Spring 2006 issue of Horizons

more than 25 houses per year) are most concerned with the following issues facing their businesses:

Despite the increasing amount of available inventory, most experts are not concerned about an impending glut of avail- able product.

1. Government regulation 2. Finding and training good employees 3. Anti-growth sentiment 4. General liability insurance and the need for tort reform 5. Volatile material costs and shortages 6. Other land development issues 7. Staying current on the latest product and systems innovations 8. Investor home buyers EXIT STRATEGY According to P & M Corporate Finance, the Top 6 issues facing home builders in planning for retirement are: 1. Liquidity needs 2. Continuation of family involvement 3. Future opportunity for key management 4. Preservation of company culture 5. Relationship with customers, employees and vendors 6. Legacy HAYS' BITS • Does any industry get punished more by Wall Street than the publicly traded home builders? After four record-breaking years, the first mention of a weakening sends their stocks plummeting. Given their performance over the last 10 years, it appears they are undervalued and certainly under appreciated . . . • As I work in other markets, we are fortunate to have such a strong and unified local HBA - this is not the case in some other cities. 9. Entitlement process difficulties 10. Customer financing issues

Here's what the experts expect for 2006 and beyond:

• Activity in 2006 will be down 6-7 percent from 2005 but still in line with 2004 performance, which is now the second best year on record.

• The condo market is expected to follow 2005 and continue to be “red hot.”

• The Fed is expected to slow or stop interest rate adjust- ments in 2006. Most expect one rate adjustment in January; others expect another possible adjustment in March. However, with a new Fed director, no one can be certain.

• The long-term mortgage rate will most likely rise very modest- ly to 6.5-6.75 percent - still, by historical terms, very low rates.

• Average 2006 home appreciation will slow to a more rea- sonable 4-5 percent.

• Many investors will leave the market in 2006.

• The average demand for the upcoming decade, 2006 - 2015, is expected to be substantially better than any previous decade.

• Housing affordability continues to be a big issue in many markets.

MORE ON PRICE INCREASES Prices on raw materials increased 9.4 percent in 2004 and more than 13 percent in 2005. Not much relief is expected in 2006 as increases are expected to be nearly 10 percent. As a result, builders who did not raise prices by at least 23 percent over the last two years, found it difficult to stay even. The costs of any concrete or petroleum related products are expected to have substantial increases not only in 2006, but also the intermediate future. The lesson - don't get too far out between the selling and actual production of the house. Job cost budgets must be adjusted regularly and sale prices increased accordingly. WHATARE THE TOP 10 ISSUES FACING PRODUCTION BUILDERS? According to a study compiled by the Business Management Department at NAHB, production builders (those who build

• For 2005, direct construction costs increased to nearly 59 percent. . .

Questions? Contact either Steve Hays, Partner-in-Charge, Home Builders Services Group 314-290-3336 steve.hays@rubinbrown.com or Felicia Malter, Manager, Assurance Services Group 314-290-3249 felicia.malter@rubinbrown.com

32 • spring 2006 issue