CONTENTS:
How Long Can Housing Stay Hot?
Thai Ties Find New Life as Flooring
Stanley to Stay Put
Fake Gates Yield Real Benefits
Smart Wiring: Growth but No Boom
International Codes Continue to Gain
Ground
Offcuts
How Long Can Housing Stay
Hot?
Fears of a "housing bubble" are probably unfounded, but
local deflation of housing prices can't be ruled out
Throughout the recent recession and the current period of
sluggish economic growth and bad news from Wall Street, housing
has been the brightest spot in the nation's economy. According
to the National Association of Realtors, housing-related
spending -- which usually accounts for about $1.40 out of every
$10 spent in the U.S. -- last year rose to $2 out of every $10.
During the first quarter of this year, national home prices
climbed by more than 8% compared to the same period a year
earlier. In some particularly fast-growing markets, like
metropolitan New York and Washington, D.C., price increases
were in the 20% range.
Housing has been so hot, in fact, that it's making some people
nervous. In recent months, the news media has given a
substantial amount of coverage to the idea that a "housing
bubble" may be developing. What does that mean, and should
builders be concerned?
Anatomy of a bubble. In economic terms, a speculative
bubble is a wild run-up in prices that occurs when buyers make
purchases based on what they believe they'll be able to make
when they sell, rather than for any intrinsic value. In short,
it's investment driven by what's sometimes described as the
"greater fool" theory: the idea that it makes sense to pay an
unreasonably high price for something as long as there's a
greater fool somewhere who's willing to buy it for an even more
inflated price.
That can mean big profits for a while, but such episodes
always end badly. Those who invest just before the bubble
bursts invariably lose their shirts, and often their pants as
well. The recent spectacular rise and fall of technology stocks
is a fine example of how the process works.
Hot air. Most economists, from Alan Greenspan on down,
are convinced that talk of a national "housing bubble" is
itself just so much hot air. NAHB economist Stanley Duobinis
notes that true speculative bubbles almost always involve
things like stocks that can be bought and sold quickly and
easily. Housing, he argues, is much more resistant to
speculation. "It takes time to sell a house," he says. "People
don't get into that 'buy it today, sell it tomorrow' state of
mind. Even if they did, closing costs would siphon off much of
the profit. It's just not worth it." Localized housing bubbles
are not completely unknown, Duobinis concedes -- Houston
experienced a classic boom-and-bust cycle in the early 1980s,
as did southern New England a few years later -- but a national
housing bubble, he believes, is a practical
impossibility.
Another factor arguing against the existence of a bubble,
according to Fannie Mae economist Orawin Velz, is a shortage of
buildable land stemming from federal, state, and local
restrictions on development. In the recent past, Velz observes,
a six-month inventory of unsold houses was considered normal;
today that figure has fallen to three or four months -- a
change she ascribes largely to the scarcity of lots in many
areas. "We think this is a permanent phenomenon," she
says.
Pent-up demand. If the current surge in demand for
housing isn't a speculative bubble, what is it? Many experts
believe it's a case of low interest rates reacting with pent-up
demand for housing. Mortgage interest rates are currently at a
35-year low, which has permitted many renters to buy homes for
the first time. (Ironically, bad news in other sectors of the
economy has given housing a boost by encouraging the government
to keep interest rates down.) Even though home prices are high,
low interest rates have made monthly payments affordable for
many.
Permits and jobs. But if the strong demand for housing
is unlikely to burst suddenly, it is subject to gradual
deflation, especially in regions where much of the current
demand is provided by first-time and move-up home buyers. John
Burns, a housing industry consultant in Irvine, Calif.,
explains that housing growth has traditionally been driven by
job growth, as new workers coming into an area raise the demand
for housing. Housing demand driven by job growth tends to be
steady and long lasting, Burns notes. On the other hand, demand
that's driven by low interest rates and an abundance of buyers
can dry up fairly quickly if interest rates rise or the local
supply of buyers peters out.
According to Burns, one way to monitor likely demand in a
given area is to track the relationship between building
permits and job growth. Historically, he points out, most
metropolitan areas have added about 1.2 to 1.3 new jobs for
each new housing unit. (Up-to-date figures on both job growth
and total residential permits for most metropolitan areas are
available at the NAHB website, Burns observes.) "If you're
adding twenty jobs and only building twelve homes, it's a hot
market," he says. "If you're adding one job and building ten
homes, you have to wonder."
Back to
Top
Thai Ties Find New Life as
Flooring
Recycled railroad ties have long been used for landscaping
and other rough projects, but a California company has recently
taken recycling to a new level by milling salvage ties into
finish flooring. The catch: These aren't ordinary creosoted
ties but tropical hardwood ties salvaged from Southeast Asian
railways now in the process of switching over to concrete
ties.
Workers in Thailand band-saw salvaged
railroad ties into rough boards (left) that will be further
processed into high-quality tropical hardwood flooring
(right).
According to Richard McFarland of AsiaRain, Inc., in McCloud,
Calif., most of the raw material for his company's flooring
comes from a thousand-mile rail line running the length of
Thailand. Construction began in the late 1800s; workers used
elephants to move timber that was processed into ties as the
line advanced. The durable hardwoods used -- including
rosewood, narra, merbau, ironwood, padauk, and takien -- were
not treated with preservative but were replaced as needed
during track maintenance, so they vary in age. The newest
salvaged ties, McFarland notes, are 15 to 20 years old, while
others date back to the original construction of the line, more
than a century ago.
Workers in Thailand reprocess the ties into high-quality
kiln-dried 5/8-inch tongue-and- groove flooring that is
end-matched and back-relieved. The material comes in random
widths from 2 to 7 inches and in 12- to 78-inch lengths. It's
impractical to sort the finished product by species, McFarland
notes, so it's blended into a half-dozen color mixes, including
a highly varied Classic Jungle Mix, a reddish Rose Mix that
consists largely of rosewood, and a dark-hued Cinnamon
Mix.
The recycled flooring is available to dealers for about $6.50
per square foot, according to McFarland. "Some of it goes into
commercial projects," he says, "but most of our output is going
into mid- to high-end custom homes. It's a way for
environmentally conscious customers to enjoy tropical hardwood
without cutting any trees." For more information, call AsiaRain
at 800/220-9062 or visit the company website at
http://www.asiarainhardwoods.com.
Back to
Top
Stanley to Stay Put
Stanley Works has abandoned its plan to reincorporate in
Bermuda (see Notebook, 4/02). The proposed move, which the
Connecticut-based tool and hardware manufacturer announced in
February, would have saved the company an estimated $30 million
annually by permitting it to avoid U.S. taxes on overseas
sales.
The plan proved controversial from the beginning, however, and
drew widespread criticism from some shareholders, lawmakers,
and labor groups. Although shareholders approved the proposal
in May, Connecticut attorney general Richard Blumenthal filed
suit to block the move on the grounds that the shareholder vote
was marred by irregularities. Stanley sought to explain the
reversal by saying that legislation now before Congress could
address the tax issues that had prompted it to relocate,
although it's not clear when or if such changes might be
enacted.
Whatever the reason for the company's decision to remain in
the U.S., labor groups and some Stanley employees were quick to
declare victory. "The decision by Stanley Works to drop its
infamous plan to avoid paying U.S. corporate taxes by moving
its mailbox to Bermuda is a promising example of one company
rejecting financial gimmicks," AFL-CIO president John Sweeney
said in a prepared statement.
Back to
Top
Fake Gates Yield Real
Benefits
To a developer, gates are a mixed blessing. By some
estimates, homes in gated communities sell for a 10% to 15%
premium over similar homes in communities without gates. But
while they may attract more affluent buyers, gates also impose
costs: Because the roadway behind the gates is private rather
than public, the cost of upkeep must be passed on to the
residents. If the entrance includes a guardhouse, the cost of
hiring and retaining security guards also goes on the
tab.
Developers of high-end residential
communities are finding that fake gates and guardhouses provide
most of the benefits of real ones, at a much lower
cost.
The solution? According to recent stories by the Los
Angeles Times and National Public Radio's All Things
Considered, developers of high-priced residential
communities on both coasts have learned to get the best of both
worlds by erecting "gates" that aren't. Such "faux-gated
communities," as they're sometimes called, are ornamented with
unoccupied guardhouses and impressive -- but permanently open
-- gates or traffic barriers. City officials prefer the fake
gates to real ones, because they do away with concerns over
such issues as access for emergency vehicles. Residents are
content because they get the prestige of gates without the
monthly assessments -- ranging from $1,000 to $12,000 a month
-- that real gated communities extract from inhabitants to pay
for guards and street maintenance.
And according to Ed Blakely, the coauthor of a book on gated
communities who was interviewed by the
Times, the residents have good
reason to be happy, since studies show that they may actually
be safer without guards. Blakely notes that security guards
have been known to take advantage of their inside knowledge by
stealing from the homes they were hired to protect.
Back to
Top
Smart Wiring: Growth but No
Boom
What if they gave a digital revolution and nobody came?
That's the question facing entrepreneurs on the cutting edge of
smart-house technology. With the collapse of the dot-com
bubble, high-tech hype is sounding a lot more hollow. The
continuing stock slump across all industries, coupled with a
stuttering economic recovery, has tech heads understandably
worried.
Although smart-house technology has been
slower to catch on than expected, it's still a good idea to
install basic CAT-5 wiring in advance of the interior
finish.
"It wasn't too long ago that certain pundits had predicted
multibillion-dollar forecasts for home networking components,"
wrote industry analyst Kurt Scherf in a January web article,
"and 2001 was seen as a bellwether year.... In taking stock of
the year, however, it is clear that home networking is taking a
bit longer than many people had expected to mature and
grow."
Scherf works for Parks Associates, a market research firm
that specializes in digital technology for homes. In his
article, he said that the explosive growth the smart-home
industry is waiting for isn't likely before 2003 or even later.
And speaking to JLC, he joked,
"Ask any analyst, and it will always be 18 to 24 months
away."
But seriously, says Scherf, his company's projections are
based on a lot of real data. He points to the following
indicators:
*PC-based networks will be in 5.5 to 6 million U.S. households
by the end of 2002 -- about a 5% market penetration.
*Home entertainment networks haven't progressed much beyond
simple kits to connect computers to TVs. "The mass rollout of
consumer electronics devices with embedded networking solutions
has yet to occur -- we sense a hesitancy by the consumer
electronics industry."
*Residential gateways that link a house's broadband Internet
access to a local network of computers are beginning to emerge,
but there's still no convenient way to accommodate other
systems such as stereos, VCRs, and appliance and lighting
controls.
Given those realities, Scherf advises home builders to keep it
simple. "We are recommending structured wiring with two runs of
CAT-5 [the data wire used for local Ethernet connections] and
also the RJ-6 quad-shielded coaxial cable for video
distribution. Most smart solutions would connect to that. Just
go ahead and get that behind the walls, with a home run to a
central enclosure," says Scherf. People can use the CAT-5
wiring to share computer data, a printer, and Internet access
(all common consumer wants), and the coax to connect TVs in
different rooms to a single video source. And Scherf adds,
"Builders should also look at offering other options that
center on entertainment, such as prewiring for audio
speakers."
Back to
Top
International Codes Continue to Gain
Ground
Efforts by the International Code Council (ICC) to unify
building codes throughout the U.S. are continuing to make
progress. This year, at least four states have adopted the
International Building Code (IBC) as a statewide code,
including two states -- New Hampshire and New York -- that have
never before had a uniform statewide code. A map at the
ICC's website now shows only six states
that have not adopted any international code at either the
state or municipal level.
The newly adopted New York code, however, contains several
modifications to the ICC model code. The International
Residential Code (IRC) stair rule, which specifies a
maximum 7 3/4-inch riser height and 10-inch tread width, was
amended to allow 8 1/4-inch risers and 9-inch treads. New York
also inserted a requirement for a 8-inch drywall fire barrier
between a garage and an adjoining house, rather than the
1/2-inch drywall specified by the model code.
In August, the U.S. Department of Defense (DoD) selected the
International Building Code (IBC) as a primary reference
in its Unified Facilities Criteria (UFC), a new document
that governs the construction of facilities used by the U.S.
armed forces. Federal law requires the DoD to use
private-sector codes and standards as military construction
standards wherever practical, in order to improve communication
and efficiency. Although the military has modified some
portions of the code to meet more stringent design
specifications, referencing the International Building
Code in the military standards means that contractors will
be able to use many of the same systems and methods on military
projects that they use in the civilian market.
The map above shows state and local
adoption of international codes. An interactive version at the
ICC website provides details on which codes
have been adopted and at what level, with effective
dates.
Back to
Top
Offcuts
A new antimicrobial paint from the New York-based
Alistagen Corp. is said to be 99.9% effective at killing and
preventing the growth of more than 20 microbes, including mold.
The paint costs $69 per gallon and is available in ten stock
colors, including Trusted Fortress (an off white), Comfort Zone
(blue), Twilight Sentry (gray), and Rest Assured (described by
the manufacturer as "creme").
The Florida Home Builders Association has announced
that it will work with state and regional work force
development boards on a new effort meant to encourage high
school students to consider careers in home building. The Get
Into Building program is expected to inform students about
opportunities in construction and provide contacts between high
schools and local home builders' associations.
Home safes are emerging as a trendy home accessory,
according to the Wall Street Journal. Concealed safes
are popular, and one manufacturer has launched a line of
minifridge-sized Home Appliance safes in a range of decorator
colors.
Brick production in 2002 was among the highest in 30
years, according to figures released by the Brick Industry
Association. Nearly 80% of the brick was used in single-family
residential construction, with the South Atlantic region being
the biggest single user.
Developers in Noblesville, Ind., must conceal the back
yards of properties that can be seen from main roads. In
July, the city council unanimously passed an ordinance
requiring builders to orient homes so their front facades face
the road, or conceal the back yards with berms or landscaping.
The Indianapolis Star quoted one city councilman as
saying, "Everything unattractive seems to collect in back
yards."
Most U.S. homeowners have positive perceptions of treated
wood, according to a recent Louisiana State University
study summarized in the lumber industry newsletter Random
Lengths. Despite the press surrounding the recent phaseout
of CCA-treated lumber, the study found that only 5% of
respondents had negative perceptions of treated wood. About 40%
had somewhat positive impressions, and nearly a quarter had
very positive perceptions.
Chicken fat makes a fine heating fuel, researchers at
the University of Georgia have found. According to Energy
Design Update, the researchers fired a conventional oil
burner with a number of experimental fuels, including chicken
fat, lard, beef tallow, and used frying oil. Poultry fat
reportedly has 16,500 Btus per pound, compared to 18,000 Btus
per pound of fuel oil, at between one-half and one-third the
price.
Vinyl siding shipments have declined for the past two
years, according to a report in the roofing, siding, and
insulation trade magazine RSI. Figures provided by the
Vinyl Siding Institute show that shipments declined by 6%
between 1999 and 2001 and by an additional 0.6% between 2000
and 2001.
Dunkin' Donuts will be opening full-service donut shops
inside Home Depot stores, beginning late this year. A
spokesperson for Home Depot said his company's research shows
that professional builders often visit both chains during the
morning hours. No word on whether the arrangement will also
lead to an increased police presence in the stores.
Builders in Denver no longer have to landscape a new home
to receive a certificate of occupancy, according to a
temporary measure adopted by city building officials. A
long-term drought, coupled with water-use restrictions, makes
it pointless for builders to seed or sod new lawns, since
homeowners can't water them. For the time being, building
officials are issuing temporary certificates of occupancy to
builders who submit letters committing to landscape next
summer.
Structural panel manufacturers are producing more 4x9 and
4x10 panels of plywood and OSB, according to the lumber
newsletter
Random Lengths. The trend is said to be
driven by strong and growing demand for new homes with 9- and
10-foot ceilings. One manufacturer in the South reportedly
predicted that his company's sales of the larger panels will
jump by 30% this year compared to 2001.