Yesterdays news that construction of new homes increased in October was good to see. It was great to see something positive written about our battered industry. Well don’t breakout the champaign bottles just yet.

When looking deeper into the information released yesterday, some troubling trends become apparent. The data shows that the gains were from multifamily residences. In this case primarily apartment buildings. New starts in apartments make sense when your consider how the housing boom of 2001 - 2005 depopulated apartments across the country. People moved from apartments into homes with the help of low interest easy credit. Now with foreclosure rates rising, credit tightening, and higher interest rates, fewer consumers qualify to buy a home. The multifamily residential industry is preparing to fill the void.

This uptick in multifamily building is masking further declines in single family starts. Some builders are moving from residential construction to commercial construction just to survive. “Builders continue to do what they absolutely have to do in this market downturn.” says Brian Catalde, president of the National Association of Home Builders in a article written on the NAHB titled INCREASE IN MULTIFAMILY CONSTRUCTION LIFTS TOTAL HOUSING STARTS IN OCTOBER Some economist are pointing to the drag on the overall economy that the housing sector is becoming. According to Brian Bethum and MSNBC we may be two quarters away from hitting the bottom of the downturn.

It is increasing clear. We can’t avoid the law of supply and demand. Until we reduce housing inventory, and increase the supply of qualified buyers, we are going to continue stumbling in a downward spiral.

The housing report for October was just released and the numbers are not good. Starts are up slightly, but permits still down. Single family housing numbers have dropped to levels not seen since 1991.

NAHB has released some information that is attempting to put a moderate to flat reporting on the market in their report of builder confidence.

Additional information will come out later today. Stop back for more details.

Stanley Bing has written many books on business. My favorite still by far is the first Bing book I read called Throwing the elephant: Zen and the art of managing up. I was working for a mini elephant at the time. I wasn’t even aware of that fact until I read Mr. Bing’s book. The book is a fast read and full of funny almost make yourself roll off the couch laughing humor. Be careful if you have hard wood or ceramic floors. You could give yourself a concussion.

Are bosses evil, heartless creatures that live only to make our lives miserable? Not really. Stanley Bing uses the elephant to accurately describe some bosses. Elephants are the largest creatures in the jungle. They wonder any place they like without fear of any creature. Sometime their brains tell them to run one direction and other times their brains tell them to wonder off in a completely opposite direction. Where ever they go they spread destruction. Not because they are mean or cruel, they are just the biggest creatures in the jungle. When they move their large feet trample the earth and any lesser creature that happens into the elephant’s path. Elephants don’t do this maliciously, they just don’t notice all of the lesser animals (us) trampled under their large feet. That is how Stanley Bing describes an average boss. His teachings in this book educate us on how to recognize the elephants in our lives and then instruct us how to live in the same jungle (workplace) as these creatures and not become a smudge between their toes. Through proper grooming and yes training, you too can become skilled at manipulating your elephant to do your bidding. This hilarious book entertains and enlightens all at the same time. I have read it three times now and find some new little nugget of wisdom every time. Enjoy!

Legendary coach Pat Riley once said

“There is no status quo. You are either getting better or worse.”

This seems to be especially true of our economy. In the 80’s we saw run away inflation. In the 90’s we had deflation, and the burst of the internet bubble. Now after the turn of the century, we have worries about inflation leading to the burst of the so called housing bubble. Since 2001 housing prices have increased and the demand for housing has increased. In 2005 the Federal Reserve decided that the party was over and started a long cycle of interest rate increases. This and other economic factors have lead to a pull back in housing prices across the country. Add to this mix the recent upheaveal in the mortgage industry and it is not hard to see how the housing industry finds itself in this current tail spin downward. The National Association of Home Builders released its report on housing starts for September, and the picture it paints is grim. You can view the report in detail here. The report states that the earliest it sees a turnaround in housing starts is 2nd quarter in 2008. For builders this poses the dilemma of how to reduce their current inventory without further deflating their already reduced prices.

One significant source of assistance is for builders to rely on their current homeowners for help. The word of mouth referral is still one of the most effective selling tools available to builders. If builders can harness the satisfaction of their current customers and turn them into self-marketers for the builder, the builders may be able to shorten the current downturn. Many builders have started focusing on providing incentives to their current customers as opposed to further price reductions. This is a far more effective process because price reductions can actually reduce the value of current customers homes. By holding pricing and providing incentives for customers to refer their friends, the builders create a win win situation.

Is there light at the end of the tunnel, or is that just the headlight of an oncoming train? That seems to be the big question in the housing industry today. Each day seems to bring more bad news with no hope in the near future. I recently read a article by Michael Corkery of the Wall Street Journal on line which gives me hope. Mr. Corkery reports that Lennar Corporation, a large national builder, has plans to “moth ball” some of the current projects they are working on. He also reports that Toll Brothers is also considering a similar program. You can read the entire article here.

Why is the so called moth balling of current projects good for the housing industry? It indicates a willingness on the part of builders to attempt to stop or slow down the current downward spiral in pricing. The glut in inventory has been devastating to new and existing home prices across the country. Many builders continued to build well after it became apparent that more homes were not needed. They did this to keep up with land purchase agreements already in place with developers. They also were attempting to maintain market share in a aggressively shrinking market. This additional inventory added pressure for further price reductions. Drop the recent mortgage market problems in the mix and we find ourselves with high inventories and reduced demand. Fewer buyers with the ability to qualify for a home, and fewer sellers willing to sell their home at a loss to move up to a new home resulted in additional downward pressure on prices.

Lower interest rates may make it more palatable for builders to hold on to property until prices start to rise or at least stableize. This will remove some of the excess inventory from the market and help us all. Having a couple of large national builders decide that they have found a threshold of pain they are not willing to go below could be the best news I have seen in a long time.

Say… Maybe that is a light at the end of the tunnel???

Oil at $100.00 a barrel? That seems to be the talk of the day. Is $100.00 a barrel a new tipping point for oil? Will the economy blow right past that benchmark and not even notice? How will these economic factors impact the housing industry? All good questions. Lets break it down.

Higher Oil Prices, Tightened Lending Standards, Runaway Foreclosures

According to Time magazine the demand for oil world wide keeps getting greater. Meanwhile the available supply and our ability to refine that dwindling supply is decreasing. I remember from my first economics class that increasing demand and decreasing supply can only lead to higher prices. Now that we all agree on the direction of oil prices, what does that mean to the US housing market? Two possibilities leap to my mind.

1. Higher oil prices convince the Federal Reserve to fear inflation more than the housing markets woes. This results in no further rate cuts.
2. Higher oil/energy prices hit the tipping point where they push the economy into recession. I can’t imagine a recession ever being good for the housing market.

On Monday CNNMoney .com reported that lending institutions are tightening their underwriting standards. This will lead to a reduction in the supply of money available to potential buyers of new homes.

On November 1st John W Schoen of MSNBC reported that foreclosures increased 30% in the 3rd. quarter of 2007. According to Mr. Schoen 446,000 homes were foreclosed on during the last 90 days. These homes now get added to the already staggering 9 month supply of homes available in the market. The new foreclosures will be added to an already over supplied inventory. Mortgage institutions eager to recoup some of their investment will be motivated to sell these homes at a discount to move them fast. This will put further downward pressure on already reduced market pricing.

Matthew Grahm of MortgageNewsDaily puts it all togather nicely in an article titled Current State of the Mortgage Industry I highly encourage you to read his post. He even includes a graph from Yale economist Robert Shiller which is an enlightening look at home values over time.

Getting back to my initial question, How will these economic factors effect the housing industry? I don’t see anything good in the short term. Increased housing supply being sold at a discount. A reduction in the qualified buyer/borrower pool. Interest rates that may not move the way the Fed wants them to because of supply and demand forces out of the Federal reserves control.(Underwriting guidelines) A weak or recessed economy. All add up to bad news for the housing industry.

What are your thoughts? Is there a silver lining that I have not yet seen?

As a sales person we are always setting the expectations of those around us. Like it or not, it is just part of our job as a professional communicator.

When we set expectations unconsciously we set those around us and ourselves up for disappointment. When we consciously set good expectations, we create an environment where the people we interact with are satisfied.

Sales people strive to satisfy their customers. It is hard for any salesperson to give their customers news that will disappoint or upset them. I have always found that it is good to set proper expectations from the very beginning. When I first interact with a potential customer, I always have a conversation about the topic of things in my control and things out of my control. It is helpful to let the prospect know that it is my personal goal to not ever disappoint them on anything under my control. They then know that when I give an estimate on price or timing, I will strive to be accurate. If there are variables involved, I will provide the most conservative answer. This means price estimates will be a little high and time estimates will be a little long. I repeat this topic often. This sets the stage for me to over deliver.

The conversation on things out of my control is similar. Using the construction of a new home is an great example. I tell each of my future homeowners that building a new home is an imperfect event. Homes are made from imperfect natural materials and built by dozens of imperfect humans. Weather, product delivery schedules, subcontractor mistakes, are all by their nature directly out of my control. We then put together a plan to deal with the unknown when it happens. (This is an important step.) I put a system in place that revolves around a written communication trail. This again gives the prospect the peace of mind knowing that there is a system in place to handle their concerns. When almost none of what I laid out for them actually happens, the customer now feels that they have had a great building experience.

When you set and manage customers expectations you relieve the stress on them and yourself. To sum it up in one line… Always under promise and over deliver!

The jobs report released this morning, as reported by CNBC.com, is causing jubilation on Wall Street. Traders are excited about the news which is twice what conventional wisdom expected. Markets around the world are reacting positively to the news. If everyone is so happy why does my headline say Ouch?

Yesterday the Fed poured 41 Billion into the markets to shore up liquidity. The fear was that the markets would run into the same liquidity crunch they faced in August 07. Today’s news should have been that the Fed had made the largest infusion of liquidity since September 19, 2001. That infusion was made to combat market fears right after the attacks of 9/11. Today’s job report is so strong that traders are now saying, “credit crunch, what credit crunch?”

The simple fact is that good economic news is bad for the housing market. Two days ago the Fed made a 25 basis point reduction, which was widely expected. Conventional wisdom is that the small reduction signals that the Fed is more afraid of inflation than it is of the economy moving into a recession. Today’s job numbers, which have blown away expectations, is so strong the fear of recession has become greatly reduced. The signal to the Fed is clear. No more rate cuts will be required at this time. This is very bad news for the housing industry. The housing industry, facing a glut in inventory, free falling prices and margins is in desperate need of lower interest rates. Don’t look for any help soon. Ouch!

The Federal Reserve board cut rates again today. The rate cut was a modest 25 basis points off the federal funds rate. “The Fed made the right decision” says NAHB President Brian Catalde in a National Association of Home Builders press release. He went on to say that this should be good new for new home builders. Not everyone was as optimistic as Mr Catalde. Businessweek’s Ben Silverman and David Bogoslaw saw more a lift for the stock market in the Fed’s decision. Bankrate.com sees the rate cut as more of a boom to the stock-market than to the sagging housing market. While they are not overly optimistic on the housing recovery, they do provide a nice graph on historical interest rates. InmanNews is interpreting the news as strong economic results are reducing pressure for further Fed cuts. According to Inman’s report the Fed feels this will further add downward pressure on the housing industry.