit required?

Answer: Basically any residential structure built in NC requires a building permit. The local code official (Usually County) is responsible for overseeing permitting and inspections. It is a misperception that if you do not require being hooked to an electric grid (in other words, electricity being provided by an electric company), then building inspections are not required. This misinformation stems from the fact that code officials have the authority to deny electricity hookup to the home unless all code requirements are met. Though this is true, this does not mean that inspections are not required on homes that do not require electricity hookup from an electricity company. Furthermore, code officials have legal authority to impose fines and other punishment up to requiring that the home be uninhabited until the home can be inspected and brought up to code. The bottom line is that all homes built in NC require a building permit and inspections. Trying to get around this fact could cost the homeowner drastically. So, follow the rules and obtain the necessary permits and inspections when building a home.

Question: When is it necessary for a Licensed General Contractor to build my home?

Answer: In NC, state law allows for a homeowner to act as their own contractor in building their home provided that: The home is their primary residence, and they will live in the home for at least the next 12 months after the home is completed. Some Counties in NC actually require that an affidavit be signed to this affect. Obviously, any commercial structure would not fall under these requirements. Also, any home that is being built specifically as an income producing property (rental) does not fall under these requirements. Keep in mind also that some Counties require that a test be passed in order for an unlicensed homeowner to provide electrical, mechanical or plumbing work on the home. For clarity, ask your local code official.

Question: How do I go about finding a “good” Licensed General Contractor?

Answer: To answer this question, it is necessary to understand how General Contractor licensing in NC is managed. To become a licensed General Contractor in NC, a person must first apply and be approved to “sit for” the Contractor’s exam. A contractor can apply to take the residential or building exam. A contractor with residential license may build any residential structure including single family homes and duplexes. A contractor with building license can build any structure, residential or commercial. Once an applicant passes the desired exam, the applicant is eligible to apply for a license. The level of license granted depends on the financial strength of the applicant. In NC, Licenses are issued as Limited, Intermediate or Unlimited. As of the date of this post, a licensee holding a limited license may build a single structure with a construction cost of up to $500,000. An intermediate license is good up to $1,000,000, and unlimited is…just as it implies, good for any structure of any value. Armed with this information, ask potential contractors for a copy of their license. On the license will be the type of license (residential or building) and the level. There will also be a license number. Armed with the license number, you can go to www.nclbgc.org to inquire regarding a particular licensee. After you verify the existence of a valid contractor’s license, one of the best ways to evaluate a contractor is to ask for a list of 10 or more references. It is true that almost any company can come up with 3 or 4 references that will speak well of them, finding 10 is a bit more difficult. In many cases, the contractor can arrange for you to visit some of the homes they have built. Lastly, evaluate whether the contractor has the support to supply your needs, i.e., a design center, well established subcontractors, etc. Use good common sense to evaluate the contractor, and you should be fine.

Question: How many pricing estimates should I get from Contractors to ensure that I get a quality home at a reasonable price?

Answer: There’s certainly no magic answer to this question. Some people feel that three bids are adequate, while some do their homework early and find a builder they are comfortable with, and only have that builder quote the project. I believe the answer is to feel comfortable with pricing and quality. One misperception is that larger builders can somehow build for much less than smaller builders. The truth is that there is very little difference in the pricing structure between large builder and smaller builders. Most of the pricing difference comes from negotiated pricing with national suppliers for specific windows, doors, siding, cabinetry, etc. Special pricing provisions may well lower overall costs by 3%-5%. But, larger builders’ overhead more than offsets any savings from national contracts. Further, such national contracts serve to limit the choices of the homeowner rather than providing true custom choices. The bottom line is that builders who have been in business for a while have done so because they have been able to keep costs under control while providing the best quality available.

What is most frustrating to me personally is the seemingly uninformed opinion that home prices will stay where they are now. The bust in the housing market, though needed in some areas of the Country, could have been handled in a much better way. But, as I heard it said recently, “…we shouldn’t be as stupid on the way down as we were on the way up.” In other words, unbridled growth, which led to the housing boom, was not helpful for the long-term health of the housing market. But, the total disintegration of the housing industry is equally not helpful. With all the speculation about what will happen with the housing market going forward, there are some facts that we know.

• First, we know for a fact that the US population is predictably increasing, and as a result, this Country’s ability to provide adequate housing will be critical.

• Second, as the population grows, and more homes are built, there will be increasing competition for the fewer and fewer pieces of property available. It is bewildering that though Americans are very concerned that fewer oil reserves to meet our needs will ultimately result in higher oil prices, no one is discussing the fact that we have a limited amount of room on the planet to house people. The major difference between the two is that though there may eventually be alternative fuel sources to lessen our dependence on oil, nothing short of a plan to start communities in space will lessen our dependence on real estate to house our people.

• Third is cost. Let’s cut through the hype and get to the facts. The facts are that direct building costs are higher today than they were in 2007 when the housing bust began, mainly due to increases in petroleum-based materials such as roofing shingles, carpet, vinyl siding, etc. It is true that overall costs are lower, but only because indirect costs such as interest rates are lower than any time in recent history. It is a fact that anyone purchasing a home can buy an existing home for far less than the replacement cost to build that home today. Though that may be good news for those lucky enough to purchase a home in the next few months, this phenomenon will not continue long-term. Surprisingly, there seems to be people who believe that the horrible housing market will actually eventually push costs down in line with current home values. The fact is that for those who are involved in the housing market every day, it has become obvious that cost increases, not decreases, are on the very near horizon. Manufacturers of housing related products lowered prices through 2008 trying to spur demand. When it became obvious that demand wasn’t coming any time soon, manufacturers implemented mass layoffs, sold and/or consolidated assets, and restructured their pricing to be profitable, even in the worst-case scenario. Second quarter earnings for most all manufacturers showed that though revenues were down substantially, earnings were up. In other words, manufacturers have drawn a line in the sand. They are not going to lower prices further, because doing so will hurt earnings. Given the “lesser of two evils”, Wall Street prefers that manufacturers show higher earnings and margins than increased revenue at lower margins. They may not sell as much, but what they sell will be profitable. Adding to this is the almost assured reality that the Government’s efforts to help revitalize the economy will eventually result in inflationary pressures. The ultimate result: increased building costs, probably sooner rather than later.
• Fourth is a situation that I believe very few people see coming, and even fewer truly understand the complications that will ultimately arise. Few have noticed the absolute silence by the larger builders who have supposedly been so damaged during this housing downturn. Why do we not hear from CEO’s of such Companies as KB Homes, Lenmar and Toll Brothers? Possibly it is because they realize that the general public has very little sympathy for their current situation. But something else may also be a reason for their silence. It is estimated that more than 80% of the builders in the US are small builders. Many of these builders are family operations whose businesses support fathers, spouses, sons and daughters. Typically, these builders have low overhead, and can build homes for less money than the larger builders, even with the larger builder’s volume discounts through national accounts. These smaller builders are direct competition for the larger builders, and over the years have become the sole reason that larger builders cannot increase market share and margins. I am not suggesting that large builders are actively trying to put smaller builders out of business, but I am suggesting that large builders realize that the longer the housing downturn lasts, the less competition there will be when the market does turn around. Sometimes, silence can be deafening. And, it’s not just the loss of small builders that is concerning, it is also the loss of talent. My guess would be that the number of older craftsmen who have chosen to take early retirement rather than try to make it through these difficult economic times is staggering. The long-term loss of such talent and knowledge will be devastating to an industry that has had increasing concerns about less than stellar quality over the past several years.

The housing boom came and went, the bust appears to be stabilizing, and now the questions needs to turn to what comes next. A healthy housing industry is good for everyone. Healthy means that we don’t need any more booms or busts, just steady growth and reliability. Builders and investors need to provide quality homes at prices that are good for both the builder and the buyer. And, homeowners need to realize that their homes are not intended to be a source of immediate wealth, or an unlimited line of credit. As Americans we need to get this right this time.

Speaking of foreclosures, don’t believe all the hype about a new wave of foreclosures coming later this year. It is true that more homes will slip into default as unemployed workers struggle to pay their mortgages. But, I believe that it is also true that Banks are very much aware that the market is bottoming, and that they stand a much better chance of getting the money they are owed if those homes are kept off the market, at least for now. If you think about it, it’s just smart business for the Banks. It’s like selling stocks; it’s just a “paper loss” until you actually sell. Because the Banks know that housing values are likely to increase over the next year or two, it is to their advantage to hold on to the assets rather than giving them away.

It’s unlikely that home prices will rebound substantially, at least for a while. But, it’s finally obvious that the long awaited bottoming of the housing market is finally here. Support the US Economy and go buy or build a home!

The proposed bill would increase the current $8,000 tax credit to $15,000, and would extend the credit to ALL (yes, you read that correctly), ALL homebuyers. The tax credit could be taken over two years, and would be for purchases within one year of bill passage.

If passed as written, the bill would also eliminate the income caps of $75,000 and $150,000 for a single person or married couple respectively.

Over the past several weeks, it has become increasingly obvious that the $8,000 first-time homebuyer tax credit has been overwhelmingly successful. In fact, approximately 50% of recent home sales have been to first-time homebuyers. In one of my earlier blog entries, I pointed out that this scenario is skewing the average home price numbers to the lower end; thereby making it appear that home prices are falling further than they actually are. It appears that lawmakers have taken note of this situation, and are aware that in order to stabilize the housing market, incentives need to be provided to all homebuyers, not just first-time homebuyers.

If this amendment happens to pass, this would effectively be the last “nail in the coffin” for the argument that a housing market recovery is nowhere near. Housing market stability is critical for everyone. Homeowners need stability in home values, Homeowners need to be able to rely on building equity in their homes, businesses, and of course, their employees, need the added revenue that home construction provides. And, finally, local governments desperately need the tax revenues created by housing sales and related construction activities to fund schools, roads, police, firefighters, and others.

Here’s hoping the lawmakers put politics aside this time, and do THE RIGHT THING!

For a full overview of the amendment, go to www.bloomberg.com/apps/news?pid=20601103&sid=aQmrxrzY0jfE

Steve Wallin, President

Custom Homes of Asheville

For more information, check out this link:    

www.mercurynews.com/realestatenews/ci_12480568?nclick_check=1