October, 2006

Inspection News and Views from the American Society of Home Inspectors


Real estate’s September report card

EDITED BY ASHI STAFF

Inman News guest perspective: Has home ownership peaked?

by John Burns


Home ownership, which peaked at 69.2 percent in 2004, is slowing. The falling-interest-rate environment over the last several years resulted in an actual decline in the number of rental units, which is a trend that is reversing itself now that rates have risen. The next few years should result in increased rents, although many apartment owners say that many of their tenants cannot afford to pay much more in rent. Data from apartment industry research firm RealFacts show that second-quarter occupancy rates rose in 28 of the 29 metropolitan statistical areas it covers, and rents increased across each of the 29 metro areas.
Our grading system of the economy and the housing market is a “bell curve” model, with statistics at an all-time high receiving an “A,” statistics near the long-term average receiving a “C,” and the worst times ever receiving an “F.” In this grading system, it is OK to be a “C” student.

Here is our current report card:

Economic Growth: C


The U.S. economy continues to perform at an average level, though current trends show slowing job growth and rising inflation. Gross domestic product, or GDP, growth was revised upward to a healthy 2.9 percent in the second quarter, but is still short of the first quarter’s 5.6 percent growth. Job growth continues to slow, adding 1.69 million jobs in the last 12 months. The core CPI inflation rose to 2.7 percent, its highest since December 2001.

Leading Indicators: C-
Slow to moderate growth should continue through the end of the year, as the annualized change in the leading economic indicator index reached -1.4 percent in July. The decline has been largely influenced by declining levels of permit activity. At month-end, the rate on 10-year Treasuries was six basis points lower than the 2-year treasuries. Historically, yield-curve inversions have proven to be fairly accurate forecasts of turning points in the business cycle. The S&P Super Homebuilding Index rose to 592 in August, which represents a 37 percent decline over the last year.

Mortgage Rates: B
The pause in interest-rate hikes by the Federal Reserve last month was a factor in falling mortgage rates in August. At month-end, the 30-year fixed rate was 32 basis points lower than the previous month’s average, and the one-year adjustable rate was 19 points lower. During the month of August, adjustable-rate loans fell to 26.8 percent of total loan activity.

Consumer Behavior: C+
Consumers are growing increasingly more pessimistic about the short-term economic outlook, as the consumer confidence index fell below 100 in August to 99.6, its lowest level of the year. The consumer sentiment index fell in August to 82, due to slowing job growth and the weakening housing market.

Existing-Home Market: B-
Annual existing-home sales are now 11 percent below year-ago levels, falling to 6.3 million homes through July. Sales in the western United States are down 18 percent in that time. Slowing sales continue to push up the months of existing-home inventory, which is now at 7.3 months, a level last reached in May 1993. The volume of existing homes available for sale is approaching 3.9 million homes.

New-Home Market: C+
New-home sales declined to a 1.07 million-unit annual rate through July, down nearly 22 percent from one year ago. Sales are down 43 percent in the Northeast and 35 percent in the Midwest. Builder confidence continues to decline as well: the Housing Market Index fell another 7 points in August to 32. The index has now fallen 56 percent in the last 14 months, a much more rapid pace than previous downturns. Unsold new-home inventory has increased to 6.5 months of supply, while the supply of completed homes increased slightly to 1.4 months.

Housing Supply: C
Slowing in construction activity has now reached double-digit declines across annual starts and permits. Annual housing starts fell below 1.8 million for the first time in nearly two years to 1.79 million in July, which is down 13 percent from one year ago. Single-family starts declined to 1.45 million, which is down nearly 17 percent in the last year. Permit activity fell for the fifth month in a row to 1.75 million units, nearly 21 percent below the permit level in July 2005.

John Burns is the founder of Real Estate Consulting in Irvine, Calif., which monitors changes in real estate market conditions and provides consulting services, including strategic planning, market research and financial analysis. Copyright 2006 John Burns.

NAACP and NAHB Join Forces to Address the State of Minority Housing
 

The National Association for the Advancement of Colored People (NAACP) and the National Association of Home Builders (NAHB) have joined together to address the serious issue of affordable housing for minorities. While the home ownership rate among African Americans is higher than it has ever been, there is still much room for improvement, with the homeownership rate for blacks remaining nearly 20 percentage points below the national average. The NAACP and NAHB jointly authored the report, Building on a Dream, in an effort to provide a comprehensive view of the state of minority housing and examine the barriers to housing affordability. As part of the report, the two organizations include nine policy recommendations and action items they plan to take in this effort, including a call for an end to predatory lending and establishing community planning that takes housing opportunity into account.
For more information, please contact Paul Lopez at 800-368-5242, ext. 8409.

Energy-Efficiency Tax Incentive Extension Introduced in Congress

When Congress passed energy-efficiency tax incentives as part of the 2005 Energy Policy Act, it gave the incentives only a period of two years. Clearly, this is not enough time for the building industry to make the needed changes to achieve the incentives goals of market transformation. A key RESNET priority in 2006 is to extend the new homes and commercial incentives through 2010 and for Congress to enact a performance-based existing homes credit. Legislation has been introduced in Congress to extend the energy-efficiency tax incentives.

Grassley-Baucus – “A Bill to Extend Certain Energy-Tax Incentives” (S.2401)
Legislation submitted by the chair and ranking minority member of the Senate Finance Committee. The legislation would extend the new homes and commercial building tax incentives through December 31, 2010. Co-sponsors of the legislation include Mark Dayton (D-MN), Michael Enzi (R-WY), Blanche Lincoln (D-AR), Ben Nelson (D-NE), Ken Salazar (D-CO) and  Gordon Smith (R-OR).

Bingaman – “Enhanced Energy Security Tax Incentives” (S. 2748)
Legislation submitted by the ranking minority member of the Senate Energy Committee. Among its provisions the legislation would extend the new homes, existing homes and commercial building tax incentives through 2010. Co-sponsors include Evan Bayh (D-IN), Maria Cantwell (D-WA), Thomas Carper (D-DE), Hillary Rodham Clinton (D-NY), Susan Collins (R-ME), Norm Coleman (R-MN), John Kerry (D-MA), Joseph Lieberman (D-CT), Richard Lugar (R-IN), Robert Mendez (R-FL), Bill Nelson (D-FL) and Ken Salazar (D-CO).

Snowe-Feinstein – “A bill to amend the Internal Revenue Code of 1986 to Improve and Extend Certain Energy-related Tax Provisions” (S. 3628)
Among provisions of this legislation are:

• Extension of the new-homes credit through the year 2010

• A performance-based tax credit to improve the efficiency of existing homes. This proposed tax credit is based on a sliding scale, depending on the percentage of energy savings. The credit ranges from $800 for 20% savings to $2,000 for 50% savings. The procedures for third-party certification parallel those currently used for the new-homes tax credit enacted in EPAct 2005. The incentives begin on the date of enactment and expire on December 31, 2010. The credit applies both to owner-occupied homes and to renter-initiated retrofits. The proposed legislation states that the certification shall be “based on the Residential Energy Services Network (RESNET) Technical Guidelines on the date of the enactment of this section.”

• Establishes a $500 tax credit for individuals to be trained and certified to conduct the inspection and testing to certify homes for the new- and existing-homes tax credit. To qualify, the rater would have to perform a minimum of 25 tax-credit certifications in the tax year.

The section also provides for a maximum credit of $1,000 for raters to purchase the following performance-testing equipment:

• blower doors,

• duct-leakage testing equipment,

• flue gas combustion equipment,

• digital manometers and

• extension through 2010 and modifications of the commercial buildings energy-efficient tax deduction.
John Kerry (D-MA) is a co-sponsor of the legislation.