What Is Keeping You from Buying A Home?

A recent survey conducted by John Burns Real Estate Consulting, LLC offered some insight into why prospective shoppers are reluctant to purchase.  Of the more than 20,000 people who had recently visited a new home community and responded to the survey questions, 75% were current homeowners, 20% were renters, and 3% were living with their parents.

98% prefer ownership over renting for their next home. Although 20% of those who took the survey are currently renting, only 2% of them prefer to rent today.  2% said they wanted to rent for their next move but 68% of that 2% want to buy a home in the future.

Young couples and families were the most likely to choose homeownership over renting for next move.

75% said they would move for the right opportunity, 32% expect to move in the next year, and 25% do not know when they will move.  Only 24% said they are very satisfied with their current home and have no desire to move.

64% responded “yes” or “maybe” to “What obstacles? It’s a great time to buy!”

When asked about the obstacles to buying a home today, the top three obstacles cited were:

  1. Bad time to sell
  2. Down payment
  3. Lack of confidence in the market

Only 23% said qualifying for a home was a potential obstacle.  50% cited some lack of confidence in the market and, although lack of confidence in the market was most common among the older, more mature buyers; the more mature, experienced buyers were also the ones most likely to recognize that now is the right time to buy a home.

Are you a savvy homeowner?

Your home is an investment, and the value of that investment is determined by the housing market.  According to the latest American Express Spending & Saving Tracker, nearly two-thirds of homeowners say they will invest in renovation projects this year. You can increase the value of your home as an investment by increasing its energy efficiency. Energy efficiency equates to lower operating costs. Lower operating costs mean savings and that savings makes a home more desirable to potential buyers.

Research shows that eco-friendly homes are selling faster and for more money than traditional homes. In 2010, certified green homes spent an average of 97 days on the market, compared with 123 for traditionally remodeled homes. And although the numbers vary, in general they sell for 8% to 30% more.

Despite the sluggish economy and anxiety about price, “savvy” homeowners that are aware of the benefits of sustainable building solutions are willing to pay for them. Who are the “savvy” homeowners?  Savvy homeowners are the ones who know how to protect their investment. Whether purchasing or improving a home, you should realize you are making an investment with the objective of making a profit — at some point.

In an economy that’s made money a little tighter for everyone, are green improvements really necessary?  The answer to this question is “Yes.”  Homeowners should take note of the International Energy Conservation Code (IECC) and the impending 2012 residential changes to that code because it is about to have a substantial impact on the value of your investment.

You might have heard of Bill H.R.2454 – American Clean Energy and Security Act of 2009.  H.R.2454 contained a provision that would have mandated energy audits and labeling before any home – new or used – was sold. The bill passed in the House of Representatives but stalled in the Senate because it was viewed as too stringent.  Since the “powers that be” cannot agree on how and where to build new energy plants to increase supply or even what types of plants to build, their only option is to decrease consumption.  So predictions are that mandated energy audits and labeling of homes will  eventually pass because of the International Energy Conservation Code and the 30 percent Energy Savings Goal changes to be enacted in 2012.

Regardless of what the federal government might mandate, the Idaho Building Code Act (Title 39 Chapter 41) requires all local governments in the State that issue building permits to adopt the most recent version of the International Building Code by January 1st of the year following its adoption by the Idaho Building Code Board.  And the adoption of the IECC 2012 code changes will eventually force you and other homeowners to incorporate green into your remodel projects or take a loss on your investment.

If you’re like most consumers, you are spending smart and looking for a greater ROI when it comes to home renovation.  Right now, it makes more sense to invest in your home than it does an IRA.  As a National Association of Home Builders Certified Green Professional, a U.S. Department of Energy Building America Builder’s Challenge Partner, and an Energy-Star 100% Builder Partner, I can help you protect your investment.   Call me at (208) 571-0755 or email me at chuck@chuckmillerconstruction.com.

Are you ready to buy or build a new home?

Are you ready to buy or build a new home?  If so, you probably read all the news stories and predictions that the market has a long way to go before it starts to recover and that home prices will continue to fall for months or years to come.  If you waiting for the market to improve before you buy or build your Dream home, remember that, despite all their claims to the contrary, no one can predict precisely where the market is going.  Trying to time your home purchase with the bottom of the market is futile. If you’re financially and emotionally ready to be a homeowner, it’s always a good time to buy.   All the time you spend procrastinating on purchasing or building a home, you could be building equity, getting tax deductions and enjoying the many other benefits of homeownership!

Or maybe you’re just not sure if you are financially ready.  Here’s a little quiz that might help.

Which one of the following do you NOT need to purchase a home:

  1. A decent credit record.
  2. A big down payment.
  3. Enough money to make monthly mortgage payments.
  4. Enough income to pay property taxes and homeowner’s insurance.
  5. The ability to maintain the property.

Check back in a few days for the answer.

Chuck Miller

What do buyers want in a green home?

The 2010 AVID Home Design Driver Research Survey provides some insight into what features today’s home buyers equate with a green home. AVID Ratings is a a leading provider of enterprise-level surveys specializing in the home building industry. The AVID survey studied the preferences of nearly 12,000 North Americans who have built a new home in the past nine years. The survey participants were selected because, having been through the process of building a new home, they would understand the trade-offs and cost factors involved

The survey included six buyer segments, defined as

  • First Time Buyers – Growing families seeking initial homeownership and single/couples (no kids) seeking initial homeownership
  • Move Up Buyers – Single/couples (no kids) seeking larger/better home and growing families seeking larger/better home
  • Second Home Buyers – Professionals seeking secondhome (vacation home)
  • Displaced Buyers – Professionals relocating and families seeking a smaller home due to change in family situation
  • Empty Nester Buyers – Semi-retirees/retirees seeking age restricted communities or mixed-age communities
  • Custom Home Buyers – Seeking custom luxury homes

Survey participants were asked what they would choose if they were to build a new house today. Features were rated as 

  • Must Have
  • Really Want
  • Might Be Nice If Affordable
  • Might Be Nice If Included
  • Not Important

Overall, survey respondents labeled 60% of the green features as “Must Haves.”

Paul Cardis, CEO of Avid, oversaw the report and says “The interest in energy efficiency surprised us.”

Energy-Efficiency was rated as a “Must Have” by all buyer segments. 74.2% of Custom Buyers, 63.9% of Second Home Buyers, 62.5% of Empty-Nesters, 57.7% of First Time Buyers, 52.6% of Displaced Buyers, and 51.6% of Move-Up Buyers rated energy efficiency a “Must Have”

What were the green features considered “Must Haves?”  Energy-effiency features like energy-efficient appliances, high-efficiency insulation, and high-window efficiency were rated as “Must Have” by the majority of the respondents in all but one buyer segment in one category.  With U.S. Displaced Buyers, high-window efficiency was considered a “Must Have” feature by 38.8% of the respondents while 42.5% rated it as “Really Want.”

All but one buyer segment rated Recycled/Synthetic Materials as “Might Be Nice If Affordable.” 35.5% of U.S. Empty Nesters rated it as “Really Want” while 33.9% considered it “Might Be Nice If Affordable.”

Chuck Miller GMB   CGP  CGB   MIRM   CMP   MCSP   CSP

President / Builder – Chuck Miller Construction Inc.

(208) 229-2553

www.chuckmillerconstruction.com

Inflation Trends and Building Material Prices

For the past five months (September 2009 through January 2010), the Consumer Price Index (CPI) has risen 0.2% per month. Building materials prices are an exception to general inflation trends, which appear to be tame.

On a year-over-year basis, the Consumer Price Index (CPI) is up 2.6%. Excluding food and energy, the index is up 1.6% from a year ago. A broader measure of inflation used by the Federal Reserve — the price index for personal consumption expenditures excluding food and energy — rose 1.6% in the fourth quarter at a seasonally adjusted annual rate and 1.5% from fourth quarter 2008.

However, an index produced by the Bureau of Labor Statistics that tracks building material prices for builders of single-family homes and multifamily structures has now risen three months in a row.

Although on a year-over-year basis, the single-family index is up only 0.3% and the multifamily index is up a slight 0.2%, in January, both measures jumped 1.0% from December. Chief contributors to the recent rise are lumber, fuel products (gasoline and diesel), plumbing fixtures and copper products.

With a number of countries around the world on the expansion path, building material prices are likely to continue to rise in coming months.

The recent earthquake in Chile will disrupt supplies of some imported building materials — in particular, moldings and door frames. These items can be, and likely will be, replaced by items from other countries, but at a higher price. But Chile is also a major exporter of copper, and although the mines escaped direct damage, operations and shipping will likely be delayed as the country recovers. So far, copper prices on the COMEX are up about 4% since the quake.

Are you waiting for the price of that new home you’d like to build to drop further?  I wouldn’t.

Chuck Miller GMB   CGB  CGP   MIRM   CMP   MCSP   CSP

President / Builder – Chuck Miller Construction Inc.

(208) 229-2553

chuck@chuckmillerconstruction.com

Construction Worker Rated the 8th Worst Job

The headline read “Construction Worker Rated the 8th Worst Job.”  Being a Builder who started out as construction worker, I just had to investigate further.  Here is what I found.

The headline referred to JobsRated.com’s 2010 Jobs Rated report which the website says “offers a comprehensive analysis of 200 different jobs giving each a unique ranking based on factual analysis and hard data, not guesswork.”

The report compares and contrasts careers across a multitude of industries, skill levels and salary ranges using five key measurement criteria – stress, working environment, physical demands, income and hiring outlook – and sorting them into a definitive list of jobs that can be called “worst” and “best.”  Jobs receive a score in each individual category, and when these are added together, the career with the best overall score is ranked 1st, while the one with the worst overall score is ranked 200th.  They noted that, in compiling the list of highly-ranked jobs for 2010,  researchers sought to find careers that are likely to provide a positive experience for a majority of employees, not just the uniquely talented. The top careers in the report “are the jobs that offer the greatest chance of enjoying a combination of good health, low stress, a pleasant workplace, solid income and strong growth potential.”

Of the 200 different jobs, 22 or 11% were construction related careers.  Here is how they ranked.

Rank Job
33 Civil Engineer
48 Architectural Drafter
71 Mechanical Engineer
86 Architect
110 Construction Foreman
119 HVAC Mechanic
120 Surveyor
141 Glazer
145 Realtor
150 Plumber
153 Electrician
159 Painter
164 Drywall Installer / Finisher
167 Construction Equipment Operator
169 Carpet/Tile Installer
170 Plasterer
171 Carpenter
173 Bricklayer
179 Roofer
187

Sheetmetal Worker

193 Construction Laborer
198 Ironworker

 For the Construction Laborer job which was the topic of the headline, the article listed both the Pros: Good income potential with overtime, opportunity to become an independent contractor and start your own business; and the Cons: Extreme, physically demanding labor in all weather conditions, risk of injury or death, poor hiring outlook in a struggling economy, seasonal layoffs.

In fact, it appeared that the poor hiring outlook was a big factor in most of the construction-related jobs.  Understandable considering that unemployment in the construction industry is currently 23.7%.  But regardless of the current outlook, I believe it is important to note that according to the U.S. Department of Labor, as the economy recovers and construction returns to normal levels, there will be a need for an additional 1.1 million construction trades people.  This figure does not include construction management positions.

What I found interesting were the rankings of some of the non-construction related careers.  Teacher ranked 116. Physician ranked 128.  Commercial Airline Pilot ranked 129.  Senior Corporate Executive ranked 133.  Surgeon ranked 136.

So what was the Top Rated Job? Actuary – someone who interprets statistics to determine probabilities of accidents, sickness, and death, and loss of property from theft and natural disasters.

I think I’ll stick with construction.

Chuck Miller GMB   CGP  CGB   MIRM   CMP   MCSP   CSP

President / Builder – Chuck Miller Construction Inc.

(208) 229-2553

www.chuckmillerconstruction.com

The Business of Building – Part 1

Welcome to the first in my series of blog posts on the Business of Building.  Let’s start with a quiz.

In a normal market, what is the average Net Profit for a Builder?  Is it

  1. 21% to 30%
  2. 17.3% to 20.9%
  3. 3.7% to 8.7%
  4. -5% to 0%

 

It has been my experience as a home builder that most home buyers have a real misconception regarding what percentage of the price of a new home is the Builder’s profit.  The correct answer is C, 3.7% to 8.7%.  The range reflects the differences between Builders who built exclusively on their customer’s land, Builders who built on land they developed or purchased, and Builders who built on both.

Type of Builder Gross Profit Margin Net Profit
All Builders 17.3% to 19.0% 3.7% to 5.4%
Small-Volume Builders (1) 16.8% to 19.5% 3.2% to 5.5%
Production Builders (2) 18.5% to 20.9% 5.4% to 8.7%
     
Notes:(1) Builders who build 25 or fewer single-family homes per year
(2) Builders who build 26 or more single-family homes per year
Source: NAHB Cost of Doing Business Study

 

The difference between the Builder’s Gross Profit Margin and Net Profit is the Builder’s expenses which include his or her General and Administrative Expenses, Financing Expenses, and Sales and Marketing Expenses. General and Administrative Expenses range from 8.3% to 12.9% and include employee salaries; payroll taxes, insurance, and other benefits; office expenses; vehicle expenses; taxes; general liability insurance; accounting and legal service fees and expenses, and depreciation.  Financing expenses range from 0.3% to 0.9% and include interest lines of credit and construction loans; and closing costs. Sales and Marketing expenses range from 0.9% to 3.8% and include commissions, website hosting and maintenance, and other advertising and promotion expenses.

The Net Profit is what enables the Builder to continue to operate when business is slow and revenues are down.  It’s what enables them to perform warranty and maintenance services on their finished homes.

According to BuildIdaho.com, the average sales price for new homes is approximately $190,000 in Ada County and $145,000 in Canyon County.  For a small volume builder in a normal market, the average net profit on that new home in Ada County would be somewhere between $6,080 and $10,450. Considering that new home takes approximately 90 to 150 days to build, that equates to $1,216 to 3,483 a month.

Are you waiting for the price of that new home you’d like to build to drop further?  I wouldn’t.

Chuck Miller GMB   CGP  CGB   MIRM   CMP   MCSP   CSP

President / Builder – Chuck Miller Construction Inc.

(208) 229-2553

www.chuckmillerconstruction.com