National Association of Home Builders (NAHB) among the most trusted organizations.
Harris Interactive I Newsroom I The Harris Polls
Chuck Miller GMB CGB CGP MIRM CMP MCSP CSP
President / Builder – Chuck Miller Construction Inc.
(208) 229-2553
chuck@chuckmillerconstruction.com
Monday, February 8, 2010
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.
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
http://www.chuckmillerconstruction.com/
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.
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
http://www.chuckmillerconstruction.com/
Monday, January 25, 2010
The Business of Building - Part 2
Welcome to the second in my series of blog posts on the Business of Building. We started Part 1 with a quiz. I asked what the average Net Profit for a Builder is in a normal market. The correct answer was C. 3.7% to 8.7%. That was based on the National Association of Home Builders 2004 Cost of Doing Business Study. Here is today’s quiz.
In 2008, what was the average Net Profit for a Builder? Was it
A. 11.0% to 20.0%
B. 14.4% to 15.1%
C. 0.0% to 4.4%
D. -3.7% to -1.4%
The correct answer is D. -3.7% to -1.4%. It should be no surprise that the results for 2008 vary considerably from the results for 2004 especially if you are a Builder. As with the 2004 Cost of Doing Business Study, the range reflects the differences between Builders who built on land they developed or purchased and Builders who built exclusively on their customer’s land. Builders who built exclusively on their customer’s land were the only Builders who made a profit.
As noted in Part 1, the difference between the Builder’s Gross Profit Margin and Net Profit is the Builder’s expenses which included his or her General and Administrative Expenses, Financing Expenses, and Sales and Marketing Expenses. General and Administrative Expenses ranged from 5.8% to 13.1% 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 ranged from 0.4% to 3.4% and include interest lines of credit and construction loans; and closing costs. Sales and Marketing expenses ranged from 0.5% to 8.1% and include commissions, website hosting and maintenance, and other advertising and promotion expenses.
One thing that didn’t vary considerably between the 2004 study and the 2008 study was the Cost of Sales, which includes the land cost, the direct costs (the sticks and bricks and labor), and the indirect costs (permit fees, temporary utilities, etc.) In 2004, the Cost of Sales ranged between 79.1% and 83.2%.
In 2008, the Cost of Sales ranged between 80.1% and 90.6%.
As I cautioned in my last post, if you are 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
In 2008, what was the average Net Profit for a Builder? Was it
A. 11.0% to 20.0%
B. 14.4% to 15.1%
C. 0.0% to 4.4%
D. -3.7% to -1.4%
The correct answer is D. -3.7% to -1.4%. It should be no surprise that the results for 2008 vary considerably from the results for 2004 especially if you are a Builder. As with the 2004 Cost of Doing Business Study, the range reflects the differences between Builders who built on land they developed or purchased and Builders who built exclusively on their customer’s land. Builders who built exclusively on their customer’s land were the only Builders who made a profit.
As noted in Part 1, the difference between the Builder’s Gross Profit Margin and Net Profit is the Builder’s expenses which included his or her General and Administrative Expenses, Financing Expenses, and Sales and Marketing Expenses. General and Administrative Expenses ranged from 5.8% to 13.1% 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 ranged from 0.4% to 3.4% and include interest lines of credit and construction loans; and closing costs. Sales and Marketing expenses ranged from 0.5% to 8.1% and include commissions, website hosting and maintenance, and other advertising and promotion expenses.
One thing that didn’t vary considerably between the 2004 study and the 2008 study was the Cost of Sales, which includes the land cost, the direct costs (the sticks and bricks and labor), and the indirect costs (permit fees, temporary utilities, etc.) In 2004, the Cost of Sales ranged between 79.1% and 83.2%.
In 2008, the Cost of Sales ranged between 80.1% and 90.6%.
As I cautioned in my last post, if you are 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
Thursday, January 7, 2010
Are You Waiting to Buy or Build? Don’t Wait Too Long.
For the 80 percent of home buyers who need a mortgage to buy a home, the two major factors that determine affordability are mortgage interest rates and house prices. It appears that many buyers have been waiting for home prices to fall further while hoping that mortgage interest rates will remain at their current lows hovering around 5%.
The key catalyst for interest rates in 2010 will be the end of a Federal Reserve program that buys a sizable chunk of mortgage-backed securities issued by firms such as Fannie Mae and Freddie Mac. That program succeeded in immediately pushing mortgage rates well below the 6 percent mark when it was announced in 2008.
But the Fed has committed to winding down the program by March. The deputy chief economist at Freddie Mac said interest rates are bound to rise to 6 percent by the end of 2010 because private buyers will demand a higher rate of return on the securities than the Fed did. Lenders will have to raise the rates they charge to home buyers in order to make that happen.
According to the Federal Housing Finance Agency, the average purchase price of homes in November 2009 was $247,300. The average loan amount was $182,000 or 73.6% of the purchase price and the average interest rate was 5.09%. As you can see from the table below, a one-quarter percentage point change in mortgage interest rates has about the same impact on affordability for the average priced home as a 2% change in the purchase price or a 2.7% change in the loan amount.
As interest rates rise, home buyers who wait thinking that house prices will fall further will need to see up to another 7 percent decline in prices to maintain the same level of affordability.
And if you follow the Recent News posting on my website www.chuckmillerconstruction.com , you know that the cost to build a new home is not declining.
Chuck Miller GMB CGB CGP MIRM CMP MCSP CSP
President / Builder – Chuck Miller Construction Inc.
(208) 229-2553
chuck@chuckmillerconstruction.com
The key catalyst for interest rates in 2010 will be the end of a Federal Reserve program that buys a sizable chunk of mortgage-backed securities issued by firms such as Fannie Mae and Freddie Mac. That program succeeded in immediately pushing mortgage rates well below the 6 percent mark when it was announced in 2008.
But the Fed has committed to winding down the program by March. The deputy chief economist at Freddie Mac said interest rates are bound to rise to 6 percent by the end of 2010 because private buyers will demand a higher rate of return on the securities than the Fed did. Lenders will have to raise the rates they charge to home buyers in order to make that happen.
According to the Federal Housing Finance Agency, the average purchase price of homes in November 2009 was $247,300. The average loan amount was $182,000 or 73.6% of the purchase price and the average interest rate was 5.09%. As you can see from the table below, a one-quarter percentage point change in mortgage interest rates has about the same impact on affordability for the average priced home as a 2% change in the purchase price or a 2.7% change in the loan amount.
As interest rates rise, home buyers who wait thinking that house prices will fall further will need to see up to another 7 percent decline in prices to maintain the same level of affordability.
And if you follow the Recent News posting on my website www.chuckmillerconstruction.com , you know that the cost to build a new home is not declining.
Chuck Miller GMB CGB CGP MIRM CMP MCSP CSP
President / Builder – Chuck Miller Construction Inc.
(208) 229-2553
chuck@chuckmillerconstruction.com
Friday, January 1, 2010
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
A. 21% to 30%
B. 17.3% to 20.9%
C. 3.7% to 8.7%
D. -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.
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
http://www.chuckmillerconstruction.com/
In a normal market, what is the average Net Profit for a Builder? Is it
A. 21% to 30%
B. 17.3% to 20.9%
C. 3.7% to 8.7%
D. -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.
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
http://www.chuckmillerconstruction.com/
Thursday, December 24, 2009
The End of the McMansion – I Think So
The median size of new homes in the U.S. increased from just over 1,500 square feet in 1973 (the first year the Census Bureau began tracking new home size) to 2,309 square feet at its peak in 2007. The median size has declined almost 10% since then. Will the trend to smaller-sized homes persist?
While it is unlikely that the size of new homes will continue to decline, I think we have seen the end of the McMansion.
NAHB’s Chief Economist David Crowe, although he didn’t proclaim the end of the McMansion, believes that the trend to smaller homes may last longer than in past recoveries.
Baby-Boomers, although they might wish to downsize, might be unable to do so due to their inability to sell their existing McMansions because of an oversupply these larger homes and downward price pressure coupled with their recently decimated wealth. However, immigrant households with their lower incomes while they may be unable to afford new larger homes, might be able to purchase the Baby-Boomers existing homes allowing the Baby-Boomers to downsize into smaller new homes.
Gen X’ers could be driven to purchase smaller, more affordable homes due to affordability barriers combined with the more stringent lending standards and fewer mortgage options resulting from the subprime mortgage fiasco.
The sheer number of Gen Y households projected to increase by between 2.0 million and 3.4 million should keep the demand for smaller starter homes strong for the next 10 years.
The trend to single-person households and women as heads of households should also support the trend to smaller-sized homes.
While the rising cost of energy could also drive some buyers to purchase smaller homes, this may not be enough to drive the trend to smaller homes.
The information presented in this series of blogs appears to support a continuation of the trend to smaller homes and the end of the McMansion. However, all real estate is local and the impact of the changes I have discussed will vary by market. Each market will experience these changes to varying degrees and at varying times, but it is reasonably certain that they will experience them.
The National Association of Home Builders Institute of Residential Marketing (IRM) courses will teach you how to do market research so that you understand your local housing market and your potential customers. The BCASWI Sales and Marketing Council is offering IRM I – Understanding Housing Markets and Consumers on February 16th and 17th in Boise, Idaho. In IRM I, you'll gain knowledge of the demographic, economic, and psychographic factors that affect housing supply and demand and learn to employ a model that projects opportunities for specific local markets. For more information and to register, contact me or the BCASWI.
Chuck Miller GMB CGP CGB MIRM CMP MCSP CSP
President / Builder – Chuck Miller Construction Inc.
(208) 229-2553
www.chuckmillerconstruction.com
While it is unlikely that the size of new homes will continue to decline, I think we have seen the end of the McMansion.
NAHB’s Chief Economist David Crowe, although he didn’t proclaim the end of the McMansion, believes that the trend to smaller homes may last longer than in past recoveries.
Baby-Boomers, although they might wish to downsize, might be unable to do so due to their inability to sell their existing McMansions because of an oversupply these larger homes and downward price pressure coupled with their recently decimated wealth. However, immigrant households with their lower incomes while they may be unable to afford new larger homes, might be able to purchase the Baby-Boomers existing homes allowing the Baby-Boomers to downsize into smaller new homes.
Gen X’ers could be driven to purchase smaller, more affordable homes due to affordability barriers combined with the more stringent lending standards and fewer mortgage options resulting from the subprime mortgage fiasco.
The sheer number of Gen Y households projected to increase by between 2.0 million and 3.4 million should keep the demand for smaller starter homes strong for the next 10 years.
The trend to single-person households and women as heads of households should also support the trend to smaller-sized homes.
While the rising cost of energy could also drive some buyers to purchase smaller homes, this may not be enough to drive the trend to smaller homes.
The information presented in this series of blogs appears to support a continuation of the trend to smaller homes and the end of the McMansion. However, all real estate is local and the impact of the changes I have discussed will vary by market. Each market will experience these changes to varying degrees and at varying times, but it is reasonably certain that they will experience them.
The National Association of Home Builders Institute of Residential Marketing (IRM) courses will teach you how to do market research so that you understand your local housing market and your potential customers. The BCASWI Sales and Marketing Council is offering IRM I – Understanding Housing Markets and Consumers on February 16th and 17th in Boise, Idaho. In IRM I, you'll gain knowledge of the demographic, economic, and psychographic factors that affect housing supply and demand and learn to employ a model that projects opportunities for specific local markets. For more information and to register, contact me or the BCASWI.
Chuck Miller GMB CGP CGB MIRM CMP MCSP CSP
President / Builder – Chuck Miller Construction Inc.
(208) 229-2553
www.chuckmillerconstruction.com
Monday, December 21, 2009
The End of the McMansion? The Impact of Rising Energy Costs
The median size of new homes in the U.S. increased from just over 1,500 square feet in 1973 (the first year the Census Bureau began tracking new home size) to 2,309 square feet at its peak in 2007. The median size has declined almost 10% since then. Will the trend to smaller-sized homes persist? Let’s consider the rising cost of energy.
The depth of the downturn may, for the first time in at least 40 years, reduce real median household incomes while the cost of energy is predicted to grow faster than incomes in the coming years. Some experts argue that because smaller homes cost less to heat and cool, this alone should continue to support the trend to smaller homes. I respectfully disagree.
I have been building energy-efficient homes since for the past 10 years. Through programs like the U.S. Department of Energy’s Building America Program, we learned how to increase the energy-efficiency of any new home regardless of size by 30% to 50%. Energy-efficiency is a major component of all green building programs and because of the increased emphasis on green building fueled in part by the International Energy Conservation Code® (IECC) and the growing popularity of programs like NAHB Green, building products manufacturers are improving their existing products and developing new products to improve the energy-efficiency of the homes being built.
But what about home buyers. Based on my own experience over the past 10 years, while energy-efficiency might make it onto a homebuyers list of priorities, rarely is it at the top of the list.
In the spring of 2007, RCLCO (Robert Charles Lesser & Co., LLC) conducted a national survey of homeowners to gain an understanding of their attitudes toward green residential products. Among the questions asked were:
• Are “green” features and amenities important in your next home purchase?
• What “green” features and amenities are important to you in your next home purchase?
• Would you be willing to pay more for a “green” home, if so, how much?
The results of the survey revealed that only 21% of home buyers were interested in saving energy and realizing lower utility bills. Those in this group are most interested in energy-efficient and energy-saving features. Among this 21% of home buyers, 75% indicated they would be willing to spend more for an energy-efficient home provided their investment paid them back over time. If their investment might not pay them back over time, that percentage drops to 18%.
So I don’t think rising energy costs will drive the trend toward smaller homes.
Chuck Miller GMB CGP CGB MIRM CMP MCSP CSP
President / Builder – Chuck Miller Construction Inc.
(208) 229-2553
www.chuckmillerconstruction.com
The depth of the downturn may, for the first time in at least 40 years, reduce real median household incomes while the cost of energy is predicted to grow faster than incomes in the coming years. Some experts argue that because smaller homes cost less to heat and cool, this alone should continue to support the trend to smaller homes. I respectfully disagree.
I have been building energy-efficient homes since for the past 10 years. Through programs like the U.S. Department of Energy’s Building America Program, we learned how to increase the energy-efficiency of any new home regardless of size by 30% to 50%. Energy-efficiency is a major component of all green building programs and because of the increased emphasis on green building fueled in part by the International Energy Conservation Code® (IECC) and the growing popularity of programs like NAHB Green, building products manufacturers are improving their existing products and developing new products to improve the energy-efficiency of the homes being built.
But what about home buyers. Based on my own experience over the past 10 years, while energy-efficiency might make it onto a homebuyers list of priorities, rarely is it at the top of the list.
In the spring of 2007, RCLCO (Robert Charles Lesser & Co., LLC) conducted a national survey of homeowners to gain an understanding of their attitudes toward green residential products. Among the questions asked were:
• Are “green” features and amenities important in your next home purchase?
• What “green” features and amenities are important to you in your next home purchase?
• Would you be willing to pay more for a “green” home, if so, how much?
The results of the survey revealed that only 21% of home buyers were interested in saving energy and realizing lower utility bills. Those in this group are most interested in energy-efficient and energy-saving features. Among this 21% of home buyers, 75% indicated they would be willing to spend more for an energy-efficient home provided their investment paid them back over time. If their investment might not pay them back over time, that percentage drops to 18%.
So I don’t think rising energy costs will drive the trend toward smaller homes.
Chuck Miller GMB CGP CGB MIRM CMP MCSP CSP
President / Builder – Chuck Miller Construction Inc.
(208) 229-2553
www.chuckmillerconstruction.com
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