Homebuilding looking up

originally appeared in Zacks Equity Research:

KB Home, one of the leading homebuilding companies in the U.S., recently acquired lands for 100 luxury homes in the sought after community of Playa Vista in Westside, Los Angeles. The construction of homes will start in spring.

The company intends to build three story detached homes of 2,800 square feet. The homes will have four bedrooms and three and half baths. The company also intends to build single floor condominium homes of 2,000 square feet with private elevator access for each home.

For simple or more complex bathroom remolding projects, consider an outstanding grand rapids bathroom remodeling company that does quick, professional work.

Owing to its operational business model KBnxt, KB Home always begins construction only after a purchase agreement is executed. As such, the consumers buying KB homes in Playa Vista will get the liberty to plan their homes according to their preference.

This process also helps the company turn over its inventory more quickly than its peers, thereby supplying capital for reinvestment. In the long run, this reduces the risk of unsold inventory leading to higher returns on invested capital.

Playa Vista is one of the most sought after luxurious communities in Westside, Los Angeles. The acquisition of land in Los Angeles’ Westside is in line with KB Home’s strategic shift in its geographic footprint. The focus is to place the communities in highly desirable land-constrained submarkets that enable it to sell larger, higher-priced homes, thus driving a strong increase in average selling price.

The rising demand for new homes has led to a favorable situation in the housing market, where inventory levels are dropping and prices are moving up. The demand has been particularly strong for luxury homes. Toll Brothers, Inc., another leading luxury homebuilder in the US, has been witnessing strong overall growth over the past few quarters.

Therefore, building adequate number of new homes is necessary in order to maintain the required level of inventory to meet the growing demand for homes. Acquiring lots and lands in the Playa Vista community will help the company to capitalize on the increasing housing demand.

With housing market recovery gaining momentum, KB Home believes its strategic initiatives including overhead reduction, margin expansion, and land investments in higher-priced, better-located communities; and increasing backlog will help it achieve profitability in the upcoming quarters. Though we have faith in KB Home’s strategic initiatives, we believe that it may take time to achieve sustainable profitability as the housing market recovery process is erratic and uneven.

We currently have a Neutral recommendation on KB Home. The stock carries a Zacks #3 Rank (a short-term Hold rating).

A Quest for an Energy-Efficient House

We Undertake Four Home 'Audits'; The Pros vs. DIY

Preventing energy waste has become a household preoccupation in the era of nearly $4-a-gallon gas and rising prices for everything from airline tickets to milk. Whether motivated by environmental impulses or a desire to reduce utility bills, many Americans are researching ways to create a more energy-efficient home.

Statistics from a range of sources provide plenty of motivation. The U.S. Department of Energy's office of Energy Efficiency and Renewable Energy (EERE) estimates that draft reduction within a home can lower energy costs anywhere from 5% to 30% annually. Meanwhile, according to Department of Energy data provided by the U.S. Green Building Council, homes account for 21% of U.S. carbon dioxide emissions. And claiming a green home remodel makes for great neighborhood bragging rights.

Eager to lessen our carbon footprint and plan a responsible remodel, we undertook four so-called "energy audits" on our 1966 Seattle home, which has a finished 1,100-square-foot main floor and a partially finished 1,100-square-foot basement. We wanted to learn both how to improve the finished portion of our home and how best to add insulation and factor energy efficiency into an eventual basement remodel.

Energy audits -- assessments of your home's energy efficiency -- run the gamut from free do-it-yourself audits offered online to paid inspections in which professionals with varying credentials spend up to three hours scrutinizing the home and determining what gestures will improve its energy efficiency and which fixes will reduce energy expenses. More sophisticated professional audits employ high-tech devices, including "blower door" fans, which lower indoor air pressure and enable technicians to measure draft levels, and infrared (thermographic) scanning, which can measure surface temperature variations and thus spot air leaks and poor insulation.

We started with two do-it-yourself energy audits offered free online, including the Home Energy Yardstick offered by Energy Star, the organization that promotes energy efficiency and endorses energy-efficient products, and Home Energy Saver, a free online audit from the Environmental Energy Technologies Division at Lawrence Berkeley National Laboratory, a Department of Energy lab operated by the University of California.

The free Home Energy Yardstick was disappointingly basic -- especially given how much data we had to provide from 12 months' worth of utility bills. However, it's not a bad starting point. The Yardstick calculated that we have a 1.7 efficiency score on a scale of 1 to 10 (oops). Tips for making changes were basic, such as using a programmable thermostat (already in use), energy-efficient bulbs (check), and Energy Star-endorsed appliances. Nice tips, but rather generic.

Next up, Home Energy Saver put us through more paces, asking us to answer 20 categories of questions ranging from insulation levels in attic walls to our furnace type. We had to guess at some answers, but, assuming we guessed right, the data provided were detailed: The program spat out nine pages worth of information on possible improvements, including the cost to implement each, and how much we would save in energy costs. For instance, insulating our basement to R-11 (insulation-speak for thickness levels -- the higher the better) would cost only $480 but could save us $115 per year in reduced bills. These were estimates, to be sure, but they helped us shape priorities.

The professional inspectors drilled deeper, looking more at the "building envelope" of our home and making more concrete recommendations. The Home Detective, a home-inspection company that also performs energy audits, sent an inspector who checked our exterior, climbed in our attic and perused our basement, but didn't bring out some of the higher-tech gear. The upshot? It suggested that we increase the "R" value of attic insulation to R-30 or more, insulate interior walls surrounding our non-insulated garage, and insulate the perimeter of the basement's ceiling -- an area known as the house's "rim joists." Minor fixes would include sealing ducts and any spot where pipes intersect with a floor or ceiling. The cost: $169.

Pinnacle Inspections used both a blower door test and infrared scanning to investigate how airtight our home is. The blower door test, which the technician ran twice to make sure results were solid, revealed that our home is relatively airtight for its age -- possibly due to our new windows. The technician seconded Home Detective's recommendation to insulate rim joists and walls adjacent to our garage, but also was able to use infrared scans to point out non-obvious sources of drafts on our main floor, all needing only minor fixes. These areas included the front door (which needs weather-stripping), switch plates (which need fireproof electrical insulation), window trim (which needs insulation), the attic trap door (which could use weather-stripping or other insulation), and a bathroom fan that is vented into the attic (and could be better insulated).

In the end, we felt that Pinnacle's high-tech energy audit was worth the $550 price tag, since it gave us short-term and low-cost repairs we could make now as well as guidance for future insulation projects. Now, we're ready to tackle that basement.

By: Jane Hodges
Wall Street Journal; September 18, 2008

Properly Fixing a Roof Now Will Save Time and Money Later

Fall is upon us, and it won't be long before you look at your roof and see snow piling up. While that isn't an image many people enjoy, it reminds us that it is a good time to check your roof to make sure it is ready to handle the harsh winter weather.

While fall is often a time when homeowners focus on some indoor home improvements, one of the most important home improvements may be putting on a new roof (see if this is covered under your home warranty). Sure, a new roof doesn't have the "wow" factor that a new kitchen or finished basement has, but it is vital in eliminating the potential for serious water damage in your attic. If you have an older home, or even one built in the last 20 years, there is a good chance you need a new roof.

Of course, one of the most common questions I get from callers is, "How do I know if I need a new roof?" If you have any obvious leaks in your attic or ceiling, that's a sure sign that you need a new roof. Even if you don't have a problem with leaks, it doesn't mean your roof is fine. To determine if your roof is in need of repair or replacing, take a pair of binoculars and inspect your roof shingles. If they are cracked, discolored or curling, you should call a full-service roofing contractor to get it inspected.

Once you determine that you need a new roof, you should learn all you can about roofing and roofing products. For example, in the past, many homeowners that had one layer of shingles on their roof would elect to have the roof "re-covered." That's where the contractor would put a new layer of shingles over the old ones. While that is certainly cheaper than a complete "tear-off" of the old shingles, it is not the best solution to your roofing needs.

ORA Warranty is one company that doesn't recommend re-covering. According to experts, if you do a re-cover, it means you are assuming the wood underneath and the original shingles are in good shape. However, you can't really know that unless you tear off the old shingles and inspect the wood. If that wood is rotting or in need of repair, your roof could still leak even after a re-cover.

Home warranty and construction experts also say that re-covering a roof doesn't enable a roofer to address other important areas of the roof's integrity, such as flashing walls and areas around chimneys or stack-vent pipes.

When it comes to roofs, you get what you pay for. Therefore, saving some money by doing a re-cover could unfortunately lead to paying your deductible on an insurance claim when your ceilings are damaged by water leaks.

Cost of shingles

You also get what you pay for in terms of roofing products.

While most contractors may be similar in pricing for installation of a new roof, the bigger cost differences are in the type of shingle you choose. There are two categories where the cost for a shingle can vary dramatically. One is the style of the shingle, while the other is the shingle warranty.

In the past, most shingles were the flat, three-tab variety, and only came in a few basic colors, such as black, gray or brown. Fortunately, today's homeowners can choose from a variety of architecturally designed shingles in a several colors that complement the look and color scheme of your home.

So, today's shingles can actually bring better curb appeal.

Of course, these architectural shingles are more expensive than the flat, three-tab version, but there are various price points for you to choose from to help you stay within your budget.
Warranty

The other important price factor when considering roofing shingles is the warranty. Obviously, a shingle that is warranted for 50 years is going to cost more than one warranted for 25 years. But it also will be better then the 25-year warranted shingle, so it will last longer.

When it comes to warranties, you need to know what the warranty covers before you can decide whether it's worth the investment. The best warranty is one that has a "No Dollar Limit." Which means that no matter how bad the problem or the cost, the shingle manufacturer will take care of the problem.

If you are planning to get a new roof, it's important to familiarize yourself with the common terms used in the roofing industry to help you make an educated decision when choosing a contractor and roofing materials. See the accompanying story for some of the most common terms used in the roofing business.

Once you have settled on the type of roof shingles you want, make sure you have enough roof and soffit ventilation to improve the shingle's life. With the proper amount of insulation on your attic floor, your attic temperature is closer to the outdoor air temperature, which eliminates the potential to "cook" the underside of the shingles. Most roofing contractors will recommend and install the proper ventilation system for your roof.

My $1,200 Radon Job

The Least Sexy Home Improvement Could Be a Lifesaver

It might be the ugliest home improvement. Last month, I finally did something about my radon problem.

Two men came and drilled a five-inch-wide hole in my home's bottom floor. They attached a suction system of white pipes and a big round fan to draw air -- and radon -- from underneath the house and vent it out through a black pipe stuck in the roof. The work took six hours and cost $1,200 -- about what I paid a pro to retile my bathroom.

Most homeowners have heard about the health hazards of radon, a radioactive gas that emanates from rocks, soil and water. Outside, it's relatively harmless, but inside it can collect in dangerous concentrations, seeping in through cracks in the home's foundation and other openings. Radon is the No. 1 cause of lung cancer among nonsmokers, and one in 15 homes has an elevated level prior to treatment, according to the Environmental Protection Agency. The agency estimates 750,000 to 1 million U.S. homeowners have taken radon-reduction steps over the years and says those steps, along with techniques in new construction, have helped prevent 6,000 deaths.

Despite the risks, radon until recently has ranked pretty low on many homeowners' action lists, including mine. You can't see, smell or taste it, which makes it -- unlike mold -- easy to ignore. The federal government recommends but doesn't mandate remediation for homes with elevated levels. And let's face it: In the scheme of renovations, there are sexier ways to drop 1,200 bucks than drilling a fat hole in the basement.

But as homeowners and builders rush to make dwellings healthier on all fronts -- from nontoxic paints and organic lawns to formaldehyde-free kitchen cabinets -- radon is emerging as a hot button in both new construction and resales. The National Association of Home Builders' Green Building rating program, which kicked off in February, requires installation of mitigation systems in certain radon-prone regions. Last year, the EPA launched a campaign encouraging the use of radon-resistant materials in new construction -- such as plastic sheeting under a home's slab and a built-in vent pipe where a fan can be attached. New studies are examining whether granite and other stone countertops play a role.

"As people become more interested in the green lifestyle, it encompasses radon as well," says EPA spokeswoman Kristy Miller. It has taken time to build public awareness, just as it did with smoking, she says. "We've been on that for 45 years or more. With radon, now we're seeing a culmination of all these issues."

In 2006, 10.6% of single-family detached homes were built with active radon-reduction systems in place, nearly double the percentage in 2001, according to the national home builders group. State and local building codes in nearly half the states mandate some level of radon control, and the number is on the rise, says Peter Hendrick, executive director of the not-for-profit American Association of Radon Scientists and Technologists. A number of local groups, like the Pennsylvania Builders Association, encourage members to spend a bit more up front to install radon-reduction systems. "I would encourage any builder that it's the right thing to do -- it's cheap to put in and it's in the client's best interest," says member Frank Thompson of Sweetwater Builders, near Pittsburgh.

RADON REMEDIATION
As part of Gwendolyn's renovation, a white pipe (top) was drilled through the garage floor, which shares her house's slab. The pipe then funnels up into the garage's attic (bottom) where a fan pulls the air out from underneath the home and vents it to the outside. The one downside: she can hear a whoosh whenever she parks the car.

As for resales, while no federal or state regulations mandate home radon testing, the U.S. Surgeon General issued an advisory in 2005 urging all Americans to have one done. The majority of states have some form of disclosure law requiring the home seller to inform the buyer about property defects, such as radon -- but only if the seller knows about them. Many experts believe this discourages testing and say a better model is an Illinois law that took effect this year. It requires sellers to provide information about radon risk in general, whether the home has been tested or not.

Meantime, some radon labs say they're seeing a steady rise in testing. Sales of radon test kits have jumped 40% in the past five years at Radon Testing Corp. of America, a major national testing lab in Elmsford, N.Y. "The number of prospective home buyers asking for tests has increased even though the real-estate market has dropped," says RTCA's president, Nancy Bredhoff.

There is concern, though, that the push for more testing and remediation is overkill, burdening home builders and potentially slowing sales in a tough housing market. And while most scientists agree about radon's long-term risks, some question the benefits of reduction efforts. "Only after many years would a successful radon abatement program begun today be likely to reduce the number of lung cancers, and then only by a very small percentage," according to the Web site of the Health Physics Society, a scientific and professional organization focused on radiation-safety issues.

Where I live, in a rocky New York county, the indoor radon average is slightly above the government's recommended take-action level of 4 picocuries per liter of air (pCi/L). My home was built in 1978. When I purchased it in 2003, the seller neglected to stipulate on the required disclosure form if the home had been tested for radon. (In the haste of the deal, I didn't notice.) When I tested, the levels came back between 5 and 13 pCi/L -- a level higher than the EPA standard but not off the charts, according to pros I talked with. Most suggested retesting down the road, and when I did, the levels still hovered around 5 to 6 pCi.

RADON ROADMAP

PROFESSIONAL TESTING: The U.S. Surgeon General and EPA recommend all homes be tested and fixed if the radon level is 4 pCi/L or more.

Find links to qualified testing and mitigation professionals in your state at www.epa.gov/radon and via the National Environmental Health Association (www.neha-nrpp.org) or the National Radon Safety Board (www.nrsb.org). The latter two groups offer proficiency listing/accreditation/certification in testing and mitigation.

DO-IT-YOURSELF TESTING: Inexpensive, easy-to-use radon test kits can be purchased in stores like Home Depot and online at sources .

HEALTH INFO: Studies about radon's health effects can be found through the nonprofit American Association of Radon Scientists and Technologists and the World Health Organization.

Since my score could present a selling problem later, I decided to take action. Unfortunately I had to start from scratch, installing an "active soil depressurization system," which pulls air from underneath the home and reroutes it outside, often through the roof. These types of systems reduce radon readings below the 4 pCi action-level in 99.9% of cases, according to Bill Angell, chairman of the World Health Organization's Radon Prevention and Mitigation Working Group, which plans this year to release standards for radon resistance in new homes and reduction in old ones. "Virtually never do we find a home we can't get below the threshold for action," he says. Other tactics include sealing basement cracks and installing a special ventilator.

The soil depressurization technique I used is called a "sub-slab suction" system, and involves a fan and piping that is drilled through the floor slab and routed up through hidden areas, like closets, and then typically into an attic and then outside. An alternative is to run the pipe up the home's exterior, where it is more likely to be visible. The cost of fixing an existing home typically ranges from $800 to $2,500; the cost to builders to install similar measures in new homes ranges from $350 to $500.

After checking reputations with local real estate agents, I called several pros for bids. (Many state health departments list qualified contractors; for those that don't, the EPA offers standards to be followed.) Each one pronounced my home "very difficult" because the lower level was all living space (hard to drill a hole inconspicuously) and I had no main attic (Where to put the fan?). The man I ultimately hired, David Barber of Acceptable Environment in Newburgh, N.Y., suggested drilling in my garage, which shares the home's concrete slab, and running the pipe and fan though a small attic space in there.

The upside: It isn't an eyesore. The downside: I can hear the fan's whoosh every time I park the car.

A week after Mr. Barber mitigated, I ran a new radon test. The result: 2.8 pCi/L -- about a point below the federal limit. I'm safer on the home-sale front, but because I am in my home's lower level a lot, I may pay Mr. Barber another $150 to run a second pipe from beneath a lower-level stairwell to the garage attic fan. My goal: getting down to at most 2 pCi/L, a level that puts my lifetime risk of radon-related lung cancer as a nonsmoker at 4 in 1,000, according to the EPA. Meantime, I'm focused on finishing a happier renovation project: the kitchen, where I hope the only gas I'll think about is from my new range.

By: Gwendolyn Bounds
Wall Street Journal; April 19, 2008