The Housing Chronicles Blog: 2/1/11 - 3/1/11

Wednesday, February 23, 2011

Is the lending faucet beginning to open?

According to a story in today's Wall Street Journal (via, the lending faucet may be finally squeaking open -- at least for certain commercial real estate projects. From the article:

An influx of fresh capital into U.S. commercial real estate is bringing some long-stalled development projects back to life and launching new construction of apartments, office buildings and shopping centers.

The moves show that the industry, in a deep slump just a year ago, has entered recovery mode—at least in the nation's largest and healthiest markets. Analysts say the improved economy is giving rise to pockets of demand for new commercial space, while low yields on other investments prompt investors to seek higher returns in real estate...

Of course, the U.S. still is dotted with thousands of stalled construction sites, ranging from struggling apartment projects on the Brooklyn, N.Y., waterfront to shells of buildings in suburban Sacramento, Calif. And it will take years to replace more than two million construction jobs, or about 30% of the 2006 peak, lost since the real-estate bubble popped...

But office buildings and other projects could help cushion the U.S. economy if public-sector building declines, as expected, due to government budget cuts and waning economic-stimulus aid...

Click here for entire article.

Friday, February 18, 2011

New Home Satisfaction Continues to Improve

During the boom years in new home construction, by far the largest challenge to builders was maintaining build quality and customer service to a dramatically larger customer base – an issue which continues to hit the bottom line of some the country’s larger builders with increased costs to address warranty issues and defects. But as boom turned to bust and new home starts plummeted, builders refocused on improving their entire production chain to great effect.

According to the most recent J.D. Powers & Associates survey in 2010, customer satisfaction with home builders has risen for the third year in a row to 826 on a 1,000-point scale – the highest level since the study was started in 1997. The 2010 survey was based on responses from over 16,400 buyers of newly built, single-family homes in 17 different markets. Most buyers had lived in their homes for four to 18 eighteen months.

Not surprisingly, the most important takeaway from the survey was that those builders who actively listened to what customers wanted and were sincere about building ongoing relationships have endured the best. Alternatively, those companies which lost this consistent focus either had to scale back operations or leave the marketplace entirely.

Between 2009 and 2010, customer satisfaction improved in eight of nine categories with the largest jumps in workmanship & materials, home readiness and the builder’s design center; the only factor not seeing an improvement from 2009 were the recreational facilities provided by the builder.

But what was most interesting to me was that the importance of factors driving that overall satisfaction has shifted from 2009: whereas the ranking of price/value and warranty/customer service fell, it rose for the builder’s sales staff as well as the construction manager. This rise seems to have matched up directly with the renewed focus on retraining sales managers as well as hiring or retaining the most professional construction experts in the business in order to shepherd skittish buyers from contract through closing.

Another big trend showing up in the survey results was the awareness of ‘green’ features in their homes; whereas just 31 percent of new-home owners perceived their homes as environmentally friendly in 2009, a year later that rate had nearly doubled to 61 percent. In some markets, builders such as KBHome are even marketing annual energy savings as a means to separate their new designs from the competition.

J.D. Powers also surveys buyers on new-home quality alone, and that also reached a record high of 844 in 2010 after improving in 15 of 17 markets. The biggest remaining quality issues? Landscaping, kitchen cabinets and HVAC systems.

In terms of the highest-performing markets in 2010, those included Phoenix, Las Vegas, Southern California, Orlando and Sacramento – all challenging markets in which builders are competing with a high level of discounted foreclosures.Since builders tend to be strong in specific markets, it’s difficult to hand one builder a national #1 ranking, but Shea Homes and Standard Pacific Homes both ranked highest in three separate markets, while KBHome ranked highest in two markets. Other builders which are well-known regionally also led the survey in their respective home markets.

Finally, J.D. Power also ranks home appliances, and the winners for 2010 were the following: Samsung (refrigerators), Wolf (range/cooktop/oven), Miele (dishwasher) and Samsung (clothes washer and dryer). While the traditional brands seen most often in new homes such as GE, Whirlpool or KitchenAid certainly performed well in the surveys, it’s clear that Samsung’s renewed focus on improving its own quality has also paid off well for the company – and something smart builders could leverage to boost their own rankings.

For the complete surveys mentioned, visit

Monday, February 14, 2011

February column for Builder & Developer magazine now online

My column for the February 2011 issue of Builder & Developer magazine is now online. For this issue, I wanted to focus on the importance of social media when developing ongoing relationships with clients. An excerpt:

A decade ago, it was considered essential for a serious company to at least have a traditional Web site. But since then, the combination of ever-evolving technology and shorter attention spans now suggests marketing campaigns should also include Web site versions for smart phones, traditional blogging, micro-blogging (Twitter), video (YouTube) and regular social networking (Facebook) to connect with potential buyers.

To be sure, most small companies aren’t set up for this additional workload, so many outsource the new tasks to their respective PR firms, or even hire specialists who focus exclusively on helping maintain an online presence. For example, if a builder wanted to launch a comprehensive campaign on their green building practices, a package could include blogging and Twittering several times per week, reciprocal links with green-oriented blogs and Web sites in the area, shooting informational videos for YouTube which rank high on various search engines and tapping Facebook fans or friends to help consistently spread the word.

At the same time, however, the most successful campaigns manage to pair these online offerings with traditional offline events such as model opening parties, community gatherings or even charity benefits. The goal of that is also increasingly long term: if a company shows that they’re truly invested in the local community, then buyers are more likely to gravitate to their products and services...

Click here to read the article in digital format (Page 20).

Thursday, February 10, 2011

California's Redevelopment Agencies: A Compromise?

Recently, new California Governor Jerry Brown suggested gutting the state's 400 Community Redevelopment Agencies in a bid to help balance the yawning budget deficit. One reason for that is because these agencies don't pay property taxes on their holdings, which adds up to billions on lost revenue each year. On the other hand, were it not for the incentives made possible by these agencies, many urban infill projects would be made impossible. Two colleagues of mine, Christopher Thornberg of Beacon Economics and G.U. Krueger of, argue that there should be a compromise for this very important -- and controversial - issue. From the Sacramento Bee:

On the pro-redevelopment side, there is a legitimate claim that these agencies have played an important role in helping to build California.

Developers wanting to invest in urban communities, particularly areas that are underdeveloped and need it the most, face daunting challenges. There are fights with local zoning boards, a potential lack of appropriate infrastructure for a specific project, and huge environmental remediation costs for urban land. Having a local redevelopment agency behind the effort can be an enormous help, as can the right to declare an area blighted, something a redevelopment agency has the power to do.

Some developers go so far as to say that the soft money from redevelopment agencies is the "make or break" difference in a project. This is especially true for affordable housing projects, which California desperately needs.

Redevelopment agencies also bring much-needed organizational principles to the table. A fancy entertainment zone will not be profitable without local draws such as sports venues and hotels. No single developer will be willing to make an investment unless others are willing to make them as well.

Redevelopment agencies act to coordinate these efforts. They guide the collective actions of multiple developers, provide technical expertise and take risks where local bureaucrats won't. Without this kind of central, guiding force, many profitable projects might never start at all. This is particularly true for very large projects – think Downtown Los Angeles Live.

There are also serious cons to the redevelopment argument. Brown and his supporters make valid points. Most basically, the idea that redevelopment must be funded during this period of intense fiscal crisis is simply wrong. Pick your standard clich̩ here Рrearranging the deck chairs on the Titanic, or fiddling while Rome is burning. Clearly there are more pressing uses for the state's funds in the short run...

Telling my harrowing story about Egypt on local radio

When the protests in Egypt started to break out, I was actually on a tour of the Nile with my mother, who had joined me after we visited my older brother on a family visa to Saudi Arabia (since Saudi Arabia offers no tourist visas, I wasn't able to go with friends and no other immediate family members were interested in going).

By the end of the week, we were back in Giza, a suburb of Cairo, but instead of going on sight-seeing tours of the city, we were told to stay in the hotel. By Saturday, looters had surrounded the hotel and the army was called in to protect the area around the pyramids. It was then, via WiFi that was still working in the hotel, that I emailed the John & Ken Show in Los Angeles, since I thought it'd be a great story for their radio show. The story I told them was what it was like to be trapped in that hotel, our experience at the chaotic airport, and how we eventually got out of the country.

You can find the podcast of that radio show by clicking here (I believe it requires a PC and not a MAC):

Could a double dip in housing kill the recovery?

Writing in Time magazine, Rana Faroohar argues that not only is the housing market not leading the achingly slow economic recovery, but that a double dip in prices could sink the nascent recovery:

The latest figures from the Case-Shiller home-price index, showing a fifth straight month of price decreases — including major drops in cities such as Boston, Washington, Las Vegas and Dallas — have economists worried that we may be headed for a double dip in the housing market this year, which could restrain the economic growth we're finally starting to see. And 2011 was supposed to be the year housing recovered; now, analysts are betting on anything from a 5% to 20% price decline...

A rising number of foreclosures, tied to persistently high unemployment, is smothering housing's rebound. According to the Mortgage Bankers Association, there are already 4.5 million homes in some stage of foreclosure. Some experts believe an additional 1.5 million may be added to the pile this year. With that kind of distressed inventory on the market, it could take four to five years for prices to come back up, according to Capital Economics senior U.S. economist Paul Dales.

What's particularly troubling is that data suggests a good number of those properties belong to lower-income, higher-risk borrowers who had already gotten a break on their mortgage payments via federal programs designed to reduce defaults. November data (the latest available) on these so-called modified loans showed that 45% of them had been canceled, meaning that the borrowers very likely redefaulted, even after the payments had been adjusted...

You can read the entire article here:,8599,2045854,00.html#ixzz1DZyR49Bt