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You are receiving this news update on behalf of ORCO Construction Supply. We offer this service as a quick review of the events and information relevant to our industry which may prove valuable in your day-to-day decisions and business planning.

NEWS FROM THE MONTH OF JULY 2008

U.S. Economy

Consumer Confidence rose, but builder confidence continued to fall. Retail sales and consumer spending were up, but consumer prices also rose. Single family home starts and new and existing home sales all fell. The unemployment rate went up, but job losses weren’t as heavy as feared. The markets gained and lost hundreds of points over the month on worries about the economy, fluctuating oil prices, housing and the financial markets. For the month of June the DOW gained 28 points to close at 11,378, the NASDAQ rose 33 points to close at 2,325, and the S&P fell 13 points to end the month at 1,267.

Currency Watch

Rates as of July 31, 2008

CONSUMER CONFIDENCE INCHES UP

• The New York-based Consumer Conference Board’s Consumer Confidence Index rose .9 of a point to 51.9. It was the first improvement in five months. The Expectations Index rose to 43 from 41.4. The Present Situation Index was virtually unchanged at 65.3 after falling over ten points in June. Lynn Franco, director of the Conference Board’s Consumer Research Center, said, “While consumers’ appraisal of current conditions was little changed, the modest improvement in expectations, often a harbinger of economic times to come, bears careful watching over the next few months.”

CONSUMER SPENDING DROPS

• Consumer spending fell 0.2% in June after rising 0.8% in May. The inflation gauge tied to consumer spending was up 0.8% in June, the biggest increase since 1981. The big jump in inflation ate up part of the billions of dollars in stimulus payments that were delivered during the month.

QUARTERLY CONSUMER SPENDING UP

• Consumers boosted their spending by 1.5% during the second quarter, up from 0.9% during the first quarter. It was the best showing since the third quarter of 2007. Spending on furniture and household appliances was up; spending on automobiles was down.

CONSUMER PRICES JUMP

• Consumer prices jumped 1.1% in June after rising 0.6% in May. Core inflation was up a more moderate 0.3%. Both increases were greater than analysts had expected. Consumer prices are up 5% over the past 12 months, the fastest one-year increase since 1991. Higher energy costs led the way, with gas prices up more than 10%. Food costs are also climbing. Soaring gas prices have people driving less and cutting back on things like restaurant meals and entertainment.

UNEMPLOYMENT CLIMBS

• The unemployment rate rose to 5.7% in July from 5.5% in June, and now stands at a four year high. Employers cut 51,000 jobs, fewer than economists had expected. Job losses for both May and June were also smaller than previously reported. It was the seventh month in a row the job market contracted. There were heavy job losses in construction, manufacturing and financial services, and cutbacks in the retail sector. The economy has now lost a total of 463,000 jobs this year.

DURABLE GOODS ORDERS UP

• Demand for durable goods rose 0.8% in June, after rising an upwardly revised 0.1% in May. After stripping out the volatile transportation category, orders were up 2%. Orders for non-defense capital goods excluding aircraft, widely seen as a good proxy for business spending, rose 1.4% in June after declining 0.8% in May. Analysts say the report indicates the manufacturing sector may be able to limp through the economic downturn.

CHICAGO PMI UP AGAIN

• The Chicago PMI, the bellwether manufacturing index, rose to 50.8 in July from 49.6 in June. It was the first time the Index has been over 50 since January. New Orders rose to 53.5 from 52. Prices Paid, considered a measure of inflationary pressure, jumped to 90.7 from 85.5. The Chicago report is considered an indicator of nationwide activity ahead. A reading above 50 indicates that the sector is growing.

WHOLESALE PRICES CLIMB

• The Producer Price Index, which measures cost pressures before they reach the consumer, went up 1.8% in June after rising 1.4% in May. Core wholesale inflation, which excludes food and energy, was up just 0.2%. Over the past twelve months wholesale prices have gone up 9.2%, the largest year-over-year surge since June 1981, another period when soaring energy costs were causing economic problems.

GDP RISES

• The first reading on second quarter GDP showed that the economy grew at 1.9%, a big improvement over the weak 0.9% growth logged during the first quarter, but less than the 2.4% economists were expecting. Revisions show that GDP actually contracted by 0.2% during the final quarter of 2007, instead of growing at the 0.6% pace reported. Builders cut back on residential projects by 15.6% during the quarter, an improvement over the 25.1% cut in the first quarter.

ECONOMY FACING DIFFICULTIES

• Fed Chairman Ben Bernanke told Congress the fragile economy is facing “numerous difficulties” despite the Fed’s aggressive interest rate reductions and other steps meant to shore up the faltering economy. One of the most problematic is inflation, as rising prices for energy and food are helping to spread inflation throughout the economy. The Fed now believes growth for the year will be 1.6%, sluggish but better than first projected. However inflation could be as high as 4.2%.

RECORD DEFICIT PROJECTED

• According to the latest estimates, the next president will have to deal with a record budget deficit of $482 billion, driven by the sagging economy and the stimulus payments made to 130 million households. However, the White House did not include its full estimate of war costs, and the Associated Press says that the deficit will actually be at least $80 billion more than reported. The deficit would be about 3% of the size of the economy, which is the measure economists see as relevant. By that measure the deficit would be smaller than those run in the 1980s and early 1990s.

MINIMUM WAGE RAISED

• The federal minimum wage increased from $5.15 to $5.85 per hour effective July 24th. It was the second of three planned increases in the minimum wage. The final increase to $7.25 occurs next July. In states that have their own minimum wage laws, employees are entitled to whichever minimum is higher.

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HOUSING & Residential CONSTRUCTION

HOUSING STARTS MIXED

• Housing starts rose 9.1% in June to a seasonally adjusted annual rate of 1.07 million after dropping 3.3% in May. But NAHB says the jump was misleading, as it was due to a one-time bump in multifamily activity related to newly instituted building code changes in New York City. Excluding the Northeast multifamily data, housing starts fell 4% overall. Overall starts fell 8.2% in the West and 10.5% in the Midwest. Starts were up 0.4% in the South and more than doubled in the Northeast.
• Single family starts dropped 5.3% to a seasonally adjusted annual rate of 647,000 units, the slowest pace in 17 years. Single family building permits dropped 3.5% to a rate of 613,000 units.
• Overall building permits were up 73% in June, due to the New York data. Permits were up 0.9% in the West and 3% in the South. Permits dropped 2% in the Midwest.

BUILDER CONFIDENCE CONTINUES TO FALL

• The HMI (Housing Market Index) fell two points to 16 in July, a new record low. The HMI was down 3 points in the West to 13, 6 points in the Midwest to 10 and 1 point in the South to 13. Confidence was up 2 points in the Northeast to 14. Builders reported that traffic was off considerably, with buyers waiting on the sidelines for conditions to improve.

NEW HOME SALES SLIP

• Sales of new homes fell 0.6% in June to a seasonally adjusted annual rate of 530,000 units, after falling 2.5% in May. Sales were down 0.9% in the West and 2% in the South. Sales were up 5.3% in the Northeast and 2.5% in the Midwest. Inventory dropped 5.3% to 426,000 units, a 10 month supply at the current pace.

EXISTING HOME SALES FALL

• Sales of existing homes fell 2.6% in June to a seasonally adjusted annual rate of 4.86 million units after rising 2% in May. Single family home sales dropped 3.2% to a seasonally adjusted annual rate of 4.27 million, 14.8% below the June pace a year ago. The median price dropped to $213,800, down 6.7% from a year ago. Sales were up 1% in the West, but down 6.6% in the Northeast, 3.4% in the Midwest and 3.1% in the South. Inventories rose 0.2% to 4.49 million units, an 11.1 month supply at the June sales pace.

MORTGAGE RATES UP SLIGHTLY

• At the end of July Freddie Mac reported the average interest rate on a 30-year FRM rose to 6.52% from 6.45% the end of June. Analysts say if rates go over 7% sales will be depressed even further.

HOME PRICES DROP

• Home prices tumbled by a record 15.8% in June, according to the S&Ps Case-Shiller 20-city index. For the second month in a row, no city in the index saw price gains. Nine metros posted record declines, including Las Vegas, Miami, Phoenix, Los Angeles, San Diego, and San Francisco. Las Vegas recorded the worst drop, with prices plunging 28.4%.

FORECLOSURE FILINGS SOAR

• The number of households facing foreclosure more than doubled in the second quarter, with 739,714 homes receiving at least one foreclosure-related notice. That’s one in every 171 U.S. households. Nevada, California, Arizona and Florida continued to have the highest foreclosure rates, with one in every 43 Nevada households receiving a filing. Stockton, California led the metro area foreclosures, with one in every 25 homes receiving a filing, seven times the national average. Economists estimate 2.5 million homes nationwide will enter foreclosure this year, up from 1.5 million in 2007.

LANDMARK HOUSING BILL PASSED

• Months of advocacy efforts by NAHB, big builders, and many other industry groups finally paid off when when President Bush signed a housing stimulus package. The package is designed to help home buyers, stop the slide in home prices, provide a lifeline to borrowers facing foreclosure, improve mortgage liquidity and bolster confidence in Fannie Mae and Freddie Mac. The program provides a $7,500 tax credit for first time buyers, creates a new regulator for Fannie and Freddie, establishes a $300 billion program to expand the FHA’s ability to guarantee mortgages, has provisions to help people prevent foreclosure and provides funding to buy and rehab foreclosed homes. First time buyers accounted for 39% of home sales last year.

FED TO BACKSTOP FANNIE & FREDDIE

• The Federal Reserve and the Treasury Department announced steps to brace battered mortgage giants Fannie Mae and Freddie Mac. The companies’ shares have plummeted as losses from mortgage holdings threaten their financial survival. The plan was released over a weekend in a clear attempt to reassure markets that the government is prepared to do whatever it takes to prevent a crisis. The Fed authorized the Federal Reserve Bank of New York to loan the two companies the funds they need “if necessary” at 2.25%. The Treasury Department is seeking expedited authority from Congress to expand its current line of credit to the companies and make an equity investment in them if needed, saying that Fannie and Freddie play a central role in our housing finance system. They’re also seeking an oversight role for the Fed on capitalization requirements. Fannie and Freddie hold or back $5.3 trillion of mortgage debt, about half the outstanding mortgages in the U.S.

FED PLANS TO CURB SHADY MORTGAGES

• The Fed adopted new rules aimed at preventing risky subprime loans. The new regulations will bar lenders from making loans without proof of the borrowers’ income, and will require them to make sure risky borrowers have money set aside for taxes and insurance. They also won’t be able to penalize them for paying off loans early. The rules take effect October 1.

HOUSING FORECAST FROM FED

• San Francisco Fed President Janet Yellen said that the glut of homes on the market will continue to weigh on prices and curb construction activity well into 2009. She was speaking to the University of California San Diego Economics Roundtable.

SMALLER HOMES MAKING A COMEBACK

• A number of trends suggest that Americans are willing to trade down to a smaller home in order to be able to afford more amenities. Several demographic trends are contributing, including a booming generation of empty-nesters, and a shrinking number of married couples with children, who now represent just 24% of households, down from 40% in 1970.

PAWN SHOPS REFLECT ECONOMY

• Pawn USA, a national chain of pawn shops, says that the unprecedented quantities of drills, nail guns, compressors and other professional tools being pawned speak to the woeful state of the economy and the housing and construction markets “better than all those economists with their Ph.Ds.” They say there is so much coming in, they can afford to be choosy and only take top quality tools in excellent condition.

FDIC TAKES OVER BANKS

• The FDIC took over 28 branches of the 1st National Bank of Nevada and First Heritage Bank, operating in Nevada, Arizona and California. The closed banks had total assets of $3.6 billion. Earlier in the month customers of IndyMac Bank in Southern California waited in line for hours to withdraw funds. All FDIC-insured bank deposits are guaranteed by the FDIC up to $100,000, and regulators say there is no need for customers to panic.

ROOFING DEMAND TO GROW

• The demand for roofing materials contracted sharply in 2006 and 2007 due to the downturn in new residential construction. According to a new study from Freedonia Group the recovery of the residential market and an increase in commercial construction will help fuel 2% growth per year through 2012. Residential reroofing will also contribute to increased demand. Roofing tile and plastic roofing are anticipate to grow the fastest. Plastic roofing is used primarily in nonresidential construction. They say demand will be highest in the West, where construction contracted most severely.

INCENTIVES GETTING CREATIVE

• Builders say that prices have come down so much, the days of huge incentives are at least temporarily over, and are offering more creative inducements instead. Some builders are trying to entice people into touring their subdivisions by offering gas cards to clients who pre-qualify for a loan and then visit one of their subdivisions. Others are offering to pay moving expenses, and one builder is offering to pay $150 a month towards the homeowners utility bills for 10 years. Wellsford Realty in San Diego will rebate one-third of its commission to same-sex clients getting married, so they can “celebrate their wedding day or plan the perfect honeymoon.”

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COMMERCIAL CONSTRUCTION

• Nonresidential building dropped 12% in June to an annualized rate of $233.2 billion after a 32% jump in May. Much of the strength in May came from the start of a massive $3.8 billion oil refinery expansion in Indiana. June also included the start of a $1.9 billion refinery addition in Michigan. Without these two projects nonresidential building would be down 4%. Store construction slipped 4% and warehouse construction dropped 2%. Hotel construction jumped 35%, boosted by a couple of big projects in the East. Office construction was up 4%. The construction of healthcare facilities dropped 31%. Educational building climbed 8%. Other institutional categories were up as well, with public buildings up 6%, dormitories up 10%, churches up 20% and transportation terminals up 33%. For the first half of the year nonresidential building was up 6%.
• Nonbuilding construction was up 19% in June, to $139.9 billion, reflecting an increase in work on power plants, pipelines and sewers. For the first six months of the year, nonbuilding construction dropped 3%.
• Total construction for the first half dropped 16%, reflecting big double-digit declines in three regions, with the West down 26%, the South Atlantic down 28% and the Midwest down 11%. Only the Northeast saw an increase.

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BUILDING GREEN

From the Green Building Conference:

• Green has gone mainstream. McGraw Hill Construction estimates that we’ve hit the “tipping point” for builders to go green. Green home building will generate between $12 billion and $20 billion in sales this year, gaining a 6 – 10% share of the housing market, up from a 2% share in 2005. Green building is expected to double over the next five years, reaching a 12% to 20% share of the market and $40 to $70 billion in sales by 2012 applications.
• The Pacific, South Atlantic and Mountain regions are experiencing the strongest growth. States with the highest percentage of green home purchases from 2004 to 2006 were Nevada, Washington, Colorado, Texas and Florida.
• The most important green material options were hiperformance, engineered wood products (78%) allergen- free, chemical-free building materials (66%) recycled building materials (63%) alternatives to wood products (61%) and certified sustainable harvested lumber (53%).
• The most highly rated green materials: OSB (78%), alternatives to dimensional lumber (72%), construction waste reduction (55%), easily available products and materials (54%) and recycled/recyclable products (52%).
• There will be more emphasis on water efficiency, as water prices are rising everywhere.
• There is growing interest in “passive survivability” – how long homes can perform in a disaster without power and other services.
• There is increasing pressure on code officials to place more emphasis on sustainability as a global health issue and on energy efficiency as a feature for the public good.
• The insurance industry is studying whether to offer discounts on certified green homes, and real estate and appraisal professionals are trying to figure out how to determine their additional value.
• More innovative products are expected as green technologies move beyond their first generation, including low-flow showerheads that feel as powerful as they used to be and water-efficient toilets that do a better job of flushing.

Other Green News:

• According to the latest Eco Pulse green marketing consumer survey, consumers are not fully embracing green building because most are not aware of what is required and the costs involved. The survey is conducted annually by the Shelton Group. They report that most consumers don’t realize you can pick and choose green features, and that marketers need to make green purchasing decisions easier to understand. Shelton said solar power is a big stumbling block, because it is very expensive and most consumers believe it is required. 78% believe that green products sometimes to always cost more, but are willing to pay a premium for products that will increase their home’s efficiency and lower monthly bills. 49% are interested in being green in order to save energy. Of 800 consumers polled in October 2007 by NAHB, 64% said reducing energy costs would be the most important factor in their decision to purchase a new green home of do green remodeling.
• 84% of builders surveyed by McGraw Hill said energy costs and utility rebates are an important trigger in the demand for green homes and 76% found there was no difference in the approval time of a green home vs. a traditionally built one. 40% of those surveyed reported that the down market is making it easier to market green homes; another 16% said it’s much easier.
• 49% of adults surveyed said features such as solar panels or energy saving appliances were more important than luxury amenities, according to a recent Harris Interactive poll.
• According to the NAHB quarterly Remodeling Market Index, 33% of remodelers surveyed say they are getting more calls to improve the energy efficiency of their client’s homes. 73% installed more energy-efficient windows, 65% upgraded insulation, 56% installed highefficiency HVAC systems, 4% installed high-efficiency kitchen appliances and 46% installed water-saving faucets and fixtures. 35% reported installing tankless water heaters.
• The NAHB Research Center accredited its 100th verifier for National Green Building Certification. Verifiers inspect homes to determine whether they meet the national certification criteria. Builders who want to have a home certified can find an accredited verifier at www.nahb.com.
• Just five months after its introduction, nearly 800 builders, remodelers and other industry professionals have earned the Certified Green Professional designation from NAHB. Earning the designation requires completing a 16-hour Green Building for Building Professionals class, eight hours of business management instruction and a minimum of two years of industry experience. For information email Calli Schmidt at cschmidt@nahb.com or call her at 800-368-5242 x8132.
• NAHB has advised the Federal Trade Commission that it should emphasize consistency, credible standards and consumer education to ensure manufacturers are making accurate claims about “green” products.
• Integrity Block from Los Altos, California, is introducing a “green” concrete block that will be eligible for LEED credits. It expects to start shipping during the fourth quarter. The block is made from engineered soil composite, and the company says it will remove more CO2 from the atmosphere than traditional concrete block. It’s designed for structural, architectural and landscape The NAHB honored 17 building professionals for innovations in green home building, including Del Sur Black Mountain Ranch LLC in San Diego, honored as a Development of the Year.
• The NAHB told the National Association of Realtors Land Use Property Rights and Environmental Forum that the greatest potential increase in home energy efficiency can be achieved through green remodeling. They noted there were more than 125 million existing single family homes in the U.S. that could potentially be given an energy efficiency makeover. 92% of home buyers say energy efficiency is very or somewhat important when considering buying a new home, and 90% would be willing to pay $5,000 more for a house that would use less energy and protect the earth.
• The U.S. Green Building Council is in the process of updating its LEED certification system for commercial buildings. The big ideas proposed include transparent weighting of LEED credits so the highest priority credits achieve the most points, a new mechanism for incorporating bioregional credits and a more nimble framework that supports rapid response to emerging environmental and human health issues.
• The EPA will soon unveil its draft WaterSense specification for new homes, incorporating criteria for product categories earning the WaterSense label (toilets and faucets) and requiring many other practices and technologies aimed at bringing water efficiency into the entire home. Residential water use accounts for more than half of publicly supplied water in the United States. A WaterSense labeled new home will be designed to use about 20% less water than average and feature Energy Star qualified dishwashers and washing machines, and a system that delivers hot water faster.
• The DOE unveiled a new report outlining the technical feasibility of wind power in providing 20% of our nation’s electricity needs by 2030. For more information on the Wind and Hydropower Technologies Program, visit the DOE Web site at www.doe.gov.
• Purchasing.com reports that companies are finding ways to make environmentally friendly purchasing pay off, saying that buying green can conserve both the environment and your budget. They reported that IBM, Herman Miller and GlaxoSmithKline have all found that green can pay off. IBM has found that sustainable sourcing and supply chain efficiency can go hand in hand. Herman Miller uses Green concepts to optimize the lifecycle of their products. GlaxoSmithKline purchasing works with the company’s research and development staff to find ways to save energy and water and cut down on emissions. Purchasing.com says that CEOS and CIOS are looking for their suppliers to provide environmentally conscious products that also make economic sense.
• At a forum held by the Lumber and Building Materials Institute, pro dealers supported the concept of an easy to track “eco—label” that could be stamped on soft lumber harvested from sustainable forests. Dealers criticized the existing chain of custody system but representatives of the Forest Stewardship Council and the Sustainable Forest Initiative supported it. ProBuild CEO Paul Hylbert said his company is very supportive of both sustainability and green building as well as all the major certification systems, but said a more efficient way to track sustainability is needed.
• Can you call a shipping container home? Some members of the American Institute of Architects Custom Residential Design Committee say that the 8 x 40 foot steel shipping containers often left vacant at seaports can become distinctive housing on land. Homes use anywhere from four to eight containers. There are about 75 homes nationwide made out of shipping containers thus far.

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CALIFORNIA NEWS

CA HOUSING & RESIDENTIAL CONSTRUCTION

• Single family permits dropped 54.9% in June to 3,954; so far permits for the year are off about 55%. The California Building Industry Association says that the underlying demographics for housing remain strong in California and are expected to get even stronger, but the immediate outlook remains grim.
• Nearly 200,000 home building related jobs have been lost during the past two years, and the downturn in the residential real estate sector has had a big impact on related businesses, like furniture, interior decorators, landscapers and others.
• CBIA Chief Economist Alan Nevin says that sharp home price declines for California tend to be overstated because they are only based on homes sold, and 40% of those have been involved in foreclosures. In Riverside and Sacramento, more than 70% of home sales have been in foreclosures.
• John Laing Homes is consolidating its three northern California divisions into one division near Sacramento. The new office will oversee 22 communities.
• Redding is cutting building fees in half, boosting energy- efficient incentives by 50%, postponing annual impact fee increases and allowing builders to pay these fees after the final home inspection has been completed.
• Beverly Hills homebuilder Kennedy Wilson Residential Development and Investments Group purchased 163 finished residential lots in Victorville from Pulte Homes in anticipation of the High Desert residential market rebounding during the next few years.
• In the Santa Clarita/Antelope Valley region six out of seven projects during the second quarter were built by publicly held companies, with Pulte Homes leading the pack, followed by Hovnanian, D.R. Horton and KB Home. Net sales dropped 2% to 419 homes. The drop came from a plunge in attached sales; the detached sector, which makes up nearly 97% of the market, showed a 3% gain over last quarter.
• Analysts say that the falloff in housing prices and lack of land to build on is signaling an end to the era of big public builders in San Diego, and creating new opportunities for local builders.
• A controversial plan that would allow 3,000 houses to be built in the western edge of Valley Center in San Diego was taken off the general plan update map by country supervisors. More than 100 Valley Center residents attended the meeting to protest the huge development. Amidst allegations of impropriety between the developer and a council member, the development was removed from the map, but may be added back in after further study.
• A year ago Victorville was America’s second fastest growing city; now foreclosures in the county have more than doubled, and new home prices have plunged 43%.
• Pulte is moving forward with the third phase of its Sun City Shadow Hills project in Palm Springs. The project will add 947 homes, a new clubhouse and an 18- hole golf course to the retirement community in North Indio. On completion Shadow Hills will have 3,424 homes. Despite the general downturn in housing, sales in the development are strong.
• Home sales in Fresno and Clovis were up for the fifth month in a row; real estate agents say falling prices and ample supplies are enticing buyers to move off the sidelines. In June 498 existing homes were sold, up from 472 in May, and 276 in February. They’re seeing lots of activity at entry level prices. One of every 62 households is in default in Fresno; they have the 15th highest foreclosure rate in the nation. The median price has tumbled 31.5% over two years to $215,000. Building permits went up in June as builders sought to get permits before more restrictive requirements went into effect in July.
• Developers in Thousand Oaks in Ventura County will either have to include affordable units in residential projects of six or more units or pay a fee under a new Affordable Housing Ordinance. 10% of units must be affordable to moderate income households; the ordinance allows those units to be 20% smaller, and have less-expensive interior finishes. Developers building retail, office and industrial project of more than 7,500 square feet will be subjected to fees that will go into an affordable housing trust fund.

CA COMMERCIAL CONSTRUCTION

• The city of Redding recorded $13.2 million in building valuation in June, the highest month since September. Trader Joe’s is building in the Kohl’s shopping center. A gas station-convenience store at College View Drive was also permitted in June.
• Pacific Union College in Napa Valley originally unveiled plans for a 591-home eco-village, including a new park and community stores. The project, to be built by private developer Triad Communities, has since been scaled back to 380 homes. Some residents of Angwin are opposed to any development, and want to preserve the rural nature of the community. PUC officials say the project is essential for the college to remain viable.
• Butterfly Village in Rancho San Juan north of Salinas is finally moving forward after a legal settlement between the developer and the county resulted in a raft of changes to the proposed project, which has gone from a 2,500 acre 4,000 home golf course development down to a 671 acre, 1,147 home proposal that also includes some commercial development. Two previous versions of the project have been rejected by voters.
• 78 ski-in/ski-out fractional ownership residences are being built as part of a large renovation project at the Northstar Resort. The Ritz-Carlton Club, Lake Tahoe, is scheduled to open in late 2009.
• The Manteca Planning commission approved the 300-unit Tesoro Apartment project. It still has to be approved by the City Council before construction can begin on the AKF Development project.
• A $900 million plan to transform the Westfield University Towne Center mall into a walkable village was approved by the La Jolla City Council. The original proposal was submitted seven years ago. The village will have shopping, housing, movie theaters, restaurants and other attractions.

CA BUILDING GREEN

• California received national recognition for becoming the first state to mandate uniform standards for green building when they adopted the California Green Building Codes in July. The new green codes will be phased in over the next three years, and will become mandatory in 2010. They target water and energy use, air quality and moisture control and contain many provisions aimed at resource conservation. A number of organizations helped in the drafting, including the California Building Industry Association and the Lumber Association of California and Nevada.

Highlights of the New Green Building Code:

• New California homes will be approximately 50% more energy efficient than homes built to national energy standards.
• A 20% reduction in overall water use within all new homes starting in July 2011.
• 16 features addressing air quality, moisture control and resource conservation will become mandatory at the same time the new 2010 edition of the California building Code takes affect, currently scheduled for January 2011.
• Builders will be required to give occupants a detailed building operation and maintenance manual at time of occupancy.

Other Green News:

• A million square foot warehouse-distribution facility at Victorville’s Southern California Logistics Centre is complete. Now all the green building needs is a tenant. The project is a milestone in transforming the former George Air Force Base into Global Access Victorville, an 8,500 acre transportation and logistics hub expected to create 24,000 jobs.
• Oakland City Council President Ignacio De La Fuente has promised to introduce green building legislation later this year to force developers to include a base level of environmentally friendly features in new residential projects. He says projects should meet a standard set by the Berkeley-based nonprofit Build It Green’s Green- Point Rated system. De La Fuente’s proposal goes to the City Council in September, when they return from summer recess. The plan would cover residential development of 20 or more units, but he said he eventually hopes it will cover all new residential construction.
• Parker Development of El Dorado Hills, California, was one of two builders honored by NAHB with the 2008 Building with Trees Award of Excellence for exemplary conservation practices on their projects, especially protecting and saving existing trees. Parker won for their development The Parkway. This 612-acre master community in Folsom, California has 240 acres of open space that preserves majestic woodlands and wetlands, and the developer also restored damaged wetlands to form a central park.

CALIFORNIA LAW

• A new law authorizing local cities and counties to extend subdivision maps by one year was signed by Governor Schwarzenegger and goes into effect immediately. A second housing bill encouraging local governments to defer the collection of impact fees until a new home sells is on its way to the governor’s desk.
• The U.S. Supreme Court has overturned a California law restricting employer free speech about unions. The law prohibited the use of state funds to either promote or deter unionization. According to the Court, states may no longer restrict an employer’s right to communicate with their employees about unionization.
• The U.S. Supreme Court confirmed the 9th Circuit precedent that in Age Discrimination in Employment Act cases, the employer must prove their reasons for termination were lawful despite any disparate effect on employees over the age of 40.
• The 9th U.S. Circuit Court of Appeals found that employees have a right to privacy over information held on third party servers, as opposed to company owned and controlled servers. The employer had received information from a third party vendor that employees had transmitted through company-owned equipment. The Court said the vendor should not have released that information.
• The California Supreme Court clarified the Workers’ Comp medical review process, saying that the language shows the Legislature intended for employers to use the utilization review process to review and resolve all employee requests for treatment of a workers’ comp injury. If employees are dissatisfied with an employer’s decision they can use Section 4062 to resolve the dispute, but employers cannot use this section to object to employee’s treatment request.

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ARIZONA NEWS

AZ HOUSING & RESIDENTIAL CONSTRUCTION

• Under the terms of an initiative headed toward the statewide ballot, buyers would be entitled to a 10- year warranty when they buy a new home. The initiative was financed almost exclusively by the Sheet Metal Workers International Association. The proposal would also allow homeowners to help choose the contractors hired by the builders to make repairs, give buyers the right to cancel within 100 days and get back most of their deposit and let homeowners sue without fear of having to pay the builder’s legal fees if they lose.
• Arizona Governor Janet Napolitano announced a tollfree helpline for families facing foreclosure. Arizona had the third highest rate of foreclosure in the country for the first quarter.
• Maricopa, about 35 miles south of Phoenix, is asking builders not to develop isolated subdivisions, but rather whole communities that encourage walking by including stores, schools and services nearby. They are trying to attract more employers and services, as people are now less willing to make long commutes to work.
• Lennar has scaled back its $1 billion Asante project in Surprise. The 3,600 acre community was to have included 14,000 homes, schools, a big retail center and a park. It’s been called the city’s economic epicenter of the future. Lennar opened the project in July by launching a 60 acre housing development called the Vistas. They’d been planning on opening with three or four different developments. Developer Barclay Group is reportedly reevaluating its commercial plans for the area as well.
• Pulte CEO Richard Dugas says they’ve increased their market share in the Phoenix area from 8% to between 12 - 14% during the downturn. He says it’s not because they’re selling more homes, but rather because a lot of competitors have fallen by the wayside. When Pulte acquired Del Webb in 2001, the brand was in only a dozen communities; now it’s in more than 40 and outperforming the new home market. Del Webb customers tend to be affluent, with 50% paying cash for their home.
• Homeowners in Prescott Canyon Estates are suing Lowe’s, saying that construction of a Lowe’s store just feet from homes in what used to be rugged, wild terrain has caused property values to plummet.
• Luxury builder Toll Brothers opened the first model homes at the Wigwam Resort and Golf Club in Litchfield Park. They plan to put up 343 homes selling from the mid-$400,000s to the upper $500,000s over the next three years. The company says they typically target empty nesters moving up, but they are now getting buyers in their 30s and 40s.
• The adobe home of U.S. Supreme Court Justice Sandra Day O’Connor and John O’Connor will be moved from Paradise Valley and relocated to Papago Park in Tempe, where it will become a center for civic discourse on issues affecting Arizona. The house was scheduled for demolition when Barbara Barrett and Gay Wray launched the O’Connor House project to save it and put it to good use. Janie Ellis, the daughter of the brick maker who supplied the original adobe bricks, is in charge of moving the house. Justice O’Connor helped to smooth the mud and then sprayed it with skim milk to seal the exterior walls. The house will be reassembled block-byblock on its new site near the Arizona Historical Society Museum.

AZ COMMERCIAL CONSTRUCTION

• McGraw-Hill Construction reports that starts in April were down 44% over last year in the entire Phoenix metropolitan area and down year to date by 46% to $1.4 billion.
• Downtown Phoenix is growing at a phenomenal rate, with much of the growth occurring in the city’s downtown urban core. A whole new crop of buildings are being started at Arizona State University.
• JE Dunn Construction of Phoenix will construct phases two and three of Westgate City Center, with phase two breaking ground this summer. The next two phase are estimated at $240 million, and will include residential, retail and office buildings as well as multiple parking garages.
• JE Dunn is also working on a major border crossing project that includes a new commercial land port of entry between the U.S. and Mexico. The $30 million project should be completed in early 2009. DeBartolo Development broke ground on its first project in Arizona, the first phase on the 114-acre Mountain Vista Marketplace in Mesa. The mixed use project will include retail, hotels, restaurants and 384 upscale apartment residences.
• Mortenson construction broke ground on Arizona State University’s Weatherup Center, a 50,000 square foot practice facility for men’s and women’s basketball. The $12.7 million facility is scheduled to be completed in Spring 2009.
• Irgens Development Partners LLC bought 1.75 acres of land on the north bank of Tempe Town Lake in Tempe. They plan to develop a Class A office building using post-tensioned concrete construction and synthetic plaster exterior.
• Phoenix Children’s Hospital unveiled plans for a $588 million multi-year expansion at the Thomas Road campus. The project should be completed in 2012.
• Newland Communities bought 3,000 more acres for its master-planned development Estrella in Goodyear. Acquisition price for the land was $51.3 million, or about $17,000 an acre. The company says it’s a longterm land acquisition with development planned for the next twenty-five years.
• Sundt Construction won a $15 million contract to build a six-level, 945-space parking garage for Sky Song, the Innovation Center for ASU at Scottsdale.

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NEVADA NEWS

NV HOUSING & RESIDENTIAL CONSTRUCTION

• Southern Nevada had 3,192 foreclosures in the first quarter, about 35 a day, an 89.4% increase from last year. A 28.5% price reduction helped local home sales improve, but a year of inventory still remains.
• Southern Nevada’s top five builders are all big production builders, including Pulte/Del Webb, KB Home, Richmond American, Lennar and D.R. Horton.
• Thirteen year old privately held Astoria Homes says they have an advantage over big public builders, and expect sales to remain consistent with 2007. They have eight active neighborhoods, with five new neighborhoods coming on board this year. They produce homes from $160,000 to $2 million. They have a 700-acre land inventory of which only half is developed.
• KB Home is moving ahead with construction and sales of affordable townhomes at Inspirada, a masterplanned community in west Henderson.
• The percentage of homes in Las Vegas selling for under $250,000 went from 28.2% in 2005 to 42% in 2008; homes under $300,000 went from 44.8% to 64.5% in the same period. Las Vegas’ housing opportunity index, which measures what percentage of median income households can afford a median priced home, has gone from 64.4% in 2000 to 25% in 2007, according to real estate consultant Tim Sullivan of the Sullivan Group. He says there are at least 21 active subdivisions in Las Vegas with at least one floor plan under $150,000.

NV COMMERCIAL CONSTRUCTION

• The $2 billion City Crossing project in Henderson has filed for Chapter 11 bankruptcy protection. The 6 million square foot mixed use development being built by Las Vegas based Plise Development & Construction broke ground last year. $30 million in site improvements are underway. Phase One plans call for 175,000 square feet of retail space, an eight story office building, 184 apartments and a 160-room boutique hotel. City Crossing filed to reorganize $180 million in debt in June, but has not been able to thus far.
• Sierra Bay Contractors is constructing a new threelevel parking facility for the Peppermill Hotel and Casino in Las Vegas that’s scheduled to be completed in December.
• The number of stalled, cancelled and scaled-back commercial projects is increasing, as developers struggle with financing and other obstacles. A 20,000 seat $500 million sports arena planned by Harrah’s Entertainment behind Bally’s and the $1 billion REI Neon project proposed in downtown Las Vegas are both still in the planning phases, even though construction was supposed to start in July.
• Frank Pankratz was a senior exec with Pulte/Del Webb for over 16 years. After a brief break he launched Executive Home Builders, the firm behind One Queensridge Place, a $400 million, 219-unit residential development that is Las Vegas’ only high-rise community outside of the Strip. He is now overseeing work across the street on Tivoli Village, an $850 million, 700,000 square foot retail entertainment complex now under construction.
• Burke & Associates started construction on the new $3.3 million Alexander library and park complex in North Las Vegas. The project is scheduled for completion in early 2009.
• JVC Architects is designing modern multipurpose buildings for C.C. Ronnow and Bertha Ronzone elementary schools in the Clark County School District.
• CORE Construction-Nevada won the contract for the $36.1 million Indian Springs Correctional Center Work Camp, which includes six single-story masonry and steel buildings requiring special security throughout.
• United Construction won a $14.1 million contract to build Southwest Gas Corporation’s new Southern Nevada Campus in North Las Vegas. The project includes office buildings, warehouses, industrial space and a storage yard.
• Nigro Construction was awarded a $1.3 million design- build contract for Bank of George’s second community bank branch in the Seven Hills area.

NV BUILDING GREEN

• The first WaterSmart Innovations Conference and Exposition is set for October 8—10 in Las Vegas. It will include educational seminars and an expo hall with products and services for builders, landscapers, elected officials, plumbers and water agency representatives. NAHB is partnering with the Southern Nevada Water authority, the U.S. Environmental Protection Agency WaterSense program and other organizations to produce the conference. Presenters will be there from 24 states and five nations, and more than 1,000 professionals are expected to attend the conference.

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COMMODITIES

WHOLESALE PRICES RISE

• The Producer Price Index, which measures cost pressures before they reach the consumer, went up 1.6% in June (1.8% seasonally adjusted) The PPI for inputs to construction industries rose 1.8% for the month and is up 10% over the past twelve months. The increase for construction inputs once again outstripped the consumer price index.
• The PPI for inputs to construction industries rose a cumulative 30.2% between December 2003 and January 2008, compared to a 14.5% rise for the Consumer Price Index. According to a feature story in California Construction, the major factors driving construction materials prices are the price of oil, the value of the dollar and demand from India , China and other growing economies worldwide. Natural disasters, political unrest, strikes and a host of other factors also affect prices.

STEEL

• The PPI for steel mill products was up 8.1% for June, and is up 30% over the past twelve months.
• Rebar manufacturers raised prices another $60/ton August 1, according to Data Digest. The Construction Reinforcing Steel Institute estimates U.S. rebar demand of 9.4 million tons will exceed domestic production of 8 million tons, implying further price increases ahead.
• Nucor opened a new steel plant in Memphis, and has two more plants under construction in Mississippi and Alabama. The average scrap and scrap substitute cost per ton in the second quarter was $456, an increase of 37% over the first quarter and 57% over a year ago.
• Galvanized sheet steel prices are zooming, up nearly 50% in the second quarter despite falling demand. Further increases have been announced for the third quarter. Most coated steel, including zinc and painted sheet, is geared mostly to two markets that are soft, motor vehicles and housing. Galvanized sheet steel is 90% of all coated steel and is used in metal buildings, swimming pools, storage tanks, culverts, roofing, cladding, siding, and electrical boxes. Analysts expect zinc-coated coldrolled sheet prices to peak and level off in the third quarter, but say that it will be several months before prices start to slide. Galvanized sheet prices are now the highest they’ve ever been.
• Hot rolled prices went up just 1% in June to $1,068/ ton. That’s 96% higher than prices were in December 2007. Despite predictions that prices would reach $1,200/ton by July, some analysts now think prices have peaked and will slip back to $1,050.
• Arcelor Mittal and U.S. Steel have begun applying $250/ton levies on long term contracts for flat-rolled products to adjust for increased raw material costs.
• Crude steel production for the 66 countries reporting to the International Iron and Steel Institute is growing by more than 5% this year. Production in China, India, Japan and Korea is up substantially. North American steel production through May was up 5.9%, with Mexico growing 12% and the U.S. growing 5.4%.
• The CEOs of Nucor and Arcelor Mittal don’t support the plan by the New York Mercantile Exchange to launch steel futures trading, saying that it could encourage unethical and illegal activity, and likening it to the sub-prime mortgage crisis.
• Goldman Sachs says that global steel markets will remain in a tight supply/demand balance for some time to come. A letter to clients suggested that global demand could outpace supply through 2017. They say 450-500 million metric tons of new steelmaking capacity is needed to meet demand of 2.6 million metric tons by 2017, and that it will be difficult to bring that much capacity online.
• Johnson Controls is suing four suppliers that want to raise prices to compensate for the rising cost of steel, saying that the companies are required by their contracts to absorb higher raw material costs. The defendants are Tecnicas De Fluidos of Puebla, Mexico; Steel Technologies of Louisville, Ky.; Windsor Machine & Stamping of Windsor, Ontario; and Illinois Tool Works of Glenview, Ill. The companies produce stampings and other components. A federal judge issued a temporary restraining order preventing Tecnicas De Fluidos from raising prices or halting shipments.
• Chrysler, Ford and General Motors have all discontinued monthly scrap auctions, making it touch to track this grade of prime steel scrap.

CEMENT

• The PPI for concrete was up 0.7% in June and is up 3.8% over the past twelve months. Asphalt paving mixtures and blocs were up 6.7% in June and 17% over the past twelve months.

LUMBER

• According to Random Lengths, framing composite was at $273 the end of July, up from $262 the end of June, but down from $289 a year ago. Structural panel composite prices finished the month at $303, down from $310 the end of June and $309 a year ago.
• A new California state law taking effect January 1, 2009 that limits the use of a cancer-causing chemical in plywood and particle board has lumber producers concerned they’ll get stuck with millions of dollars worth of inventory that can’t be sold in California. Formaldehyde is commonly used in the glue that binds plywood layers as well as the bits of wood in particle and fiber boar. The California Air Resources Board approved the composite wood rule last year, saying it will cut formaldehyde emissions in the state by 500 tons a year and eliminate an estimated 3,400 cases of cancer statewide. Building materials dealers say they don’t have enough time to comply, as there are not anywhere near enough inspectors to certify wood and they don’t have enough time to sell off noncertified stock.
• Bennett Forest Industries and Riley Creek Lumber, two big lumber producers based in Idaho, have merged operations to help court larger retail customers, including Home Depot and Lowe’s. The two companies produce a total of about 740 million board feet annually.
• Louisiana-Pacific has settled an ongoing series of OSB class action suits. They’re the fifth company to come to a settlement in the antitrust case filed in 2006 that alleges that OSB manufacturers began conspiring together in 2002 to artificially reduce the supply and inflate the prices of OSB. All the companies have denied the accusations, but have agreed to put money into an escrow account for the benefit of a group of direct buyers of OSB. LP is chipping in a total of $46.8 million.
• Weyerhauser is giving away five grand prizes of optimized structural framing packages worth up to $20,000 each. Grand prize winners will also receive a trip for two to the 2009 International Builders’ Show in Las Vegas. Interested builders have until November 30 to enter the contest.

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Legislative & Labor

WASHINGTON UPDATE

• The Department of Labor is contacting home building industry professionals in order to collect wage and benefit information for the National Compensation Survey and Occupational Employment Statistics Survey. The information provided is used to create the employment cost index that is used by the Federal Reserve to set monetary policy. The surveys also provide information on the employer’s cost for employee compensation and the cost of employee benefits, as well as national and local occupational employment and wage estimates and vital input for national and state occupational employment projections. NAHB is urging members to participate, and says the Bureau of Labor Statistics observes absolute confidentiality and will help companies complete the survey as efficiently as possible.
• The EPA has a new brochure with tips on lead-safe practices for remodelers. The free brochure is available at www.epa.gov/lead, and outlines the procedures remodelers must follow under the recently published Lead Guidelines, and also reviews the tools and protective clothing needed, how to set up safe work areas, how to minimize dust, what to do inside and outside the work area and more.
• Fuel surcharges are increasingly common, but NAHB warns that fuel surcharges need to be disclosed, or companies might be forced to refund them to consumers. NAHB has a sample contract clause that authorizes the addition of fuel surcharges to the cost of construction that is to be paid by the consumer. It’s available on the NAHB member Web site at www.nahb.com.

OSHA

• The NAHB expressed “strong disappointment” with a recently published standard on workforce safety they say has been deemed ineffective and unworkable by the residential and commercial construction industry. The development of the A10.40 standard on ergonomics was spearheaded by the American Society of Safety Engineers. NAHB says they subverted the American National Standards Institute processes in order to impose their own vision. An appeal brought about by the Construction Employers Coalition was denied in June. Among the standards NAHB considers impractical is one recommending cutting drywall into three-foot pieces.

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Developers & Builders

CENTEX

• Centex waited until after the closing bell to announce that first quarter revenues fell to $1.13 billion from $1.90 billion. Analysts had been expecting a smaller loss.
• The former head of Centex’ home building operations in Sacramento, Reno and the Bay Area has filed a lawsuit alleging the company failed to pay him $355,000 in promised bonus money. Doug Pautsch, Jr. was first their controller, then became division president in 2006. He said he was terminated shortly after he filed the suit. Centex says his termination was part of a division consolidation program that took the area from three divisions to just one. During much of his tenure Centex dominated new home sales in the Sacramento area.
• Centex announced Centex Energy Advantage, a suite of energy-efficient features that will be standard in all Centex homes built nationwide by January 2009. Centex commissioned NAHB to do a study modeling the energy efficiency of these homes. The NAHB Research Center concluded that the homes would be up to 22% more energy efficient than comparable homes built to the 2006 International Energy Conservation Code and 40% more energy efficient than a typical 10-year old home.
• Two California students were among the 24 winners of Centex Build Your Future scholarships for the 2008-2009 academic year. The winners are Phyllis Ferguson, majoring in construction engineering at San Diego State, and Mary Gilliam, studying architecture at Bakersfield.

DR HORTON

• DRH reported a $1.3 billion quarterly loss for their fiscal second quarter ending March 31. Revenue fell from $2.62 billion to $1.62 billion. Results included over $800 million in impairments and land options they’re walking away from.
• Net sales for the quarter dropped to 7,528 homes from 9,938 in the same quarter a year ago. The cancellation rate was 33%. Average closing price dropped 8% to $237,800. They own or control 181,000 lots, a 5.2 year supply. Net sales of 7,528 homes were valued at $1.7 billion, compared to 9,938 homes valued at $2.6 billion in the same quarter last year. Average sales price dropped 15% from a year ago to $220,800.

From their Q2 Conference Call with Analysts:

• Over 80% of the $817.1 million in impairments was related to projects in California, the West and the Southeast. About 25% of their communities have been impaired.
• They are making adjustments to return to their longterm goal of keeping SG&A at 10% of revenues each fiscal, and continue to focus on being the low-cost operator in the industry.

KB HOME

• Revenues plunged 54% in the second quarter, to $639.7 million. Losses were $255.9 million. They delivered 2,810 homes at an average selling price of $226,600 compared to 4,776 homes with an average selling price of $271,600 during Q2 last year. They took a $176.5 million charge for inventory and joint venture issues and abandoning land options contracts.

From their Q2 Conference Call with Analysts:

• 90% of their total impairments and abandonments were in California, Arizona, Nevada and Florida.
• They’ve reduced inventory levels by 50% from a year ago to $2.6 billion. They ended the quarter with approximately 56,600 lots owned or controlled, down 70% from the first quarter of 2006.
• They currently have an “attractive, geographically diverse” 3 year supply of land. They expect to reload their pipeline as the market stabilizes, and think they should be able to pick up land at good prices.
• They have the highest revenues per employee among the big builders, $2.2 million per employee.
• Falling home prices and rising rents have made getting into the market more attractive to first time buyers.
• Community counts were down 24 - 45% in each of their four regions. Cancellation rates improved to 27% of gross orders from 53% in the first quarter of 2008 and 58% in the fourth quarter of 2007.
• Their backlog at the beginning of the quarter was 4,843 homes, and they converted 58% to revenue. Average selling price decreased 17% to $226,6000. Average square footage dropped 10%.
• They currently have 4,700 homes in production, with 17% or 80 homes unsold.
• Eight KB Home divisions received the 2008 Energy Star Leadership in Housing Award from the EPA, including Las Vegas, Phoenix, Sacramento and Southern California.
• They have rolled out their direct buy and distribution program in Southern California and report it is working very well, and they are getting ready to test it in Texas.

Other News:

• CEO Jeff Mezger said that despite poor demand for new homes during the second quarter, as affordability continues to improve they expect today’s hesitant buyers to become a healthy source of demand for new homes, fueling the eventual housing market recovery. They have lots of cash and plenty of credit available to put to work when recovery begins.
• KBH sold a parcel in northeast Bakersfield for $765,000; they bought the land in 2005 for more than $3.3 million. The 84-lot KBH parcel takes up nearly 20 aces. It was bought by 85 Harvest Moon LLC, a subsidiary of Los Angeles based Global Investment & Development.
• The KBH Sustainability Report is a comprehensive review of the company’s progress toward sustainability, identifying both ongoing initiatives and operations challenges, as well as their future commitments and actions. It’s available at www.kbhome.com/sustainability. All new homes built by KBH have only Energy Star appliances and they also give buyers the option of increasing their homes energy efficiency by adding products from the My Home, My Earth line of KB Home Studio options.

LENNAR

From their Q2 Conference Call with Analysts:

• CEO Stuart Miller continued to emphasize that he does not believe the market has bottomed out yet, and does not currently see any signs of stabilization. He believes the number of homes in foreclosure is actually going to increase, as there are a lot of homes in the judicial pipeline now, which will delay recovery and put more pressure on pricing.
• Inventory of finished homes, number of open communities and the number of builders is dropping, which will eventually give them a competitive advantage.
• They are seeing construction costs coming down by as much as 20%, due to revamping their purchasing efforts and focusing on regional and national efficiencies.
• Their Inventory levels have been reduced by 47% to $3.8 billion. The finished homes and construction in progress inventory was reduced 39% to $2.2 billion, and land under development was reduced 56% to $1.6 billion. Unsold completed homes were reduced 70% to 428. Homes under construction dropped 42% to 6,500. Home sites are down 61% to 134,000.
• They want to continue to aggressively reduce the number of joint ventures, especially those with recourse debt. They’ve already cut the number down from 100 to 57.
• Revenues on home sales dropped 62% to $1 billion, driven by a 58% drop in deliveries and an 8% drop in average sales price less sales incentives, which averaged $48,700 per home, up about $5,000 per home.
• New orders were down 45%, and the number of homes in backlog was down 52%. Their cancellation rate dropped to 22% from 29%.
• They believe they’re at the tail end of the impairment process, and made second quarter impairments of $137 million.

PULTE HOMES

• Revenue for the second quarter dropped 20% to $1.63 billion. They lost $158.4 million for the quarter, compared to $507.6 million for the same quarter last year. Analysts were expecting a bigger loss. Net new orders totaled 5,133 homes valued at $1.41 billion, compared to 7,532 homes worth $2..42 billion during the same quarter in the previous year. They closed 5,438 homes, down 8% from the previous year. The average selling price fell 11% to $286,000. Their backlog stood at 8,254 homes valued at $2.4 billion.
• Pulte CEO Richard Dugas told the Detroit Free Press that “The U.S. economy is at risk. This is not just a housing crisis.” Dugas and CEOs of other large builders pushed hard for a big tax credit on home purchases as part of the broader package Congress enacted to deal with the subprime lending crisis and related epidemic of home foreclosures.
• They’ve cut the number of employees by 60% and written off $3.7 billion in land, dropping their holdings from 360,000 lots to fewer than 150,000.
• They expect to have $2 billion in cash by the end of this year, almost twice as much cash as they had at the end of 2007.

From Pulte’s Q2 Conference Call with Analysts:

• New home orders were down 32%, and they had 165 fewer communities than during the same quarter last year. Revenues from home settlements for home building operations dropped 18% to $1.6 billion. Fair market value adjustments produced a $43 million loss from land sales for the quarter.
• They’re projecting break-even for the third quarter, with 5,100 - 5,400 homes delivered with an average price of $286,000.
• Buyers having trouble selling existing homes continue to take a bite out of sales in most of their markets. They ended the quarter with 3,100 spec homes, down 8% from the first quarter, and 16% from the same quarter last year. They have 979 finished spec homes, less than two per community. Second quarter sign ups totaled 1.4 million, with unit volume down 32% and average price down 15%.
• Many buyers are not even shopping until they’ve sold their current home, which is making it necessary to maintain some level of spec inventory.
• Their Southwest segment, which includes Las Vegas, Arizona and New Mexico, saw sign ups drop 27%, which was slightly better than the first quarter decline. Las Vegas was down 25% year over year; Phoenix was down 29%, with high levels of existing homes continuing to hurt new home sales. They have a strong supply of lots in Arizona.
• Sign ups were down 41% in their California operations. Northern California markets were down 27%. Sign ups in Southern California were 57% below last year. The Coastal market was hardest hit, with sign ups dropping 77% year over year. That was primarily due to a 40% decrease in community count for Southern California along with an excess supply of unsold new and existing homes, rising foreclosures and “fierce” competition among builders.
• They won’t rule out opportunistic acquisitions of either lots or other builders with “attractive geographic footprints.”
• The rate of price decline has slowed because new home prices can’t really drop much lower, now that completed spec inventory is pretty much gone. Many small builders are operating at break-even or below, and now are having trouble getting financing.
• Discounts and incentives ran about 12.6% for the quarter, roughly the same as the previous quarter.
• They’re most bullish on the Del Webb segment of the market, because there are many more active adults out there than there are communities to accommodate them, and the only thing preventing many of them from moving is the fact they can’t or won’t sell their existing home in the current market.

Other News:

• The winners of the Del Webb Home and Away sweepstakes closed on the home they won in Georgetown, Texas. More than 24,000 people entered the sweepstakes. The winners were entitled to receive up to $250,000 toward the purchase of a new Del Webb home anywhere they wanted.
• Pulte Homes donated over $150,000 in reusable building materials and fixtures to Habitat for Humanity when they dismantled five model homes in the master- planned community of Summerlin in Las Vegas.

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