BOISE WHEN WILL IT BE NORMAL AGAIN?

Transcription

1 BOISE WHEN WILL IT BE NORMAL AGAIN? THE ADA AND CANYON COUNTIES HOMEBUILDING AND RELATED INDUSTRIES NORMALCY REPORT 4TH QUARTER 2009 A BUSINESS NAVIGATIONAL REPORT BY 1

2 Copyright 2009 by Douglas E. Swallow All rights reserved. No Part of this report may be used or reproduced in any manner whatsoever without written permission from Douglas E. Swallow. For information and/or questions regarding this Report, please call (702) , or write Organizational Genetics at 411-F Deinhard Lane, McCall Idaho

3 THE NORMACLY REPORT Welcome to Organizational Genetics newest business management and navigational tool for owners and CEO s dashboard. The current recession has rendered virtually all economic forecasting models and instruments obsolete. Thereby, inhibiting owners and CEO s ability to make reliable projections and business plan adjustments. The Normalcy Report is an instrument that empowers CEO s to be better, do better, and build better companies. Stop speculating and empower yourself and your partners, lenders, and management team with an understanding of what s really going on and how far or close we are to normal. No other tool in the market today can provide you this level of clarity. Each report is custom made and we would like to make one for you. The Normalcy Report templates, sources, and orientation start at $2,500 plus expenses per market area. The decision to acquire normalcy forecasting technology or stay with the traditional ones, is simply a question of risk, and the level of risk you and your partners want to operate at. This free sample is for companies in the homebuilding industry and its related constituencies in Boise, Idaho. What makes this economic instrument different, is it takes the top key performance measures (KPM) nationally and locally that effect a specific industry and combines them with the KPM s of that industry, and indexes all three sets of measures relative to the new normal for each, utilizing a full spectrum performance index. The bottom line is, it provides actionable intelligence. By knowing what the new normal will most likely be, owners and CEO s can make better projections, reduce risk, and communicate more effectively to their partners, investors, lenders, and employees about what s going on in the environment and when that means. 3

4 THE NORMACLY REPORT At the center of the normalcy report is the normalcy index. A ten point index that classifies each key performance measure between the worst data point of all time and the best. 1.0 is the worst data point of all time, 5.0 is normal, and 10.0 is the best. The classification of a key performance measure, either side of normal, is determined by a percentage. A measure is considered normal when it is less than 10% above or below normal. It is below and above normal when it is 10% to 19% above or below normal. A poor classification is for any measure greater than 20% below normal, but less than a top five worst data point of all time. A very good classification is for all measures between 20% and 29% above normal. An excellent classification is for all measures greater than 30% above normal. The balance of classifications are as they are titled. The Normalcy Index is as follows and its data sets have been color coded in for ease and rapid interpretation. THE OG NORMALCY INDEX 1. Worst data point of all time 2. Top five worst data points of all time 3. Poor 4. Below normal 5. Normal 6. Above normal 7. Very Good 8. Excellent 9. One of the best data points of all time 10. Best data point of all time 4

5 THE NORMACLY REPORT The Normalcy Report includes an introduction i.e. when will it get back to normal, the normalcy index, the bottom line, actionable intelligence summary of each key performance measure, and an overview of each key performance measure with charts, where appropriate. Note, the actionable intelligence text is the identical text found in the overview section. It s simple. Its quick. It works in every city. An administrative assistant can maintain it and best of all its inexpensive. For less than the cost of one independent market study you can have the most comprehensive business management and navigational instrument in business today. In Boise, normalcy report technology is marketed by Trey Langford, Founder of Buildidaho.com. Organizational Genetics has been providing owners, CEO s and leaders with the tools to BE better, DO better and BUILD better company s and organization s for nearly 30 years. Trey and I would like to help you perform better in these difficult times and have the tools and programs to empower you to do so. We would like to meet with you and show you what we can do for you. The first meeting is free. In the next few days, we will be calling, please take our call. Douglas Swallow Trey Langford Founder Founder Organizational Genetics Buildidaho.com (702) (208)

6 BOISE - WHEN WILL IT GET BACK TO NORMAL? Technical recovery and normalcy are different. Technical recovery is defined by growth in GDP. Normalcy is defined by the return of the leading economic indicators to historical trend lines and absence of any less than normal leading economic indicators. The Ada/Canyon County Homebuilding and Related Industries Normalcy Index is comprised of 20 key performance measures; six national, four local, and ten specific to the homebuilding industry. On the following page is the Ada/ Canyon County Homebuilding and Related Industries Normalcy Index. The national and local indexes showed improvement from the 3rd quarter to the 4th quarters of The homebuilding index remained unchanged. Based on the analysis herein, the greater Ada and Canyon Counties economies are tracking to achieve normalcy in the 4th quarter of this year with the homebuilding and related industries not returning to normal until summer of Due to the current level of existing lots, relative to sales, there will be insufficient demand for new subdivisions and master planned communities until the 1st quarter of

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8 THE BOTTOM LINE The homebuilding and related industries sector of the Ada and Canyon county economies have two to three years of tough times to go. Yes, the future is exceptionally bright. In five to seven years there will be more demand than the industry can handle. Its true, nearly all of the key economic indicators have bottomed and most have improved, with the exception of employment and foreclosures. Until these two economies stop shedding jobs and the level of notices of defaults stop rising, the market cannot truly bottom and thus begin its recovery. That s the bad news. The good news is even as bad as it is, and its bad, the homebuilding and related industries sector of the economy is still a $300,000,000 to $350,000,000 dollar a year industry in the Treasure Valley. Those who are able to align their business models and adopt a pro-active business development strategy, will do well in these times. The bottom line is the homebuilding and related industries sectors of the Ada and Canyon County economies are doing nearly $350,000,000 in annualized revenue today. It will get better, but both economies together have lost over 20,000 jobs. It won t be normal until the Ada and Canyon Counties add 20,000 jobs and realistically, that will take two to three years from the time these two economies truly bottom. The message is there is business out there and its not going to come to you. You re going to have to go get it. 8

9 ADA/CANYON COUNTY ACTIONABLE INTELLIGENCE SUMMARY National Normalcy Index The national normalcy index is 3.86 and 77.2% of normal. The following is an overview of each of the seven key performance measures of which the index is comprised. National GDP: Normal. The economy has restarted and is growing at or above the normal rate. Since the first quarter of negative growth in this economic cycle, the first quarter of 2008, the level of GDP has declined by 15.3%. In 4th quarter of 2009, GDP grew as 5.7%. Coupled with 2.2% increase in the 3rd quarter, suggests the national economy has recovered 7.9% or 51.6% of what it lost. At a 2.5% seasonally adjusted annualized rate the national economy will recover its loses by October of this year. View details Consumer Confidence: Poor. The normal range is considered 70% to 90%. The current level is at 53.1%, 40% below the minimum normalcy standard. The consumer confidence level remains at least 40% below normal. Should the majority of the other variables stabilize by the end of the second quarter of 2010, it can be expected the consumer confidence index will be back to 70 by the end of the 3rd quarter of Following an increase to 53.1 in September the index dipped sharply to 48.7 in October. In November it recovered slightly to 50.6 and then to 53.6 in December. In January the figure continued to improve increasing to View details Homebuilders and related industries note: Demand for new homes will not return to normal until consumer confidence returns to normal. 9

10 ADA/CANYON COUNTY ACTIONABLE INTELLIGENCE SUMMARY Stock Market: Normal. The stock market or in particular the Dow Jones Industrial Average is a leading economic indicator of the health of the national economy. Normal is defined by fair market stock prices for the companies which make-up the Dow Jones Industrial Average. The new normal is projected to be between 10,000 and 12,000. At the close of 2009 the Dow Jones Industrial Average was in the normal range at 10, View details. Homebuilders and related industries note: Although most new home buyers are not heavily invested in stock markets, the current rally bodes very well for executive and luxury market segments, whose buyers are heavily invested in the market. Gas and Oil Prices: Normal. When not normal, gas and oil prices are a leading de-stabilizer of the U.S. economy. The new normal unleaded gas prices is projected to between $2.50 and $2.70 per gallon. At the end of the year, the average price for a gallon of unleaded gasoline was $2.67. Currently, unleaded gasoline prices are at the $2.61. The ten year average price for a barrel of oil has been $ At the end of the 4th quarter the price per barrel was $79.4, which is down from the high of $ Currently, the price stands at $76.9. View details. Homebuilders and related industries note: Gasoline prices, when not normal, negatively impact new home sales traffic and regional resort home sales. 10

11 ADA/CANYON COUNTY ACTIONABLE INTELLIGENCE SUMMARY Unemployment Rate: One of the top five worst data points of all time. The current U.S. unemployment rate is double the normal rate. The current rate is 9.7%, which is down 0.3% from the third quarter of Presently, 138,133,000 people are employed in the U.S. The U.S. labor force lost 3,880,000 jobs in The normal unemployment rate ranges between 4% and 5%. To achieve normalcy the country needs to add between 5.5M and 6.0M jobs. In context, this means the top 10 cities in each state need to add 11,000 jobs. Once job loses stop and job recovery begins, this level of recovery can be expected to be achieved with 24 to 36 months. View details. Homebuilders and related industries note: The primary driver of the homebuilding industry is employment growth. Homes are built in response to employment and population growth. The homebuilding sector or the economy will not restart until unemployment rates are at or near normal levels, Mortgage Interest Rates: Excellent. The 30-year average interest rate percentage, excluding the highs of 1981 through 1983, has been 7.5%. For the past ten years interest rates have remained below 7.5%. While the rate fluctuated throughout the year, it ended precisely where it started, 5.14%. View details. 11

12 ADA/CANYON COUNTY ACTIONABLE INTELLIGENCE SUMMARY Local Normalcy Index: The local Boise-Nampa normalcy index is 3.75 or 75% of the projected new normal. The following is an overview of each of the four key performance measures of which the index is comprised. Population, Long Term Outlook and Households: Normal. Despite the current recession, Ada and Canyon Counties are projected to see substantial growth in the coming decade. According to Proximity One, SRC Demographics, and the Idaho state Demographers Office, over the next ten years population levels in Ada and Canyon counties combined are projected to increase by 298,805 or by 45.23%. View details. The number of households is expected to increase by 108,371 by Over the next five years the figure is projected to increase by 25,782 or an average of 5,156. Between 2014 and 2020 the figure is expected to increase by 82,589 or 13,764 per year. Unemployment Level: One of the top five worst data points of all time. The average unemployment rate for the past 13 years in Ada County has been 3.47% and 4.47% in Canyon County. The unemployment rate declined 1.1% to 8.0% in Ada County in 4th quarter of In Canyon County the rate declined.01% to 11.9%. View details. 12

13 ADA/CANYON COUNTY ACTIONABLE INTELLIGENCE SUMMARY In the last quarter of 2009 the Boise MSA is projected to loose another 1,400 jobs. In October Nonfarm employment increased by 400. In November it deceased by 800. The Idaho Department of Labor is projecting a lose of another 1,000 jobs in December. As of January 1, 2010, the Boise MSA non-farm workforce was 248,600. In 2009, 5,700 jobs were lost or 2.24% of the total workforce. The highest level of employment in the Boise MSA was 270,100 in 2007, according to Idaho Department of Labor. Air Traffic: Below Normal. Air traffic at the Boise Air Terminal in 2009 was 2,785,338, just 12.5% below the 2008 level of 3,185,006. Since 2000, the average annual air traffic level has been 2,999,867. Relative to the 10 year average, 2009 air traffic levels were off by 7.2%. View details. In-Migration: Below Normal. They keep coming. New residents, as defined by driver licenses relinquished, was 10,096 in 2009, 7,183 in Ada County and 2,913 in Canyon County. View details. Since 2005, 59,862 licenses have been relinquished, 40,651 in Ada County and 10,211 in Canyon County. The combined average for the last five years has been 11,972. The 2009 level was 16% below the average. 13

14 ADA/CANYON COUNTY ACTIONABLE INTELLIGENCE SUMMARY Twenty-five percent (25%) of new residents come from California. Thirteen percent (13%) are relocating from Washington and eleven (11%) are from Oregon. New residents from Utah, Nevada, and Arizona comprise 17% of new residents. 14

15 ADA/CANYON COUNTY ACTIONABLE INTELLIGENCE SUMMARY Homebuilding and Related Industries Normalcy Index: The local homebuilding and related industries normalcy index is 2.30 or 46% of the projected new normal. The following is an overview of each of the ten key performance measures of which the index is comprised. New Home Permits: The worst data point of all time. New home permits in 2009 totaled 1,692 according to the Construction Monitor. Relative to population and employment levels, the current permit level is the worst of all time, which was previously 1,585 in Due to the unprecedented depth of the recession, permit levels are projected recover at a slower pace than previous recessions. The permit level is projected to increase 15% in 2010 and 20% each year thereafter for the balance of the decade. At this pace normalcy will be achieved by the 4th quarter View details. New Home Sales: One of the five worst data points of all time. The new home sales level in Ada and Canyon Counties totaled 1,660 in Since the market high of 6,728 in 2005 new home sales have declined by 75.3%. Even with an optimistic growth rate of 15% in 2010 and 20% thereafter for the balance of the decade, new home sales are not projected to reach their normal combined level of 3,200 units until View details. 15

16 ADA/CANYON COUNTY ACTIONABLE INTELLIGENCE SUMMARY Degree of Market Competiveness: Poor The degree of market competitiveness indicator is comprised of two measures: adjusted permits to number of builders and closings to number of active subdivisions. One measure is below normal and one is the worst data point of all time. View details. The first measure is determined by the total number of permits, less the number of permits by production builders. The remaining figure is divided by the number of active builders. In 2005, 10 builders pulled over 100 permits in Ada County. In 2009 only 3. Since 2005 the number of active builders has declined from 1,117 in 2005 to 203 in the The adjusted permit to builder ratio in 2009 in Ada County was In Canyon County the figure declined to Conversely, closings per subdivision has declined from a high of 31.5 in 2006 to one of lowest levels on record at Currently, there are 403 active subdivisions in Ada and Canyon counties, chasing 1,660 to 2,000 units per year. Average SFD Residual Land Cost Per Acre: One of the five worst data points of all time. Average single family detached residual land price estimates per acre in Ada and Canyon counties have declined from there highs in 2007 of $62,500 and $41,400 per acre respectively to $40,500 and $29,000 or 38.9% and 27.5%. From 2004 to 2007 raw land prices increased an average of 45% and 50.5% in Ada and Canyon Counties. Given these declines combined with the lack of declines in permit fees and land development costs, it will require a 20% to 25% increase in today s average new sales prices to recovery these loses. It is anticipated this will be achieved by 3rd quarter of

17 ADA/CANYON COUNTY ACTIONABLE INTELLIGENCE SUMMARY While base sales prices are the leading variable in the model there are eight other variables, which include: lot size, density, average square footage, direct and indirect construction costs, improvement costs, soft costs, and net margin. Note actual average residual land prices per acre vary by sub-market and market segment. The numbers reflect herein are an average of all sub-markets and single family detached market segments. Foreclosures: Worst data point of all time. The Ada and Canyon Counties levels of foreclosure and short sales continue rise. The 4th quarter level of Notices of Default was the highest quarterly level to date at 2,883. REO s now comprise 59% of the listings on the MLS. The third highest monthly level of notices was filled in January 2010 of 773. The normal quarterly level of notices of default range between 250 and 400. View details. Real Estate Financing: One of the five worst markets of all time. Real estate financing is virtually unavailable at this time, regardless of net worth, backstops, or relationships. However, recent action by the Federal Reserve, the United States Treasury, the FDIC and America s leading financial institutions indicate solving America s liquidity crisis is an imperative. Stabilization appears to have been achieved, but standards have changed. Normalcy is not expected until early

18 ADA/CANYON COUNTY ACTIONABLE INTELLIGENCE SUMMARY New Home Construction Costs: Normal. At the beginning of 2008, average production builder direct construction costs per square foot were $55.00 to $65.00 per foot range and individual lot builder costs ranged between $85.00 and $95.00 per foot. Today, production costs have declined by 35% to $35 to $40 per foot with individual lot builder costs declining 20% to the $68 to $75 per foot range. Improvement costs and permits have remained constant. No change between the 3rd an 4th quarters of Existing MLS Inventory: One of the five worst data points of all time. Ada and Canyon counties end of year existing home MLS listings are both at top five worst data points of all time. Currently, Ada County supply to sales ratio is 6.8 months. Normal is 4 months. The year end level of listings of 2,455 are 41% or 1,009 units above normal, relative to the current sales rate of existing homes. Canyon County s current supply to sales ratio is 7.8 months. Normal is also 4 months. The year end level of listings of 1,281 are 49% or 627 units higher than normal, relative to the current sales rate of existing homes. View details. Existing Home Sales: Normal. In 2009, 6,301 existing home sold. Normal is between 6,000 and 6,500. Population and recession recovery estimates suggest the level of existing home sales will increase by 10% in 2010 and 15% per year their after for balance of the decade. At this pace existing homes will nearly double in the next five years to 12,120. View details. 18

19 ADA/CANYON COUNTY ACTIONABLE INTELLIGENCE SUMMARY Existing Home Sales DOM: Poor. This index is comprised of two indexes: Ada and Canyon counties existing home sales days on the market. The Ada County Days on Market Index is one of the worst five data points of all time. Since 2000, the average number of days on the market in Ada county has been The current level is 85. The only higher number of days on the market, was in 2003 when it reached 89. The Canyon County Days on Market index is Poor. Over the past decade the average number of days on the market in Canyon County has been The current level is 74. The only higher number of days, was in 2003 when it reached 89. Normal in Ada county is considered 60. The average number of days on the market in Canyon county is currently at normal or 74 days on the market. View details. 19

20 U.S. Leading Economic Key Performance Measures 20

21 1. NATIONAL GDP: POOR Since the first quarter of negative growth in this economic cycle, the first quarter of 2008, the level of GDP declined by 15.3%. In 4th quarter of 2009, GDP grew as 5.7%. Coupled with 2.2% increase in the 3rd quarter, suggests the national economy has recovered 7.9% or 51.6% of what it lost. At a 2.5% seasonally adjusted annualized rate the national economy will recover its loses by October of this year. 21

22 2. CONSUMER CONFIDENCE: POOR The consumer confidence level remains at least 40% below normal. The consumer confidence is considered normal when it is between 70 and 90, and high in excess of 90. Should the majority of the other variables stabilize by the end of the second quarter of 2010, it can be expected the consumer confidence index will be back to 70 by the end of the 4th quarter of Following an increase to 53.1 in September the index dipped sharply to 48.7 in October. In November it recovered slightly to 50.6 and then to 53.6 in December. In January the figure continued to improve increasing to

23 3. U.S. STOCK MARKET: NORMAL The stock market or in particular the Dow Jones Industrial Average is a leading economic indicator of the health of the national economy. Normal is defined by fair market stock prices for the companies which make-up the Dow Jones Industrial Average. The new normal is projected to be between 10,000 and 12,000. At the close of 2009 the Dow Jones Industrial Average was in the normal range at 10,

24 4. GAS / OIL PRICES: NORMAL When not normal, gas and oil prices are a leading de-stabilizer of the U.S. economy. The new normal range for unleaded gas is projected to be $2.50 to $2.70 per gallon. At the end of the year the average price for a gallon of unleaded gasoline was $2.67. Currently, unleaded gasoline prices are at the $2.61. The ten year average price for a barrel of oil has been $ At the end of the 4th quarter the price per barrel was $79.4, which is down from the high of $ Currently, the price stands at $76.9. The new normal is projected to be between $68 and $78 dollars per barrel. 24

25 5. U.S. UNEMPLOYMENT RATE: ONE OF THE TOP FIVE WORST DATA POINTS OF ALL TIME The current U.S. Employment Rate is double the normal rate. The current rate is 9.7%, which is down 0.3% from the third quarter of Presently, there are 138,133,000 people are employed in the U.S. The U.S. labor force lost 3,880,000 jobs in The normal unemployment rate ranges between 4% and 5%. To achieve normalcy the country needs to add between 5.5M and 6.0M jobs. In context, this means the top 10 cities in each state need to add 11,000 jobs. Once job loses stop and job recovery begins, this level of recovery can be expected to be achieved with 24 to 36 months. 25

26 6. MORTGAGE INTEREST RATES: EXCELLENT The 30-year average interest rate percentage, excluding the highs of 1981 through 1983, have historically averaged 7.5%. For the past ten years interest rates have remained below 7.5%. While the rate fluctuated throughout the year, it ended precisely where it started, 5.14%. 26

27 Ada/Canyon Counties Local Economic Key Performance Measures 27

28 1. ADA/CANYON COUNTIES POPULATION LEVEL, LONG TERM 1. OUTLOOK, AND HOUSEHOLDS: NORMAL Despite the current recession, Ada and Canyon Counties are projected to see substantial growth in the coming decade. According to Proximity One, SRC Demographics, and the Idaho state Demographers Office, over the next ten years population levels in Ada and Canyon counties combined are projected to increase by 298,805 or by 45.23%. The number of households is expected to increase by 108,371 by Over the next five years the figure is projected to increase by 25,782 or an average of 5,156. Between 2014 and 2020 the figure is expected to increase by 82,589 or 13,764 per year. ADA/CANYON COUNTIES HISTORICAL GROWTH: Year Population Population Change Years % Annual Growth Number of Households Change in Number of Households Percent Increase 2020 est. 894, ,232 6 years 27.36% 324,201 82, % 2014 est. 702, ,573 5 years 17.87% 241,612 25, % 2009 est. 596, ,836 9 years 36.64% 215,830 57, % , , years % 158,426 49, % , ,759 Sources: Proximity One, SRC Demographics, and Idaho Department of Labor/ State Demographer 28

29 2. ADA/CANYON COUNTIES UNEMPLOYMENT LEVEL: ONE OF THE WORST DATA POINT OF ALL TIME The average unemployment rate for the past 13 ADA/CANYON COUNTY HISTORICAL EMPLOYMENT: years in Ada County has been 3.47% and 4.47% in Canyon County. Both unemployment percentages today are over 100% higher than their ten year averages. The unemployment rate declined 1.1% to 8.0% in Ada County in 4th quarter of In Canyon County the rate declined.01% to 11.9%. Year (January Figures) Total Nonfarm Employment 248, ,300 Increase/ Decline From Previous Year (5,700) (13,800) % Annual Growth (2.24%) (5.15%) Since the beginning of the recession Ada and Canyon Counties have shed 21,300 jobs. Once the local economy restarts, it will require 24 to 36 months to recover these loses. In the last quarter of 2009 the Boise MSA is projected to loose another 1,400 jobs. In October Nonfarm employment increased by 400. In November it deceased by 800. The Idaho Department of Labor is projecting a lose of another 1,000 jobs in December ,100 (2,000) (0.07%) ,100 13, % ,700 13, % ,400 12, % ,200 1, % ,600 2, % Source: Idaho Department of Labor 29

30 3. AIR TRAFFIC: BELOW NORMAL Air traffic at the Boise Air Terminal in 2009 was 2,785,338, just 12.5% below the 2008 level of 3,185,006. Since 2000, the average annual air traffic level has been 2,999,867. Relative to the 10 year average, 2009 air traffic levels were only off by 7.2%. 30

31 4. ADA/CANYON COUNTIES IN-MIGRATION: BELOW NORMAL They keep coming. New residents, as defined by driver licenses relinquished, was 10,096 in 2009, 7,183 in Ada County and 2,913 in Canyon County. Since 2005, 59,862 licenses have been relinquished, 40,651 in Ada County and 10,211 in Canyon County. The combined average for the last five years has been 11,972. The 2009 level was 16% below the average. Twenty-five percent (25%) of new residents come from California. Thirteen percent (13%) are relocating from Washington and eleven (11%) are from Oregon. New residents from Utah, Nevada, and Arizona comprise 17% of new residents. Historical In Migration Chart Ada Canyon Ada County In Migration Minnesota 1% Virginia 2% Alaska Florida 2% 2% Montana 3% Colorado 3% Texas 3% Nevada 5% All other States 21% Utah 7% California 24% Washington 12% Oregon 10% Arizona 5% 31

32 Ada/Canyon Counties Homebuilding and Related Industries Economic Key Performance Measures 32

33 1. NEW HOME PERMITS: WORST DATA POINT OF ALL TIME New home permits totaled 1,692 according to the Construction Monitor. Relative to population and employment levels, the current permit level is the worst of all time, which was previously 1,585 in Due to the unprecedented depth of the recession, permit levels are projected recover at a slower pace than previous recessions. The permit level is projected to increase 15% in 2010 and 20% each year thereafter for the balance of the decade. At this pace normalcy will be achieved by the 4th quarter Ada/Canyon Counties Historical Permit Analysis 33

34 2. NEW HOME SALES (CLOSINGS): ONE OF THE TOP FIVE WORST DATA POINTS OF ALL TIME The new home sales level in Ada and Canyon Counties totaled 1,660 in Since the market high of 6,728 in 2005 new home sales have declined by 75.3%. Even with an optimistic growth rate of 15% in 2010 and 20% thereafter for the balance of the decade, new home sales are not projected to reach their normal combined level of 3,200 units until 4th quarter of

35 3. DEGREE OF MARKET COMPETITIVENSS: POOR The degree of market competitiveness indicator is comprised of two measures: adjusted permits to number of builders and closings to number of active subdivisions. One measure is normal and one is the worst data point of all time. The first measure is determined by the total number of permits, less the number of permits by production builders. The remaining figure is divided by the number of active builders. In 2005, 10 builders pulled over 100 permits in Ada County. In 2009 only 3. Since 2005 the number of active builders has declined from 1,117 in 2005 to 203 in the The adjusted permit to builder ratio in 2009 in Ada County was In Canyon County the figure declined to Ada County Adjusted Permit Per Active Builder Level Canyon County Adjusted Permit Per Active Builder Level

36 3. DEGREE OF MARKET COMPETITIVENSS: POOR Conversely, closings per subdivision has declined from a high of 31.5 in 2006 to one of lowest levels on record at Currently, there are 403 active subdivisions in Ada and Canyon counties, chasing 1,660 to 2,000 units per year. 36

37 4. AVERAGE SFD RESIDUAL LAND PRICES PER ACRE: ONE OF THE TOP FIVE WORST DATA POINTS OF ALL TIME Average single family detached residual land price estimates per acre in Ada and Canyon counties have declined from there highs in 2007 of $62,500 and $41,400 per acre respectively to $40,500 and $29,000 or 38.9% and 27.5%. From 2004 to 2007 raw land prices increased an average of 45% and 50.5% in Ada and Canyon Counties. Given these declines combined with the lack of declines in permit fees and land development costs, it will require a 20% to 25% increase in today s average new sales prices to recovery these loses. It is anticipated this will be achieved by 3rd quarter of The aforementioned figures were based on a residual raw lot cost of 6% of sales price with an average density of 3.3 units per acre. While base sales prices are the leading variable in the model there are eight other variables, which include: lot size, density, average square footage, direct and indirect construction costs, improvement costs, soft costs, and net margin. Note actual average residual land prices per acre vary by sub-market and market segment. The numbers reflect herein are an average of all sub-markets and single family detached market segments in Ada and Canyon counties. 37

38 5. FORECLOSURES: WORST DATA POINT OF ALL TIME The Ada and Canyon Counties levels of foreclosure and short sales continue rise. The 4th quarter level of Notices of Default was the highest quarterly level to date at 2,883. REO s now comprise 59% of the listings on the MLS. The third highest monthly level of notices was filled in January 2010 of 773. The normal quarterly level of notices of default range between 250 and Ada/Canyon Counties Quarterly Notics of Default st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th

39 6. REAL ESTATE FINANCING: ONE OF THE TOP FIVE WORST MARKETS OF ALL TIME Real estate financing is virtually unavailable at this time, regardless of net worth, backstops, or relationships. However, recent action by the Federal Reserve, the United States Treasury, the FDIC and America s leading financial institutions indicate that solving America s liquidity crisis is an imperative. Stabilization appears to have been achieved, but standards have changed. Normalcy is not expected until early NEW HOME CONSTRUCTION COSTS: NORMAL At the beginning of 2008, average production builder direct construction costs per square foot were $55.00 to $65.00 per foot range and individual lot builder costs ranged between $85.00 and $95.00 per foot. Today, production costs have declined by 35% to $35 to $40 per foot with individual lot builder costs declining 20% to the $68 to $75 per foot range. Improvement costs and permits have remained constant. No change between the 3rd an 4th quarters of

40 8. EXISTING HOME MLS LISTING INVENTORY: ONE OF THE TOP FIVE WORST DATA POINTS OF ALL TIME Ada and Canyon counties end of year existing home MLS listings are both at top five worst data points of all time. Currently, Ada County supply to sales ratio is 6.8 months. Normal is 4 months. The year end level of listings of 2,455 are 41% or 1,009 units above normal, relative to the current sales rate of existing homes. Canyon County s current supply to sales ratio is 7.8 months. Normal is also 4 months. The year end level of listings of 1,281 are 49% or 627 units higher than normal, relative to the current sales rate of existing homes. 40

41 9. EXISTING HOME SALES: NORMAL In 2009, 6,301 existing home sold. Normal is between 6,000 and 6,500. Population and recession recovery estimates suggest the level of existing home sales will increase by 10% in 2010 and 15% per year their after for balance of the decade. At this pace existing homes will nearly double in the next five years to 12, Total Existing Home Sales Ada County Existing Home Sales Canyon County Existing Home Sales

42 10. EXISTING HOME SALES DAYS ON THE MARKET: POOR The Ada County Days on Market Index is one of the worst five data points of all time. Since 2000, the average number of days on the market in Ada county has been The current level is 85. The only higher number of days on the market, was in 2003 when it reached Ada County DOM The Canyon County Days on Market index is Poor. Over the past decade the average number of days on the market in Canyon County has been The current level is 74. The only higher number of days, was in 2003 when it reached 89. Normal in Ada county is considered 60. The average number of days on the market in Canyon county is currently at normal or 74 days on the market Canyon County DOM

43 INTRODUCTION TO ORGANIZATIONAL GENETICS: My name is Douglas Swallow. I am an organizational and human performance scientist and founder of Organizational Genetics (OG). For nearly 30 years, I have been helping owners and CEO's be better, do better, and build better performing companies and workforces. Predominately, in the homebuilding and master planned community development industries. By providing them with the world's leading business management technologies and theories. I licenses my technologies to companies, consulting firms, independent consultants, and come into organization's and upgrade specific aspects of their DNA. Additionally, I coach owners and CEO's and give talks on the theories of organizational genetics and natural's. Two theories and suites of technology that change the playing field and empower owner's and CEO's to dominate their competitors, produce world-class results, and inspire and lead their people to be extraordinary in their professional lives. Since 1981, the company has been identifying and developing software based organizational development technologies. Technologies that enhance owners and CEO's ability to reduce risk, deliver world-class results, create innovative products and services that wow their target customer group, increase sales, and build workforces largely comprised of the highest performing class of employees, natural's. Over the past 28 years, the company has identified 14 breakthrough paradigms and developed nearly 100 software based technologies spanning seven industries and small businesses, innovation dependent companies, government, armed forces, police and fire departments, primary, secondary, and special education, athletic coaching, counseling, and churches. 43

44 INTRODUCTION TO ORGANIZATIONAL GENETICS: The seven industries are construction, manufacturing, education and health services, leisure and hospitality, publishing, professional and business services, and financial services. Within these industries programs have been developed specifically for owners and CEO's of homebuilding and master planned community development companies, architectural firms, banking and venture capital corporations, utilities, automotive dealerships, hotels and restaurants, hospitals and health care providers, insurance companies, real estate information publishing companies, and real estate brokerages. If you are an owner or CEO and would like to be better, call me, the first meeting is free. The following page is summary of my highlights in the homebuilding industry. Homebuilding Industry Highlights Summary Consulted over 50 homebuilding and master planned community development owners and CEO s, including 3 of the top 5 public builders and master planned community developers. Developed repositioning strategies for the largest stalled homebuilding division and master planned communities in America. The 191 project L.A. Division of KB Home. The Howard Hughes Corporation's, 23,000 acre, 180,000 unit master planned community of Summerlin. Optimized the performance of over 250 residential developments and 37 master planned communities. Led the product development on more than 200 product lines and 700 floor plans. Led sales teams with 3 to 160 sales associates that sold and closed over 4,000 homes. Two sales team were rated two of best in the industry, by independent audit. Developed advertising campaigns that generated over 400 groups per week and 20,000 ups per year. First Chairman of NAHB's National Sales and Marketing Council's Certified Sales Professional sales training program (CSP). Received over 50 industry awards in land planning, architecture, advertising, merchandising, sales offices, and sales management. Been a guest speaker at PCBC, and NAHB and ULI national conventions. 44

45 BUILDIDAHO.COM: THE resource for connecting buyers, builders, developers, and their constituents. Does your company have a business model, business plan, and marketing strategy? An integral part of each of these is an organizations internet strategy. The difference between producing average numbers and market leading results can lie in this one strategy. For many organizations developing and implementing a world-class internet strategy, social marketing campaign, and web-site are difficult at best. Most organizations, by the numbers, do not do these well or even no where to start. Enter Buildidaho.com, Idaho s #1 internet site for new home buyers, builders, developers and their constituents. What Buildidaho.com provides is the treasure valley s leading internet and web site consulting and development services, search engine optimization, and video social marketing. You may be familiar with the site and in the last 3 months it has undergone many changes and additions including Personal Designer!You may have also noticed the site doing even better in search engines and ranks on the first page for even more searches now. So how does BuildIdaho.com differ from other internet consulting companies: price, service, experience, and results. Buldidaho.com is the only internet consulting firm who specializes in the homebuilding industry and whose web site has a search engine for new communities including lot sizes, lot prices, starting home values and community amenities. It is the only site that offers feedback from new home owners. It is not the only site with video but one of the few with local interviews of industry professionals and video tours with commentary. My name is Trey Langford and I am the founder of Buildidaho.com and I would like the opportunity to share with you how you can optimize your internet strategy, build a world-class web-site, and connect to the web-site more and more buyers and Realtors are going to everyday. For more information, me today Trey@BuildIdaho.com or