BATC Plumb, Level & Square Blog

Which Way is the Remodeling Wind Blowing?

2013-05-13T19:30:44Z

NAHB’s May 9^th Eye on the Economy quoted the latest Census data showing that nationally, remodeling expenditures have been declining for five months. The article noted this slight downturn came on the heels of strong growth from spring through fall of 2012.

The same dip is noted in the LIRA (Leading Indicator of Remodeling Activity) from the Harvard Joint Center for Housing Studies. But both sources suggest that this is a short-lived blip, with the Joint Center anticipating a nearly 20 percent increase in activity by fourth quarter of 2013.

“Existing home sales were up almost nine percent last year, and house prices are increasing in most markets across the country,” says Eric S. Belsky, managing director of Harvard’s Joint Center for Housing. “This has increased the home equity levels for most homeowners, encouraging them to reinvest in their homes.”

Both sources agreed on the probable culprit for the slip. “One possible explanation for remodeling’s slow start is the general challenges faced by builders and remodelers from rising building material costs and the availability of workers,” noted NAHB.

“The strong growth that we’ve seen recently is putting pressure on the current capacity of the home improvement industry,” says Kermit Baker, director of the Remodeling Futures Program at the Joint Center. “Contractors and subcontractors are having more difficulty finding skilled labor, and building materials costs are unusually volatile for this stage of a recovery.”

While the national news is a bit of a downer, BATC’s remodelers have been incredibly upbeat this spring. The Parade of Homes Remodelers Showcase® remodelers reported good traffic, with Jolynn Johnson, Crystal Kitchen Center remarking it was the “best event in 18 years.”

“What a fabulous showcase! The traffic was steady and people were great. We had many quality conversations and great feedback. People seem eager to update their homes in 2013,” said Becky Zweber, Novare Renovation & Design.

Interest Rates Yield No Recession

2013-05-09T16:30:02Z

The Voice: Beltway Perspectives from Elliot Eisenberg

While Q1 GDP growth was 2.5%, it will probably be the best performing quarter of the year. Add to that continued contractionary fiscal policy in the form of both the sequester and the Fiscal Cliff deal, continued weak employment growth, declining exports and a lackluster manufacturing sector and suddenly recessionary fears are palpable. After all, a recession will inevitably come and it has been almost six years since the start of the last one. Aren’t we kind of due? Turns out, the answer is no, no and no! If history is any guide - and it’s a very good one in this case - there is no recession in sight.

Since 1970 there have been seven recessions, and interestingly enough, each one has been preceded by an inversion in the yield curve, a situation where short term interest rates are higher than long term interest rates. Rarely is there an indicator that is seven for seven over a period of 44 very dissimilar years. The last time the yield curve inverted and a recession did not follow was in 1966-67, and though there wasn’t a recession, the economy slowed substantially with GDP growth of less than 1% for 21 straight months.

Normally, interest rates are higher the longer the period of time money is lent. For example, today a one-year Treasury bill yields 0.15%/year, a 10-year Treasury note pays 2%/year and a 30-year Treasury bond pays 3.125%/year. After all, the longer you lend someone money, in this case the government, the more interest rate risk, inflation risk and credit risk you incur, and investors must be compensated for these risks

However, from time to time this normal relationship breaks down. One explanation for this phenomenon is that by raising short-term rates (to slowdown an overheating economy with rising inflation), the Federal Reserve discourages bank lending, as banks generally borrow short and lend long. And when the yield curve is inverted, banks have much-reduced profit margins, and this reduction in lending causes a recession. A second explanation for an inverted yield curve is that investors expect future short-term interest rates to decline because they expect a recession. As a result, investors expect the central bank to lower interest rates to counteract the expected recession. And when this happens, investors plow into low-yielding long-bonds to lock in yields they expect will be still lower in the future.

Regardless of the reason, from time-to-time the yield curve inverts. Today, the difference between ten-year Treasury notes and one-year Treasury bills is 1.85%. Assuming the Federal Reserve felt compelled to start raising short-term interest rates soon (and let’s be clear, it does not), it would take, based on history, about two years before yields on one-year Treasury bills were higher than yields on 10-year Treasury notes. And again using history as our guide, it generally takes another 12 months after the yield curve inverts before a recession begins. This suggests that we have at minimum three years before the next recession. Of course, given the expansionary state of monetary policy and the laser-like focus of the Fed in preventing a recession, my bet is we have quite some time before the recession of 2018!

Elliot Eisenberg, Ph.D. is President of GraphsandLaughs, LLC and can be reached at Elliot@graphsandlaughs.net. His daily 70 word economics and policy blog can be seen at www.econ70.com.

Legislative Items to Watch Closely

2013-05-07T14:11:59Z

From The Voice: View HERE

Going into the stretch there are a number of issues that have been worked on closely throughout the session that are still alive in the process.

Street Improvement Districts (HF 745/SF 607)

Background: Proposed by the League of MN Cities for the past decade in an effort to create another tool for local governments to raise revenue for street improvements, the initiative allows cities to create districts in which they can collect fees from new and existing properties. The fees must be connected to a streets improvement plan, but unlike existing special assessment authority the fee is not subject to the benefits test to ensure it is proportionate for the property value increase associated with the infrastructure improvement.

Current Status: The language is alive in the House Omnibus Tax Bill which is currently in conference committee. We successfully negotiated an amendment that exempts new development from street improvement districts for three years following the development of the project. The language specifically exempts ‘unoccupied parcels’ which covers model and spec homes.
Minneapolis Park Dedication Fee – Fair Market Value (HF 321/SF 99)

Background: The City of Minneapolis has long sought specific authority to charge a park dedication fee on new commercial and residential development, but there is some uncertainty as to how the fee can be administered. The proposal requires a nexus between the development paying the fee and the park creation and improvement. Additionally, the city capped the park dedication fee at $1,500, placing it among the lowest in the metro area.

In discussions with Minneapolis Park Board representatives and the League of MN Cities, we were able to revive our fair-market value language from 2012 as an amendment. That language creates a pathway to fairer, more accurate park fees by clarifying a process for negotiation between the developer and the city for park fee rates. If that is unsatisfactory, the language allows the developer to request a third-party appraisal.

Current Status: It’s expected that this language will be offered in the Jobs and Economic Development Finance Omnibus Bill during conference committee.
Indemnification/Risk Transfer (HF 644/SF 561)

Background: This initiatives would change construction contract indemnification and insurance clauses by making them void and unenforceable, with certain exceptions. The MN Subcontractors Association is pushing for a blanket prohibition on these provisions.

Current Status: This bill is on the House Floor in both bodies. BAM legal counsel continues to work with proponents of the bill to ensure that any statutory change does not disrupt access to affordable insurance products.

The Numbers Behind BATC-U

2013-05-02T19:54:56Z

We can't say thank you enough to our four BATC-University 2013 sponsors, who helped make the following stats possible this year:

275 people attended classes at BATC-U
Of the 275 attendees, 60% were members & 40% were non-members
33 classes were offered by a toal of 30 instructors
63 contractor credits and 72 real estate credits were offered
1,475 contractor credits were given out
216 companies were represented
30 people completed the Certified Aging-in-Place Specialist designation (CAPS)

Here's what people had to say about BATC-U:

"The presenters are experts in their fields. This is not the case with other community education facilities." - David Durst, Durst & Gans

"Very informative, well worth the time."- Jon Rol, Great River Builders & Remodelers, LLC

"Great information that all contractors should hear, very well communicated!"- Gary Kraemer, John Kraemer & Sons, Inc.

"All the presenters had high energy and were knowledgeable in their seminars. The day went smoothly and I learned a lot."- 2013 BATC U Attendee

Tweet of the Week

2013-05-02T15:45:20Z

A little birdie just tweeted us about all the fun that's in store for YOU at the next Showroom Mixer on Tuesday, May 7th - 4:30 to 6:30pm. Warners' Stellian is hosting (At 1711 N. Snelling Avenue, Falcon Heights) and the entertainment is going to be epic.

This tell all tweet indicates that you can expect Flat Earth beer, hand-rolled cigars, grilled appetizers and more! Don't miss out!

Thank you to Warners' Stellian for hosting! If you would like to host your own Showroom Mixer, contact Kori Meewes.

Legislative Action Alert: Indoor Sprinkler System Mandate

2013-04-30T15:45:17Z

With just four weeks left in this legislative session, our efforts to remove the home indoor sprinkler system mandate from the proposed building code are being heard by legislators. The Minnesota Senate overwhelmingly passed a prohibition on home sprinkler mandates in the Omnibus Economic Development bill. This vote – 47 of 64 Senators stepped up to oppose the sprinkler mandate – is a huge bipartisan step in the right direction. Now, we must continue to build on this momentum.

Members of BATC have made a powerful impact thus far, and we need you to continue to speak out if we are going to succeed this year.

Please contact members of the conference committee today to help them understand the negative consequences that a home sprinkler mandate will have on our industry, and the ripple effect it is sure to create for our economic recovery in the years to come. It's as easy as a phone call or email to this list, and we've provided sample messaging below.

Example Email:
Subj: Vote No on Mandatory Indoor Sprinkler System for MN Homes

Dear ,

I’m a Minnesotan who works in the homebuilding industry. I strongly support the provision in the Omnibus Jobs and Economic Development Finance bill which prohibits a mandate for home sprinkler systems in our state’s building code. Newly built homes in Minnesota are a national model for fire safety where fire deaths have virtually disappeared. There are other important factors I’d ask you to consider:

The housing industry plays a critical role in the state’s ongoing economic recovery.
Coming out of the recession, consumers are very price-sensitive.
The cost of meeting the home sprinkler mandate is approximately $2.00 per square foot, and twice that for homes with well water. For a 4,500 square foot (unfinished) home, this adds $9,000 -$18,000 to the cost of purchase.
Once installed, a sprinkler system requires more rigorous testing and maintenance than an equally-effective hard-wired smoke alarm system, further increasing costs for homeowners.
The potential impact of a false positive is also significant – while a false alarm for a smoke detector awakens the family, with a sprinkler system the house is flooded.

If new home safety was a significant concern in Minnesota today, we would join the groups who are interested in this mandate. However, based on any independent data, Minnesota is a very safe state for new and remodeled homes. Asking families to pay thousands more dollars for their home in an effort to mitigate a negligible risk is contrary to the policy and purpose of the current building code, which states:

“The construction of buildings should be permitted at the least possible cost consistent with recognized standards of health and safety.”

Please support the Senate language on this issue, we look forward to a building code free of a home indoor sprinkler system mandate.

Sincerely,
Your Name, Company Name

CLICK HERE for senator contact information >>

Celebrating Earth Day: MN Green Path places new homes on a performance path

2013-04-22T14:07:29Z

Third-Party Energy Testing, Home Performance Reports, and the DoE Challenge Homes

Minnesota’s Green Path, an energy and green performance program for new homes and remodeling, is growing. Launched a little more than a year ago, MN Green Path offers builders and remodelers an innovative program that provides home owners and buyers an easy-to-understand, third-party certification document about a home’s energy and other green features, called the Home Performance Report (HPR).

The HPR is the real centerpiece of MN Green Path, and offers an unique way to help people better understand the complexities of building science. Few home buyers can or want to examine all the features and techniques that go into constructing a well-built, energy-conserving home today. They don’t know if blown-in insulation is better than old-fashioned batts, let alone how r-values are calculated. But with a MN Green Path HPR, they don’t have to.

As more new homes (and remodeled homes) are opting for energy testing through the highly respected, national Residential Energy Services Network (RESNET) and its Home Energy Rating System (HERS) score, MN Green Path has expanded to include a new Energy Tested level. This will ensure more home buyers have access to a consistent, independently verified document that lets them compare and contrast different homes before making their purchasing decision. New car buyers expect to see a miles per gallon sticker before they purchase, new home buyers should expect to see a new home’s HPR and HERS, too.

The new MN Green Path Energy Tested level was introduced during the Spring 2013 Parade of HomesSM, growing the number of homes which featured an HPR to 141 from just 24 in last fall’s tour. This was over a third of this Spring’s Parade HomesSM, and is expected to grow even more for fall 2013.

It’s clear that today’s home buyers want energy efficiency and green, but most are not willing to pay the price for a holistically green home. MN Green Path and its HPR is a smart way to help buyers choose the most efficient option within their price range and amenity level, and, over time, move the market towards higher performance as builders compete for their business.

MN Green Path also Encourages Super Efficient Homes Like the US DoE Challenge Homes
MN Green Path is also a great program for those buyers who want a very high-level of efficiency and green with the original Certified Green Path levels of Advanced and Master. Each certified home receives an enhanced HPR which provides a comprehensive picture of a home’s added performance features.

Several super-efficient MN Green Path homes will be featured in the 2013 Fall Parade of Homes. Participating in the US Department of Energy’s Challenge Home program, these zero-energy ready homes will demonstrate how homes today can be built to operate almost entirely off the grid.

Challenge Homes are already in process, and a few more are expected to join them in time for the Fall Parade of Homes. These homes must include a comprehensive package of energy-efficient components as well as stringent indoor air quality requirements. Boasting extremely low HERS scores, these homes will be designed to easily add on solar or wind power sources, at which time they will be able to give back as much energy as they draw from their Utility.

To date, builders with DoE Challenge Homes scheduled to be shown in the Fall Parade of Homes Energy Efficient Home Tour include Mega Homes (officing in Dayton MN), Amaris Homes (White Bear Township MN), and Sherco Construction (Wyoming MN).

Minneapolis Ranked #11 in MarketWatch's Top Cities for Business Growth

2013-04-16T16:52:21Z

MarketWatch used 20 metrics to develop the top 100 rankings for business climate, NYSE/Nasdaq company performance and local economies. And while we missed the top 10 -- it was only by a nose.

Click here for the top 100 list.

Energy-Efficient Builders: Will You Take the Challenge?

2013-04-15T15:58:45Z

This fall, the US Department of Energy Challenge Home program is being brought to the Twin Cities by the University of Minnesota and Lampert Lumber, and will be featured in the Fall 2013 Parade of Homes as a special focus within the MN Green Path Energy Efficient Home Tour in partnership with Xcel Energy.

Participating builders will receive design and technical support from the University of Minnesota to construct high-efficiency homes (40 to 50 percent over code) that can be easily adapted to zero-energy performance in the future. Homes must be entered into the Fall Parade of Homes (deadline May 22, 2013), and will earn MN Green Path Master Certification.

This is an exceptional opportunity for those builders who wish brand themselves as the premier energy/performance homebuilders in the region.

If you would like to learn more about home requirements and participation in the DOE Challenge Home program, please contact Pat Huelman at the University of Minnesota (612-624-1286) to schedule an appointment.

A limited number of homes will be able to participate in the Challenge Home program, and the window for construction to meet the Fall Parade of Homes open date (September 7) is closing, so act now!

What Millennials Want

2013-04-11T15:38:17Z

The following stats give homebuilders and remodelers a clue to what we ought to be emphasizing as we prepare for the Millennials to dominate the housing market:

VALUE
The mortgage security market is likely to change and money won't be easy. Buyers will need money to stretch and they will want it to go toward their priorities.

GET GREEN
It's not about choice for much longer. Regulations are marching towards energy efficiency and testing and the dominant buyer market agrees with them. There is tremendous opportunity in this space!

TECHNOLOGY
Don't underestimate your buyers need for fast wi-fi and interconnectivity of technology systems. Millennials care deeply about technology in all aspects of life.

SMALLER
There's a lot of debate here, but more singles are buying homes and simply don't need, or can't afford, the same amount of space that was commanded years ago.

IN-FILL Vs. CORNFIELD?
Who doesn't love a good city vs. suburb debate? Some say less drivers equals more in-fill and less suburb development. But what about school districts and technology capacity in older housing stock?

THE UNKNOWN, UNKNOWN
What aren't we thinking about? Technology wasn't on the radar just a few years ago. The depth of the downturn was largely unexpected. Given these dramatic changes, are we better conditioned to absorb the changes?