Home Building Construction News - July 24, 2006 - 7/24/2006 - Real Estate Home House Condo
Home Building Construction News - July 24, 2006
The Fed Chairman faced some tough questions during his semi-annual testimony before Congress this week, some of which were the direct product of NAHB's effort to focus attention on the effects of rising interest rates on housing.
In questioning Chairman Ben Bernanke, Senator Paul Sarbanes (D-MD) quoted directly from an NAHB letter registering our concerns about the impact of rising interest rates on housing affordability. Sarbanes also specifically noted NAHB's observation that rising rates, set in motion by the Fed's monetary tightening, have had the effect of firming up rental markets and raising the "owners' equivalent rent" components of core inflation measures that the Fed is trying to contain.
When Bernanke testified the following day before the House of Representatives, at NAHB's behest Rep. Gary Miller (R-CA) also closely questioned the chairman about the effect of rising rates on housing costs, cautioning Bernanke that "Every time you raise interest rates, you price buyers out of the market," and again pressing him on the "owners' equivalent rent" issue. For his part, the Chairman acknowledged the validity of the point about rents rising with interest rates, but contended that "the increase in inflation we've seen is a much broader phenomenon than that single component."
The fact that such issues were raised by more than one member of Congress is a testament to NAHB's credibility and clout on Capitol Hill, and solid evidence that our concerns about housing's "soft landing" being threatened by overly aggressive monetary tightening are in fact being heard by lawmakers as well as the Fed Chairman himself. The Chairman did promise to "keep a close eye on housing" and now certainly understands that Congress and NAHB are keeping a close eye on what the Fed does, as well.
A transcript of Bernanke's testimony — not including the question-and-answer period that followed — is available on the Federal Reserve Web site. His prepared remarks on housing essentially emphasized that an orderly cooling process of the kind NAHB's forecasts have foreseen is underway; however, he acknowledged that the Fed operates in an uncertain environment and his written report highlighted the downside risks to housing.
Builder concerns about interest rates and deepening housing affordability issues contributed to another decline in the NAHB/Wells Fargo Housing Market Index (HMI), a key gauge of builder confidence, for the month of July. The HMI fell three more notches this month to 39, down from its most recent cyclical high of 72 in June of last year. This reading reflects growing builder uncertainty on the heels of reduced sales and increased cancellations related to eroding affordability as well as the ongoing withdrawal of investors/ speculators from the marketplace. All three components of the HMI declined in July, with the largest decline, of five points, registered in the index gauging sales expectations for the next six months. The index gauging current sales of new single-family homes fell four points and the index gauging traffic of prospective buyers fell two points. Significantly, builders in the West, who have been the most optimistic in the HMI for some time, recorded the biggest dip in confidence this time around, with a 9-point decline to 51 on a gauge where any number over 50 indicates more builders view sales conditions as good than poor.
Housing starts declined 5.3% in June to a seasonally adjusted annual rate of 1.85 million units, according to figures released by the Commerce Department on July 19. Single-family starts fell 6.5% to 1.49 million units in the month, while multifamily starts eked out a 0.3% gain to 364,000 units. The numbers are a clear indication that the housing downswing is underway – a pattern consistent with signals from the field, such as our latest HMI (results reported in story above). Not only are builders reporting fewer home sales, but also they are seeing increased sales cancellations and larger inventories as speculator/investor activity wanes and affordability concerns continue. While the Northeast, South and West all posted declines in June housing starts (of 11.5%, 4% and 10.2%, respectively), the Midwest posted a 3% gain this time around following a significant decline in the previous month. Issuance of building permits also decreased in June, by 4.3% to a seasonally adjusted annual rate of 1.86 million units. Single-family permit issuance declined 6.3% to 1.4 million units, while multifamily permit issuance rose 2% to 467,000 units.
Alert: Two days left to oppose FHA insurance premium hikes! NAHB members are urged to contact HUD immediately with comments opposing the agency's proposal to signficantly increase mortgage insurance premiums that multifamily developers would be required to pay for several key FHA programs, including the Section 221(d)(4) program. HUD plans to implement the increases on Oct. 1, and the 30-day comment period ends July 26. NAHB has already written a comment letter expressing our members' strong opposition, but it is important for HUD to hear directly from individual developers and lenders as well. NAHB members commenting on the proposal should state their opposition to the increased premiums and explain how those higher premiums will adversely affect their business and housing affordability for renters. A sample comment letter that you can personalize is available online, as is the official Federal Register Notice announcing the increases. All comment letters need to reference Docket No. FR-4679-N-11, Changes in Certain Multifamily Mortgage Insurance Programs Notice, and should be sent to: Regulations Division Office of General Counsel Room 10276 Department of Housing and Urban Development 451 Seventh St., SW Washington, DC 20410-0500
Conveying builders' concerns about a new EPA regulation, NAHB staff met with agency Administrator Stephen Johnson this month. At issue was the EPA's proposed standard for coarse particulate matter, which, if approved, would add complicated and contradictory mandates at the job site for builders working in urban areas with populations of 100,000 or more. Specifically, the agency plans to step up regulation of "crustal fugitive dust emissions" – otherwise known as common dirt – that's stirred up from construction sites. The EPA contends that such dirt and dust is more dangerous than dust from other sources such as farming or even windstorms. NAHB has already submitted formal comments in opposition to the proposal, but the meeting with Johnson afforded us the opportunity to present our case up-close-and-personal.
NAHB representatives focused on four reasons the proposal should be rejected. Those include: 1) the fact that its focus on only urban areas is inconsistent with EPA's statutory obligations to promulgate national standards; 2) the science presented does not support the conclusion that the standard is necessary; 3) there is no rationale for differentiating between urban and rural coarse particles; and 4) the proposed standard would preempt state and local authority to devise implementation plans, compliance strategies and air monitoring programs appropriate to their areas. The EPA is under court order to complete the new standard by Sept. 27.
A distinguished visitor returned to the National Housing Center this past week for a political fundraiser on behalf of Rep. Barbara Cubin (R-WY). U.S. Vice President Dick Cheney arrived via motorcade, Secret Service escort and all, as we've seen him do on several previous occasions when similar events have been booked in the Housing Center's first floor atrium and auditorium. The event itself, and especially Cheney's presence, are further evidence that NAHB's headquarters building, which underwent a major renovation in recent years, is an impressive and very functional flagship that effectively honors our 225,000 members.
to a seasonally adjusted annual rate of 1.85 million units, according to figures released by the Commerce Department on July 19. Single-family starts fell 6.5% to 1.49 million units in the month, while multifamily starts eked out a 0.3% gain to 364,000 units. The numbers are a clear indication that the housing downswing is underway – a pattern consistent with signals from the field, such as our latest HMI (results reported in story above). Not only are builders reporting fewer home sales, but also they are seeing increased sales cancellations and larger inventories as speculator/investor activity wanes and affordability concerns continue. While the Northeast, South and West all posted declines in June housing starts (of 11.5%, 4% and 10.2%, respectively), the Midwest posted a 3% gain this time around following a significant decline in the previous month. Issuance of building permits also decreased in June, by 4.3% to a seasonally adjusted annual rate of 1.86 million units. Single-family permit issuance declined 6.3% to 1.4 million units, while multifamily permit issuance rose 2% to 467,000 units. 
NAHB staff met with agency Administrator Stephen Johnson this month. At issue was the EPA's proposed standard for coarse particulate matter, which, if approved, would add complicated and contradictory mandates at the job site for builders working in urban areas with populations of 100,000 or more. Specifically, the agency plans to step up regulation of "crustal fugitive dust emissions" – otherwise known as common dirt – that's stirred up from construction sites. The EPA contends that such dirt and dust is more dangerous than dust from other sources such as farming or even windstorms. NAHB has already submitted formal comments in opposition to the proposal, but the meeting with Johnson afforded us the opportunity to present our case up-close-and-personal. 
this past week for a political fundraiser on behalf of Rep. Barbara Cubin (R-WY). U.S. Vice President Dick Cheney arrived via motorcade, Secret Service escort and all, as we've seen him do on several previous occasions when similar events have been booked in the Housing Center's first floor atrium and auditorium. The event itself, and especially Cheney's presence, are further evidence that NAHB's headquarters building, which underwent a major renovation in recent years, is an impressive and very functional flagship that effectively honors our 225,000 members.