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2015: issue 3
Inventory Hampering Home Sales and Pushing Prices Higher Short supplies of existing home inventory continued to hold back sales in February the National Association of Realtors速 (NAR) said today, but contributed to the fastest annual gain in home prices in a year. Weather was also a factor, with lackluster sales in the snow-plagued Northeast offsetting gains in Sunbelt states. Nationwide sales of existing single-family homes, townhomes, condominiums, and co-ops rose 1.2 percent to a seasonally adjusted annual rate of 4.88 million in February from 4.82 million in January. Sales were 4.7 percent higher than in February 2014, the fifth consecutive month that year-overyear sales increased. Single-family home sales increased 1.4 percent, from a seasonally adjusted rate of 4.28 million in January to 4.34 million. This was 5.9 percent higher than the 4.10 million pace a year earlier. Condo and co-op sales were unchanged from January at a rate of 540,000 units and down 3.6 percent from existing unit sales in February 2014. The median price of existing-homes overall in February was $202,600, which is 7.5 percent above February 2014. It was the 36th consecutive month of year-over-year price increases and the largest gain since an 8.8 percent jump last February. The median price of a single family home was up 8.1 percent from a year earlier to $204,200 and the median price of an existing condos was $190.200, a 2.8 percent annual increase. Inventory, while up slightly in February, remains 0.5 percent below levels one year ago. At the end of February there were an estimated 1.89 million homes available for sale compared to 1.90 million a year earlier. This, however, was an increase of 1.6 percent from January although the unsold inventory remained at a 4.6 month supply given the slightly increased rate of sales. Lawrence Yun, NAR chief economist, said sales, though up modestly in February, have stagnated somewhat in recent months. "Insufficient supply appears to be hampering prospective buyers in several areas of the country and is hiking prices to near unsuitable levels," he said. "Stronger price growth is a boon for homeowners looking to build
Rally Day: 2015 Capitol visit encourages membership The visit to the state Capitol in early March was eye opening for many of the attendees, especially those who went for the first time. The Texas Capitol is always buzzing when they are in session as so many lobbying groups from thousands of businesses and interests converge on the steps. This year the Texas Builders were just one of a dozen groups visiting the representatives and senators hoping to get just a few minutes of their very valuable and seemingly tight schedules. Read and See more> Page 7
additional equity, but it continues to be an obstacle for current buyers looking to close before rates rise." A NAR study released in March found that the disparity between rent and income growth is widening in metro areas throughout the country and is making it harder for renters to become homeowners. "With all indications pointing to a rate increase from the Federal Reserve this year perhaps as early as this summer - affordability concerns could heighten as home prices and rents both continue to exceed wages," Yun said. The percent share of first-time buyers was 29 percent in February, up from 28 percent in January and the first increase since last November. Individual investors purchased 14 percent of homes, down from 17 percent in January and 67 percent paid cash for their home purchases. Cash sales overall accounted for 26 percent of transactions, down 1 percentage point from January but significantly lower than the 35 percent of cash sales in February 2014. Eight percent of February's sales were foreclosures and 3 percent were short sales with the total of distressed sales unchanged at 11 percent for the third straight month. Foreclosures sold for an average discount of 17 percent below market
value in February (15 percent in January), while short sales were discounted 15 percent (12 percent in January). "Investor sales are trending downward due to the continued rise in prices and fewer bargains available from distressed properties coming onto the market," says NAR President Chris Polychron. "Furthermore, Realtors速 in areas popular to foreign buyers, such as South Florida and the West Coast, are reporting tempered demand from international clients - who typically pay in cash - due to the strengthening U.S. dollar compared to foreign currencies." The typical marketing period for properties in February was 62 days, down from 69 in January. Short sales were on the market the longest at a median of 120 days, foreclosures sold in 58 days and non-distressed homes took 61 days. Thirty-four percent of homes sold in February were on the market for less than a month. February existing-home sales in the Northeast dropped 6.5 percent to an annual rate of 580,000, but are still 3.6 percent above a year ago. The median price in the Northeast rose 3.3 percent from a year earlier to $241,800. Sales were at an annual level of 1.08 million in the Midwest, unchanged from January and 4.9 percent above February 2014. The median price in the Midwest was $152,900, up 8.8 percent from a year ago. Yun noted that "Severe below-freezing winter weather likely had an impact on sales as more moderate activity was observed in the Northeast and Midwest compared to other regions of the country." Sales were up 1.9 percent in the South to an annual rate of 2.11 million units, 6.0 percent higher than the previous February while prices rose 8.5 percent to a median of $177,900. The West had an increase in sales of 5.7 percent to a rate of 1.11 million, 2.8 percent higher than a year ago. The median price in the West was $290,100, a 4.2 percent annual gain. by: Jann Swanson MND Newswire
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Builders Outlook
NATURAL GAS IS YOUR KEY TO HOME SALES. By installing natural gas in your new homes and developments, you’re opening the door to added value for potential buyers. Natural gas kitchens sell themselves, and natural gas furnaces, water heaters and clothes dryers offer greater efficiency and lower operating costs than their electric counterparts. For more information on how to use natural gas to turn prospects into buyers, contact Eduardo Lucero at ealucero@txgas.com or (915) 680-7216.
2015 issue 3
2015 issue 3
3
Builders Outlook
President’s Message Edgar Montiel President, El Paso Association of Builders
I would personally like to thank everyone that attended this year's Rally Day in Austin. It was fantastic. We were able to meet and discuss our concerns with the new 2015 energy code regulations, and a variety of other proposed bills, with Representatives Joe Pickett, Joe Moody, Mary Gonzalez, Marisa Marquez, Cesar Blanco, and Senator Jose Rodriguez. They were very welcoming and receptive of our concerns. Ray and Margaret Adauto did an incredible job of setting up the appointments to meet with each of them, organizing the materials to present to them, and
‘Springing’ into action at EPAB escorting us around the capitol. Thank you both! Also, thank you Tropicana Homes for sponsoring that evening's dinner at Fogo de Chao. I believe that it was the most attended Rally Day by the EPAB in a very long time if not ever. If you were with us in Austin, please make sure you tell another member how incredible the experience was and how they should start making plans to attend in 2017. Our Spring Golf Event is quickly approaching as is the Parade of Homes. The golf tournament is on April 10th at the Horizon City Golf and Conference Center. Thank you to all of
this year's participants and sponors as this would not be possible without you. This event is always a blast and this year's should be more of the same. The Parade of Homes at Rio Valley Subdivision will be April 18th through May 3rd. The preview party will be April 17th and tickets are on sale now. I would like to thank our Immediate Past President and Parade Chair Frank Torres of GMF Homes for all of his hard work in organizing this event. The Spring Parade will feature homes by Accent, BIC, New Traditions by Mark Winton, Palo Verde, Pointe Homes, and Winton Flair. I would encourage all
builders to consider participating in the next Parade of Homes. It not only showcases your home to thousands of attendees but it also raises money for our association. Thank you also to our amazing sponsors. Remember that our next General meeting is April 8th at Noon at the El Paso Club. Our guest speakers will be from the El Paso Inc. and WhatsUp!. We invite you to bring a friend in the industry with you. I look forward to seeing you there!
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Builders Outlook
2015 issue 3
Perspective Ray Adauto, Executive Vice President EPAB
There are a lot of tough issues facing the new home building industry right now. It is something that is hard to put your finger on because even the brightest minds in the world are not in agreement as to what is causing some of them. I’d like to put my spin on what I think is happening, so bear with me as I look at it through my eyes. Allow me this: the overall economy is not good. It is trying to recover from a bad 2014 and I believe that it doesn’t matter what work you do or what industry you’re in the same is true. Retail, food service, advertising, manufacturing, electronics…I hear the same thing over and over. It’s tough out there and it’s not getting any easier. I support the local eateries and all I hear from those folks is that costs keep going up and competition is heating up, especially from franchises or chains. I also hear that they have trouble paying their taxes, hiring help, and taking home any profits. And please don’t get them started on the regulations and regulators, because you’ll get an earful. Like our industry the restaurant industry must stay engaged with local, state, and national issues and politics. They find the
A different spin on why the housing market is not spinning upward same kind of silliness and vindictiveness that we do in some of those politicians and inspectors so it’s incumbent on them to stay in touch with the politics of business. My good friend Leo Duran, the proprietor of L&J Café is engaged. He tells me stories about their issues that mirror ours. Leo is working hard to make sure that his business and those of the local restaurateurs are at the table in Austin rather than as the main course. Sound familiar right? So my first theory on our current issues is that we are not alone. Doesn’t make it any better but it also tells me that there’s an undercurrent of the same permeating all businesses. There’s something wrong here because as we all know, using the restaurants as an example, try getting into one on Friday or Saturday nights, especially if you have a party of six or more. (Ok, so some of these places don’t or won’t take a reservation, as you already know). Where is that money coming from? Here’s thought number two: there’s a huge underground economy working in El Paso. So, you think, what’s wrong with that? In home building it can’t be used to qualify for a loan. There’s no
mortgage company willing to take your word for it that you have money stuffed in your abuelitas coffee can. Nope, you have to have records, bank records, credit card records, tax records. The money in the can isn’t “legit”. And so you have the money circulating at bars, eateries, the movies and on cable TV. That’s why you see so many “payment centers” in places like Albertson’s and Fox Plaza, places you can pay your utilities with cash. But then you can’t qualify because you can’t claim that cash as legit when you apply for a home loan. The other problem, associated with cash is that it eventually runs out. One day you’re flush, the next you’re eating leftovers. Story of El Paso, and surprisingly the story of other places as well. Housing isn’t doing well in Albuquerque or Tucson, not doing well in Las Vegas either. Probably not doing well in Phoenix either but certainly not doing well in California. But I bet they have the same problem getting a table or standing in line at the clubs and restaurants. It’s a cash thing there as well. So if we know some of the problems what do we do about them? Ah, that’s
the genie that has yet to come out. It’s one that eludes us from time to time. But a clue should be that we are living in a time of confusion and uncertainty. You have to hedge your bets, you can’t use yesterday as a template, but rather you have to adjust that template on a daily basis. This coming Parade of Homes™ has more moderate priced homes, all with some very cool amenities, but different from past Parades. These are homes that built for our economy, one that our folks can buy and can qualify for. It’s a shift but it is directly a result of the economy. No builder is going to build a taj mahal spec home in these times, even for a Parade. I’ve offered some food for thought, so now it’s your turn. Let me know if I gave you something to ponder or if you have solutions to your thoughts on the subject. I’d welcome an op-ed piece to share other ideas and potential solutions. Afterall, it’s the economy we live in, not the one we hope for.
2015 issue 3
Builders Outlook
Industry News Builder Confidence Drops Two Points in March Builder confidence in the market for newly built, single-family homes in March fell two points to a level of 53 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released today. “Even with this slight slip, the HMI remains in positive territory and we expect the market to improve as we enter the spring buying season,” said NAHB Chairman Tom Woods, a home builder from Blue Springs, Mo. “The drop in builder confidence is largely attributable to supply chain issues, such as lot and labor shortages as well as tight underwriting standards,” said NAHB Chief Economist David Crowe. “These obstacles notwithstanding, we are expecting solid gains in the housing market this year, buoyed by sustained job growth, low mortgage interest rates
and pent-up demand.” Derived from a monthly survey that NAHB has been conducting for 30 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor. Two of the three HMI components posted losses in March. The component gauging current sales conditions fell three points to 58 while the component measuring buyer traffic dropped two points to 37. The gauge charting sales expectations in the next six months held steady at 59. Looking at the three-month moving averages for regional HMI scores, the Northeast and South each posted a
two-point drop to 43 and 55, respectively. The Midwest rose two points to 56, while the West fell seven points to 61.
Housing Starts Fall 17 Percent in February Nationwide housing starts dropped 17 percent to a seasonally adjusted annual rate of 897,000 units in February, according to newly released data from the U.S. Commerce Department. “This drop is not surprising based on our recent surveys, but our builders continue to show cautious optimism in the months ahead,” said NAHB Chairman Tom Woods, a home builder from Blue Springs, Mo. “February’s numbers indicate that wavering consumer confidence continues to impact the housing recovery,” said NAHB Chief Economist David Crowe. “Buyers are waiting for a
stronger, more reliable economy before making a home purchase, and builders are responding to their reluctance. Even with this month’s drop in production, we expect the housing market to move forward this year in step with an improving economy.” Single-family housing production fell 14.9 percent to a seasonally adjusted annual rate of 593,000 in February while multifamily starts dropped 20.8 percent to 304,000 units. Combined single- and multifamily starts decreased in all regions of the country, with the Northeast, Midwest, South and West posting respective declines of 56.5 percent, 37 percent, 2.5 percent and 18.2 percent. Overall permit issuance was up 3 percent in February to a rate of 1.092 million. Single-family permits decreased 6.2 percent to 620,000 units while multifamily permits rose 18.3 percent to a rate of 472,000 units. Regionally, the Midwest, South and West registered permit gains of 6.1 percent, 7.3 percent and 2.2 percent, respectively, while the Northeast posted a 17.4 percent loss.
Lakisha Woods Named NAHB Chief Marketing Officer A W A R D E D
TEXAS BUILD E R O F THE Y E AR 2013
We build so you can GROW
The National Association of Home Builders (NAHB) today announced the promotion of veteran staff member Lakisha Woods, CAE to Chief Marketing Officer. This position will oversee all revenue-generating programs unrelated to NAHB's International Builders’ Show exhibit space sales. Such activities will include sponsorship sales and partnerships with major national companies. The position also will identify new business opportunities and handle NAHB branding and public image initiatives. “Lakisha Woods brings a wealth of expertise to this important leadership position,” said Jerry Howard, NAHB’s chief executive officer. “Increasing nondues revenue and managing our brand are critical ventures, and I have no doubt Lakisha will excel in these capacities. She inherits an exceptionally talented staff who are equally committed to serving NAHB and our members.” Woods assumes this top marketing position after 10 years as vice president of NAHB’s publishing and affinity programs. In this capacity, she and her team developed member benefit programs, created and sold online subscription services, and published resources for home builders. Prior to joining NAHB, Woods was the executive director of marketing and ebusiness for the Associated General Contractors of America. “NAHB has long been the recognized leader for housing advocacy,” Woods said. “I now have the privilege of working with a collaborative and professional team to further the NAHB brand while delivering real value to builders, remodelers and home buyers.”
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Builders Outlook
2015 issue 3
The Economy
Higher Wages: When and Why? Last year 3.2 million net new jobs were created, the best performance since 2000, and total employment is now several million higher than it was before the recession began. In addition, the unemployment rate which is 5.7% continues to fall and should be at or near 5% Elliot Eisenberg by year end, a level economists consider full employment. All of this good news, yet serious problems remain. The labor force participation rate (LFRP) is at levels last seen in 1978, which makes the unemployment rate look better than it really is and after adjusting for inflation, wages have been declining for years. What is going on? The LFPR peaked at 67.3% in January 2000 and had had already fallen to 66% by the start of the Great Recession in January 2008, suggesting that other forces beyond the weak economy were already at work pushing it down. That said, by the end of the Great Recession in June 2009, the LFPR was down just half-of-onepercentage-point to 65.5%. Normally, it then would have started rising as the improving economy pulled unemployed workers back into the labor force from the ranks of the unemployed. Instead, the LFPR went into free fall, hitting a low of 62.8% in October 2013 where it
has remained since. The decline in the LFPR from 66% to 62.8% not only represents a loss of four and a half million workers, but also has no historic precedent. That said, much of the decline was inevitable. About half the decline is due to demographics. That is the number of Baby Boomers who are retiring is currently vastly outpacing the number of new entrants into the labor market. Exacerbating this trend is that today’s youngsters are better educated and thus spend longer in school than earlier generations, further delaying their entrance into the world of work. Another quarter of the decline is due to the severity of the recent recession, and the remaining 25% decline is simply unexplained. These might be people who are obtaining additional education, receiving disability insurance and may or may not work again, those who have become unemployable and those who simply gave up. Whatever the cause, knowing how many people in this category return to work is critical to understanding what lies ahead. Some have returned, some will return and some will never return. However, no matter what happens to those persons, close to 10,000 Baby Boomers retire every day. As a result, the fact that the LFRP has not fallen since October 2013 suggests these discouraged workers are returning. Were that not the case, the LFRP would have continued falling. So flat really is the new up! Looking to the future, the greater the
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number of these discouraged workers who return to the labor force, the slower the decline in the unemployment rate will be, the higher the LFRP will be but perhaps most importantly, the slower wage growth will be. And that’s the kicker. By contrast, if discouraged workers stop returning to the labor force, the unemployment rate will fall faster and wages will start rising more quickly but it would also mean that millions of previously employed persons have given up on work and that is very bad. Ideally, discouraged workers will
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continue returning and wages will remain flat for a while longer but will eventually start rising. Unfortunately, my guess is that relatively few discouraged workers who have not yet returned will. As a result, expect wage growth to start rising sooner, probably by year end. 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
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2015 ISSUE 3
Builders
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Builders Outlook
utlook on the scene | Rally Day Continued from page 1
By Ray Adauto, EPAB
Our day started with a great visit with State Senator Jose Rodriguez who welcomed our early members. The meeting was very cordial and found the Senator very well versed in the issues we presented him. “I want to thank all of you for making the trip to my office and presenting me with your issues,” the Senator told the group. “You are always to the point and I appreciate that very much,” he continued. Indeed the visit was quick but loaded with the primary issues we along with the Texas Association of Builders needed to bring to him. Bobby Bowling IV, Randy Bowling, Greg Bowling and our president Edgar Montiel each had time with the Senator as the group awaited the arrival of the larger group flying in that morning. “I think that Senator Rodriguez has a keen grip on what we stand for and for what new home construction means to his constituents,” said Bobby. From that meeting the group assembled in the Rotunda as the entire delegation from the EPAB arrived ready to go on the hunt. Our first assignment was a group picture taken indoors for the first time in years because of the rain and cold outside. The group then met with our senior representative Joe Pickett, who as always, welcomed everyone into his larger than life office. His chief of staff Michael Breitinger, the former director of the Downtown Development Association also was there. “This is one of the largest groups that I’ve seen you have in the time I’ve been in office, “said Mr. Pickett. “I know most of you from a long time ago, including Rudy Guel, who keeps tabs on me pretty closely,” Pickett continued. Rudy just smiled and enjoyed the spotlight pointed straight at him. The visit to each of the other State Reps lasted all afternoon long. Representatives Marisa Marquez, Joe Moody, Mary Gonzalez and first termer Cesar Blanco all welcomed our delegation with open arms and questions. “I’m thrilled that the builders have placed my HB 74 as a priority as this is the first time any organization has made a statewide commitment to any of my bills,” said Representative Gonzalez. TAB looked at the hundreds of bills affecting housing and selected five to push to the entire legislature and Representative Gonzalez’s bill made the list. “I’m going to frame this and place it on my wall to show others that my legislation is important,” Gonzalez mused. Our group was so large that we held the meeting with Representative Gonzalez in the hall way, much to surprise of her neighbors. She was heard telling the other reps that she was blown away by the size of our group. “Only El Paso has the commitment to come and visit likes this,” she said. Our visit to the Capitol over the group met at the Driskill Hotel, home of the TAB Rally Day events, and shared some private time with visiting Representatives and their staffs. Our next Rally Day won’t happen until 2017 when the legislature convenes again. Meanwhile members of the association continue to trek to Austin to make sure our message, and the voice of the industry, is heard until the final gavel.
Special Report
Residential Construction Employment across States and Congressional Districts according to 2013 Census By Natalia Siniavskaia, Ph.D. Economics and Housing Policy Group National Association of Home Builders HousingEconomics.com
The most recent American Community Survey (ACS) data show that, including self-employed, 8.9 million people worked in construction in 2013. NAHB estimates that out of this total, close to 3.5 million people worked in residential construction, accounting for 2.4 percent of the US employed civilian labor force. These numbers reflect modest job gains that took place since 2011 when construction employment bottomed out. Nevertheless, the industry employment levels remain far below the peaks reached during the housing boom when more than 11 million worked in construction, and home building employed more than 5 million people, including self-employed workers. New NAHB estimates also allow analyzing the distribution of home building jobs across states and congressional districts. Congressional district estimates are particularly useful to highlight the importance of home building to voting constituency residing in the district. The NAHB estimates show that the average congressional district has close to 7,900 residents working in residential con-
struction but that number is often significantly higher and actually exceeds 16,000 in Montana’s single Congressional district. New NAHB home building employment estimates only include workers directly employed by the industry and do not count additional jobs created through the ripple effect when building material suppliers, furniture producers, landscaping and other dependent industries hire workers in response to shifting demand for their products and services triggered by residential construction. Data Sources and Methodology NAHB estimates of residential construction employment by state and congressional district rely on the two main sources of data: the American Community Survey from the US Census Bureau and the Quarterly Census of Employment and Wages (QCEW) compiled by the U.S. Bureau of Labor Statistics (BLS). The ACS surveys households rather than businesses and, consequently, covers self-employed workers in addition to workers employed by private companies, government and nonprofit groups. Because of this broader employment definition, the ACS employment numbers exceed the estimates based on surveys of businesses with payroll employees, such
as the QCEW, but count voting constituencies and reflect the political importance of home building more accurately. In addition, the ACS employment estimates are available not only by state and metro area but also by congressional district, something that no other employment data source can offer. Counting self-employed is particularly important in the construction industry where they traditionally make up a larger share of the labor force. In fact, the construction sector registers one of the highest shares of selfemployed among all industries. According to the 2013 ACS, one out of four construction workers is selfemployed, while an economy-wide average does not reach 10 percent of the employed labor force. The drawback of the ACS is its limited construction industry information, particularly, it does not differentiate between residential and non-residential construction. In contrast, the Quarterly Census of Employment and Wages data specify whether employees work in commercial or residential building. Furthermore, the QCEW differentiates between residential building construction, land subdivision and residential specialty trade contractors. The QCEW data come from quarterly tax reports filed by employers covered by various unemployment insur-
ance programs, and, in essence, amounts to a “virtual census” of businesses with payroll employees. However, it completely misses selfemployed workers. The 2013 QCEW data show that residential specialty trade contractors account for close to 71 percent of all private payroll jobs in the home building industry (see Figure 1). This is consistent with a 2012 NAHB survey showing that two-thirds of single-family builders subcontract out at least 75 percent of their work. Residential building construction (which includes single-family and multifamily builders, whether they build on their own land or land owned by a homeowner or investor, and residential remodelers) accounts for 27 percent. The remaining 2 percent are in land subdivision. To account for self-employed workers and, at the same time, have access to the detailed industry structure information, NAHB Economics combines data from the ACS and QCEW. First, the share of residential construction is estimated for each state based on the QCEW data. Residential building construction, residential specialty trade contractors and land subdivision are combined to form “residential construction”, or “home building”. The resultant state shares are then applied to the ACS data to break construction workers into resi-
Builders Outlook Issue 3 • 2015 dential and non-residential. The estimates assume that, within each state, the share of construction workers who work in the home building industry is the same whether they are selfemployed or working as employees of a construction company. This, probably, results in a somewhat conservative estimate, because the selfemployed share in residential construction, especially, in remodeling, is likely to be greater than in non-residential. Construction Self-Employed through the Housing Boom and Bust The 2013 ACS shows that 8.9 million workers were employed by the construction industry in 2013. This is still 2.2 million fewer jobs than in 2006, at the peak of the housing boom, but, nevertheless, reflects the second year of steady albeit minor job gains (see Figure 2). The ACS data also highlight the high reliance of the industry on selfemployed workers. The high selfemployment rates in construction reflect a common practice of builders and remodelers to maintain relatively small payrolls and rely on subcontractors for a large share of the construction work. Interestingly, self-employment rates in the construction industry were rising during the housing downturn and increased from 24 percent in 2006 to more than 26 percent in 2010. Once the situation stabilized and construction started gaining jobs, the self-employment rates reversed their course in 2011 and fell below 25 percent by 2013 (see Figure 2). During the downturn builders and remodelers who were no longer able to maintain a steady work flow may have tried to manage costs by eliminating payroll positions and joining the ranks of the self- employed. It is also possible that some construction employees laid off during the downturn were able to stay in the industry by striking out on their own. The most recent data suggests the opposite hiring trends started to emerge, with construction picking up new payroll jobs but losing self- employed construction workers. The ACS data show that from 2011 to 2013, construction gained close to 400,000 private payroll jobs but lost selfemployed workers. This helps explain why builders have reported more extreme labor and subcontractor shortages than commonly cited numbers based only on payroll employment suggest. Residential Construction Employment across States NAHB estimates that, out of 8.9 million people working in construction in 2013, close to 3.45 million people worked in residential construction, accounting for 2.4 percent of the US employed civilian labor force. This represents the second consecutive year of modest employment gains for home building. However, the number of residential construction jobs remains well below the peak levels the industry reached in 2006 when,
according to the NAHB estimates, more than 5 million people worked in residential construction. Not surprisingly, the most populous state—California—also has the most residential construction workers. Almost half a million California residents worked in home building in 2013, accounting for 2.9 percent of the state employed labor force. Both numbers are still significantly down from the 2006 cyclical peak. At that time, California was home to more than 788 thousand residential construction workers. This translates into a loss of more than 290,000, or 37 percent of home building jobs since 2006. Despite being one of the states most severely affected by the housing downturn and losing almost half of its home building jobs (see Figure 3), Florida still comes in second with 295 thousand residential construction workers. Florida has fewer residents than Texas and about as many as New York but owing to its large vacation and seasonal housing stock, employs more residential construction workers. In Florida, residential construction workers account for a relatively high 3.5 percent of the employed state labor. Even though this share is well above the national average, it is drastically lower than in 2005 when Florida registered the highest share among all 50 states and the District of Columbia, 6.2 percent. Among the states hardest hit by the housing downturn and slowest to restore home building jobs are Nevada, Arizona, and New Mexico still showing job losses of 57.3, 51.5, and 49.7 percent, respectively. Despite these significant job losses, home building in Nevada and Arizona continues to employ a relatively high share of local workers – 2.9 and 2.5 percent of the employed civilian labor force. Job losses across the states look massive but, in general, reflect the scale of the unprecedented housing downturn that the industry went through in recent years. Other measures of residential construction activity, such as total housing starts and permits, all capture the same familiar pattern with home building activity peaking in 2006 or 2007 in some states, plummeting to a historic low by 2010 -2011 and only showing a modest level of recovery in recent years. While most states were not yet able to recover home building jobs lost during the housing downturn, residential construction in North and South Dakota, fueled by the local oil fracking boom, employed more people in 2013 than in 2006. The positive job creation momentum even spilled over to neighboring Nebraska where home building generated more jobs in 2013 than in 2006, even though the 2013 level remained below the local employment peak Nebraska reached in 2007. Similarly to Florida, states with high prevalence of seasonal, vacation homes, top the state list with the high-
est share of residential construction workers in 2013. Idaho with almost 4 percent of the employed labor force working in home building takes the top spot on the list. In addition to Idaho and Florida, five other states register shares of residential construction workers that exceed 3 percent: Vermont (3.8 percent), Montana (3.3 percent), Maine (3.2 percent), Utah (3.2 percent) and New Hampshire (3.1 percent). Interestingly, construction workers in these states are more likely to be self-employed. Notably, Vermont, Montana, New Hampshire and Maine have the highest shares of selfemployed construction workers in the nation, with more than a third of their construction workforce being selfemployed. In Vermont the share of self-employed actually exceeds 40 percent. It is likely that long distances between home building sites in these states make moving workers between job sites logistically difficult and expensive and force local builders to look for subcontractors more conveniently located to a particular job or housing start. The New England states are also know for taking the longest time to build a house. With economies of scale hard to reach on construction sites that are spread geographically and take longer to complete, the builders are less likely to keep payroll workers but rather outsource a larger share of the construction work, thus explaining high selfemployment shares in these states that go together with elevated shares of residential construction workers in local labor force. Nevertheless, these high shares are below the selfemployment peak levels these states registered in the midst of the severe housing downturn. Residential Construction Workers in Congressional Districts The detailed geographic coverage in the ACS also allows RC employment to be estimated by Congressional district (see Table 2). In 2013, the average Congressional district had around 7,900 residents working in residential construction, considerably down from the average of more than 11,000 workers in 2005. Figure 4 helps visualize the distribution of RC workers across the Congressional districts. Perhaps somewhat surprisingly, many areas that were once booming and consequently hardest hit by the housing downturn still show higher than average numbers and shares of residential construction workers. Montana’s lone Congressional district (Rep. Ryan Zinke – R) registers the record number of residential construction workers among all districts (excluding Puerto Rico) – 16,165. Idaho’s 1st (Rep. Raul Labrador – R) comes second with more than 15,000 employed in home building. Texas’s 29th District (Rep. Gene Green – D) that serves the eastern part of the Greater Houston area is a close third with just under 15,000 residential construction workers residing there. The top ten list also includes two districts in the state of Florida. The 9th district
(Rep. Alan Grayson – D) that includes Eastern Orlando has 14,882 and the 18th (Rep. Patrick Murphy – D) in Southeastern Florida has 14,066 residential construction workers. Two districts from California also made the top ten list – the 29th district (Rep. Tony Cardenas - D) and 50th (Rep. Duncan D. Hunter - R) register 14,244 and 13,756 residents working in the home building industry. The remaining districts on the top ten list are Colorado’s 7th (Rep. Ed Perlmutter – D) and Utah’s 4th (Rep. Mia Love – R) each registering around 14,000 residential construction workers. New York’s 1st district (Rep. Lee Zeldin – R) concludes the top ten list with more than 13,000 home building workers residing there. By design, Congressional districts are drawn to represent roughly the same number of people. So generally, large numbers of residential construction workers translate into high shares of RC workers in their district employed labor forces. The 29th District of Texas has the highest share of residential construction workers in its employed labor force, 4.8 percent. Florida’s 18th and 19th Districts are close behind with 4.7 and 4.5 percent. At the other end of the spectrum there are several districts that contain parts of large urban areas: the District of Columbia (Rep. Eleanor Holmes Norton – D), the 12th of New York (Rep. Carolyn Maloney – D), located in New York City, and Illinois’s 7th District (Rep. Danny K. Davis – D) that includes downtown Chicago. Most residents in these urban districts tend to work in professional, scientific, and technical services. The District of Columbia stands out for having the lowest number of RC workers residing in the district, less than 1,600. At the same time, it has a disproportionally large share of public administration workers. The 12th District of New York, as well as the 7th District of Illinois are home to a very large group of finance and insurance workers. Conclusion The new estimates show that despite losing thousands of jobs during the housing downturn, the home building industry employs a substantial number of workers in most parts of the country. The average Congressional district has close to 7,900 residents working in residential construction but the number can be twice as high or higher, and actually exceeds 16,000 in Montana’s AtLarge Congressional District. Considering that the estimates only include workers directly employed by the industry and do not count jobs created in related industries through a home building ripple effect – such as design and architecture, furniture making, building materials, landscaping, etc. - the true impact of residential construction on local employment is underestimated.
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Builders Outlook
2015 issue 3
Expert Advice
Keeping it SIMPLE: Retirement Plans for Small Businesses Joe Bernal Employees Benefits of El Paso
The percentage of workers younger than 40 who considered their retirement program an important factor in accepting their job jumped from 28 to 63 between 2009 and 2011, reported Towers Watson. Human resource managers agree retirement benefits are important, and 76 percent said they will increase in importance in the next five years. Small businesses often lag behind midsized and larger companies in offering retirement plans to their employees. If the administrative costs and noncompliance testing requirements of a regular 401(k) seem overwhelming, consider offering one of the SIMPLE retirement plans created specifically for small employers. The Simplified Employee Pension (SEP) Pros: Easy to establish: Any employer with one or more employees may establish a SEP plan, an IRA-based plan funded solely by employer contributions. The employer adopts a trust for plan assets and sets up a separate account for each employee within the trust. The deadline for establishing the SEP is the employer’s tax filing deadline, including extensions. Flexible: You can opt to make contributions or not, as your circumstances dictate. This makes SEP plans appealing for employers with variable income. For 2014, employers can contribute the lesser of $52,000 or 25 percent of pay. Simple filing requirements: Employers must complete IRS Form 5305-SEP or use an IRS-approved “prototype” available through many financial institutions. Once the plan is in place, the employer has no other filing responsibilities. No discrimination testing required. Tax advantages: Employers can deduct contributions they make to employees’ accounts as a business expense. Contributions do not count toward the employees’ taxable income, and their savings grow tax-free until withdrawn. Self-employed employers can contribute to their own accounts: Subject to certain conditions. Cons: No employee contributions: When plans allow employee pre-tax contributions, employees can save more and reduce their in-come taxes, while also reducing the employer’s payroll tax liability. No catch-up contributions: Some plans allow participants age 50 and older to contribute an extra $2,500 per year. Benefits vest 100 percent immediately: This could limit the plan’s usefulness as an employee retention tool. No participant loans: Unlike some retirement plans, SEPs do not permit participant loans. The Savings Incentive Match Plan for Employees (SIMPLE IRA) Pros: Simple to set up: Any business with 100 or fewer employees can set up a plan. Any employee who earns $5,000 or more during the preceding year can qualify. To establish a SIMPLE IRA, employers must file either IRS Form 5304-SIMPLE or 5305-SIMPLE, depending upon whether or not the employee selects the financial institution to receive plan contributions. Once the initial
paperwork is done, there are no annual filing requirements for a SIMPLE IRA plan. Simple administration: As with the SEP-IRA, there are generally no filing requirements and no annual discrimination testing required. Employers can elect to contribute either 1) a matching contribution of up to 3 percent of the employee’s compensation or 2) a 2 percent nonelective contribution for each eligible employee. Each participating employee must receive an annual statement of the contribution amounts to their account for the year. Employees share responsibility for their retirement: Opting for matching contributions gives employees more skin in the game…and more interest in their retirement plan. Employees make contributions with pre-tax dollars, reducing their taxable income. Plans permit catch-up contributions. Employees aged 50 and over can make
an additional “catch-up” contribution of up to $2,500 for 2014. Cons: Employers must make contributions: Employers usually must contribute to SIMPLE IRAs every year, as long as the plan is maintained, regardless of financial circumstances. Employees can opt not to contribute: If you have decided to make yours a matching contribution plan, employees can opt not to contribute, minimizing the value of the plan. Contributions vest immediately: As with SEPs, all contributions to the SIMPLE IRA are immediately 100 percent vested. No participant loans permitted: As with SEPS, SIMPLE IRAs do allow inservice withdrawals, subject to income taxes and early withdrawal penalties, depending upon the owner’s age at the time of distribution. With SEPs and SIMPLE IRAs, small
businesses can provide employees with retirement benefits with very little administrative cost or expense. To qualify for either of these plans, you cannot sponsor any other retirement plan. For more information on SEPs and SIMPLE IRAs, go to www.irs.gov/RetirementPlans, or contact us for more information about these and other retirement plan options for small employers. The information presented and conclusions within are based upon our best judgment and analysis. It is not guaranteed information and does not necessarily reflect all available data. Web addresses are current at time of publication but subject to change. This material may not be quoted or reproduced in any form without publisher’s permission. All rights reserved. ©2014 The Insurance 411 Tel. 877-762-7877. http://theinsurance411.com.
2015 issue 3
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Builders Outlook
Housing Trends Boomerang Millennials:
A recent study of “Boomerang Millennials” who move out of their parents’ home only to move back in may have important implications for this key demographic and what it means for the housing market. The National Association of Home Builders (NAHB) examined recent research conducted by Judith Dey and Charles Pierret using data from the National Longitudinal Study of Youth 1997. The examination found higher incidence of “re-launch” for Millennials with a Bachelor’s degree compared to those with a lower education attainment and higher incidence of “re-launch” for Millennials from higher parental income household compared to lower parental income households. A “re-launch” occurs when a young adult moves out, returns to the parental household, and then leaves again. “Understanding the makeup of those who return home could shed light on the timing of the release of what we know is quite a bit of pent-up demand,” said NAHB Chief Economist David Crowe. “The data may indicate that while this age group is delaying what we think of as typical milestones, the combination of resources and education and what we have found about their preferences suggest growing housing demand in the years ahead.” Ninety percent of those born between 1980 and 1984 left home before the age of 27 – but then more than half returned to their parents’ homes. Of that group, those with a Bachelor’s degree or higher had the highest share of returning to the parental home at 55.5%. Meanwhile, those born between 1980 and 1984 with a high school degree had the lowest share returning to the parental home at 42.1%. When looking at parental income, the research reveals that parents in the top half of the income distribution experienced a higher occurrence of boomerang children than those in the bottom half. Another important difference is gender: Twelve percent of men in this age group never left the parental home, whereas 7.6% of women stayed. And although women are more likely to boomerang, they are also more likely to leave again. Studies continue to show that the desire to own a home remains strong for these Millennials. Despite data showing that the
age group is delaying household formation, they remain a key demographic in the housing market, and the pent-up demand is expected to translate into housing growth in the coming years.
Nearly Half of Young Millennials Boomerang By Josh Miller Recent analysis of a survey of a segment of millennials, those born between 1980 and 1984, found that 90% moved out of their parents’ household by age 27. Of those moving out, however, over 50% returned. This return is sometimes referred as “Boomeranging,” moving out of a parental home and back. This experience has implications for household formation that are at this point unknown but worth exploring. BLS research by Judith Dey and Charles Pierret takes a step in furthering our understanding of boomerang households. The authors use data from the National Longitudinal Study of Youth 1997 (NLSY97) to examine differences in the return to the parental home by gender, educational attainment, and parental household income. The NLSY97 is a panel survey of a nationally representative sample of nearly 9,000 youths. The youth were surveyed on an annual basis from 1997 through young adulthood. The analysis of Dey and Pierret reveals that the share of women returning to the parental home (50.9%) is slightly higher than the share of men returning to the parental home (47.7%). There are, however, two important considerations. The first is that men are less likely to leave the parental home in the first place. For men, 12% never left the parental home, whereas 7.6% of women never left the parental home. Secondly, although women are more likely to boomerang, they are also more likely to leave again. Another interesting result from the research is that nearly one in four men born between 1980 and 1984 lived at the parental home at age 27. For women, the share of women born between 1980 and 1984 living at the parental home at age 27 was lower at 18.9%. One plausible explanation for the observed differences by gender is the persistent difference in age at first marriage by gender. Marriage is
A Promising Sign for Housing often a critical component of household formation and leaving the parental home. The median age at first marriage has increased steadily for men and women since the 1960s, however, the median age at first marriage for men is about 2 years older than the median age at first marriage for women. In terms of leaving the parental home and educational attainment, the study reveals differences but no clear relationship. Instead, those born between 1980 and 1984 with a Bachelor’s or higher had the highest share returning to the parental home at 55.5%. This was largely driven by the large share (45.7%) with Bachelor’s or higher that leave the parental home, return, and leave again. An example of this could be a millennial graduating and living at home for a short period of time while looking for employment and leaving again. Those in born between 1980 and 1984 with a high school degree had the lowest share returning to the parental home at 42.1%. This group also had the highest share that left the parental home and never returned (44.7%). In terms of returning to the parental home and parental household income, the study reveals differences and a positive association between the two. Those parents in the top half of the income distribution experienced a higher
occurrence of boomerang children than those in the bottom half. Those in the highest quartile had the highest share returning home at 54.4%. Again, this was largely driven by the large share (42.9%) that leave the parental home, return, and leave again. Those in the second lowest quartile of parental household income had the lowest share returning to the parental home at 44.7%. The bottom half of the income distribution, however, had a higher share that never left parental home in the first place. Although this age group is delaying household formation, millennials represent a key demographic for the housing market. Several attitudinal surveys show that the desire to own a home remains strong for millennials despite coming of age during the Great Recession. Understanding the make-up of those that return home could shed light on the timing of the release of this pent-up demand for housing. If anything, the study by Dey and Pierret show that many who return to the parental home leave again. Those leaving again tend to be educated and from the highest income distribution. Thus the data may indicate that while these individuals delay in terms of achieving typical life milestones, the combination of resources and education, plus typical housing preferences, suggest growing housing demand in the years ahead.
12
Builders Outlook
Tropicana Homes hosts rally day group
2015 issue 3
Give your customers the ‘option of the sun’ Now more than ever, El Paso home buyers are planning for the future.
Back around December 2014 Greg Bowling had announced that Tropicana Homes would be sponsoring the bi-annual Rally Day dinner in Austin. The fifth version of the traditional dinner was held at Fogo De Chao, a Brazilian style Churrascaria, or Brazilian steak house. Guests were treated to all you could eat salad bar and non-stop perfectly open fire grilled cuts of meat. The concept is an easy one: you’re given a “token” that has a red side and a green side. Flip to green and the meat keeps coming. If you’re full then turn it over to red until you’re ready for more. It was easy to see that most everyone kept the green side up, as evidenced by our green experts Henry Tinajero, Sam Shallenberger, and Edgar Montiel. The flow of meat kept coming until everyone reached that “too much” point. “We want to make sure everyone who made the trip got a chance to have a good meal, good company and most of all our way of saying thanks for making the trip,” said Greg. There wasn’t anything left to chance as the dinner party got going. From some of the pictures that were sent out on Facebook and by email the fun was real and unending. “I always enjoy coming to the dinner because it gives us an opportunity to unwind and to visit,” said Rudy Guel. “This was fantastic and I want to thank Greg, Randy and Bobby for sponsoring the dinner,” Guel continued. President Edgar Montiel agreed. “This was
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awesome and man did we have a great time. Henry kept us in stitches,” Montiel said. It was reported that the group seconded the notion of having fun. “This was so good, so much fun,” said Molly Gunn, Tropicana Homes. The association would like to thank Tropicana Homes for this outstanding dinner. “I can’t thank Tropicana Homes enough,” President Montiel echoed.
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2015 Issue 3
13
Builders Outlook
Membership News
www.elpasobuilders.com www.epbuilders.org
UPCOMING EVENTS | APRIL 8 BOARD MEETING 11:00 GENERAL MEETING 12 NOON EL PASO CLUB CHASE BANK BLDG. DOWNTOWN
APRIL 10 SPRING GOLF TOURNAMENT SHOTGUN AT 10:00 AM HORIZON GOLF CENTER
APRIL 17 PARADE OF HOMES PRE-VIEW PARTY 6:00 PM – 10PM
MAY 13 BOARD MEETING 12 NOON EPAB OFFICE
APRIL 18 – MAY 3 PARADE OF HOMES RIO VALLEY SUBDIVISION
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CULLERS HOMES, LLC CONTACT: JASON R. CULLERS 7170 WESTWIND DR., STE. 101 EL PASO, TX 79912 915-584-5600
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Thanks to our MARCH SODA SPONSOR: MOUNTAIN VISTA BUILDERS
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Great Sponorship Opportunities Still Available. Call 778-5387 for info. today!
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915-549-4533 or 915-478-2404 Bonded, insured for your peace of mind.
14
Builders Outlook
2015 issue 3
Associates Council
Sam Shallenberger Morrison Supply
Hello Everyone. It is spring time and this is when we get busy, busy, busy! We have the Spring Pachanga Golf outing sponsored by Haskins Electric at Horizon Golf Course on Friday April 10th from 10:00 in the morning until you drop or go home, your choice. I’d like to thank all of our partners who stepped up to the tee box and we really appreciate that. Our Major Partner is Haskins Electric and I’d like to say thanks to Chuck Haskins and his right hand Eric for stepping up. We are sold out of the full 18 teams but we may be
able to accommodate the late some late comers. The greens are in good shape and the food is outstanding. We will have the TINAS (buckets) filled with your favorite beverages. If you are interested please call Margret or Ray and find out if they have room. Now for the BIGGIE of the coming month: the famous Parade of Homes managed by no other than the master Mr. Frank (Paco) Torres. This promises to be a huge event with the Preview Party on Friday April 17th. You can purchase your tickets from Margret or
Ray for the party for the low price of $20.00. Plan on an evening of fun while looking at some of the greatest homes for the money in the BORDERLAND. April always turns out to be a jammed packed month and this year is no exception. Let’s see what it brings and again for all of our partners in all the events a huge Thanks!
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6046 Surety Dr. El Paso, TX 79905 915-778-5387 • Fax: 915-772-3038 ■ execuTive oFFicerS edgar montiel, President Palo Verde Homes carlos villalobos, vice President Pointe Homes Don rassette, Secretary/Treasurer Rassette Homes Sam Shallenberger, Associates chair Morrison Supply
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