The color of money
May 1, 2008
ORLANDO, Fla. - If you hold it, will they show up? That was the question the National Association of Home Builders found itself asking as it prepared to hold the 2008 International Builders’ Show here.
The show had been at Orlando’s Orange County Convention Center for four straight years, and several of those had near-record attendance.
But this year’s show came as the construction industry is in a funk brought on by the subprime mortgage crisis and the tightening of credit that’s made homes unaffordable for many consumers and caused property values to drop in much of the country.
Before the Feb. 13-16 event opened, it was rumored attendance would drop by 20 percent or more.
Final numbers proved the decline was not quite so steep. Although nowhere near the 120,000 that showed up just a couple years ago, more than 92,000 did come out for the event - only 11 percent less than in 2007.
Smaller can be betterSeveral exhibitors said the smaller crowds gave them more time with attendees.
“The traffic is down, but the quality is good,” said Jeffrey Feld with Jeld-Wen, a maker of windows and doors. “When you have people waiting three or four deep, you don’t have time to really speak with them. That’s not true this year.”
Perhaps because their expectations had been lowered, many of the exhibitors said they were pleased with booth traffic.
“I had already gotten more leads by yesterday than I usually get for the whole show,” said Laura Barrington, a Lennox heating and cooling representative. “These are serious builders, truly interested in learning about our product.”
2008 was the year the NAHB and many exhibitors fully committed to the green-building movement after several years of growing interest. The association named Feb. 14 Green Day, and much of the convention floor space was dedicated to sustainable building products and practices. Even the aisles were covered in green carpeting.
Off the floor, organizers packed the schedule with seminars and classes on green-building trends. One session, however, threatened to drain some of the color from all the green products on display. The attorneys who presented “Green Building Legal and Liability Issues” warned that erecting houses and installing products marketed as “green” may expose contractors to lawsuits by implying they’re making performance promises that are difficult to keep.
Promises, promises“Granted, home building is a risky business,” said Jeffrey D. Masters, a partner in the Los Angeles law firm of Cox, Castle & Nicholson, “but you want to accept risk knowingly.”
Masters and the other panelists in the Feb. 13 session - NAHB legal research director David Crump Jr. and David Jaffe, vice president of legal affairs for the builders group - said they’re not trying to discourage members from joining the environmental-building movement.
“The public has really seized green building as a way to deal” with the problems caused by humans’ impact on nature, Crump said.
But some members of the public, aided by hard-to-prove claims used by builders and green-product manufacturers, has led to “irrational exuberance” about green building, he added.
“A lot of what is being used in green building has not been tested,” Crump said. He urged builders to use caution in making their own claims or echoing those of manufacturers.
“As much as you like green building, if you don’t take the time to protect your business … you won’t be a green builder for very long.”
The panel pointed out that there is no standard definition for what makes a building or product green or sustainable. Many different groups, including the NAHB, which unveiled its green label at this year’s show, use different criteria. Some manufacturers have their own green programs.
“You need to have an understanding when you say as a builder, ‘We want to have a green building,’ ” Crump said. “Your customers are going to expect more than just a green-building label.”
Clarity is keyJaffe urged attendees to be clear in their marketing of green products and methods.
“The more subjective your marketing materials … the more risk you have,” he said. “Take a look at your Web site, your sales materials and scrub from them all these ‘puffery’ claims.”
Define exactly what homeowners can expect, panelists said, noting the Federal Trade Commission has some guidelines on green-building advertising.
“We think this is a minefield of potential claims,” Jaffe said. “Don’t set expectations you can’t meet.”
If homeowners ask what kind of energy savings they can expect, have a clear answer, backed up with verifiable facts. People who are willing to pay extra for sustainable structures are going to scrutinize anything you say - and possibly sue you, he added.
“Use caution when selecting your buyers,” Jaffe said.
Among the problematic attributes often assigned to environmentally conscious homes are higher resale values and lower maintenance costs. Neither is true, Jaffe and Crump said.
“Many people think ‘sustainable’ means ‘longer lasting,’ ” Crump said. “If they think a house is going to sustain itself, they’re likely to be disappointed.”
In fact, the most energy-efficient products, such as HVAC systems, often require more cleaning and other maintenance to ensure peak performance, he added.
Housing outlookSo is it bad or is it really bad?
That could be one way of describing the Feb. 13 press conference on the outlook for America’s housing market and general economy. As it’s done for several years, the NAHB held a press conference with three well-known economists to give their opinions on where the nation is heading.
Unlike prior years when at least one of the panelists was at least a little optimistic about the economy, all said things are unlikely to improve anytime soon. Just how bad it would get - and when things would turn around - was where the experts differed.
David F. Seiders, the builders association’s chief economist, was among the most positive, although he later acknowledged the market might “spiral downward” further.
“I really believe the vast bulk of the housing contraction is behind us,” he said, adding that he believes declining sales volumes will stabilize by the second quarter of this year.
Seiders said the Federal Reserve Board’s recent moves to cut key interest rates - and more are likely on the way - will help stimulate the economy. However, credit standards will remain tight for the foreseeable future, keeping some would-be homeowners from entering the market.
Recession?The “R word” - recession - was a key part of Freddie Mac chief economist Frank E. Nothaft’s presentation. For him, the debate over whether or not the country is in one is over.
“Clearly, parts of the county are already in a recession” and have been for some time, Nothaft said.
Unlike Seiders, he predicted the housing market has yet to hit bottom.
“We still see very high levels of unsold homes in the United States,” Nothaft said. “We expect housing prices to weaken throughout the rest of 2008 and into 2009.”
He pointed out that mortgage rates are the best they’ve been in years. But the tightening of credit standards means less people are qualifying for the best rates and the erosion in home prices has made refinancing tough for many, which is part of the reason the foreclosure rate has shot up.
“Sadly, I think the news is going to get worse before it gets better,” he said.
David Berson of mortgage insurance company PMI Group Inc. called himself “the most pessimistic person on this panel” when he started to speak.
“I think the U.S. economy fell into recession in the beginning of December,” Berson said. “(But) we think it will be short and mild.”
Moves like President George W. Bush’s tax rebates and Federal Reserve Chairman Ben Bernanke’s decision to cut interest rates will boost the economy, but it typically takes a year or so for the effects to be felt, he said.
It won’t do much to stop dropping home values.
“Not only do we expect national home price declines in 2008, but in ’09 as well,” Berson said. Values are now less than what’s owed on houses in some markets. “They’re going to fall more.”
For reprints of this article, contact Jill DeVries at (248) 244-1726 or e-mail firstname.lastname@example.org.