Saturday, March 26, 2011

How to Increase New Home Prices by $4,000 in CA

California building code amendments now require every single-family home and duplex built anywhere in the state to be equipped with a fire sprinkler system. Builders say it will add $4,000 to the price of a house.

28 Comments:

At 3/26/2011 9:55 AM, Blogger PeakTrader said...

Earth Day-celebrating the Dark Ages:

The idea is to turn off all "non-essential" lights and appliances.

Consumers in dark over
risks of new light bulbs

By 2014, incandescent bulbs will be phased out across the country.

The phase out has been referred to as "light bulb socialism".

The consumer preference for light bulbs is for incandescent bulbs, with many complaining about what was described as the ugliness or the cold, flat, unnatural, dull light emanating from CFLs.

CFLs, like all fluorescent lamps, contain small amounts of mercury.

Consider her plight.

When the bulb she was installing in a ceiling fixture of her 7-year-old daughter's bedroom crashed to the floor and broke into the shag carpet, she wasn't sure what to do. Knowing about the danger of mercury, she called Home Depot, the retail outlet that sold her the bulbs.

The store warned her not to vacuum the carpet and directed her to call the poison control hotline in Prospect, Maine. Poison control staffers suggested she call the Maine Center for Disease Control and Prevention and the Maine Department of Environmental Protection.

The latter sent over a specialist to test the air in her house for mercury levels. While the rest of the house was clear, the area of the accident was contaminated above the level considered safe. The specialist warned Bridges not to clean up the bulb and mercury powder by herself – recommending a local environmental cleanup firm.

That company estimated the cleanup cost, conservatively, at $2,000. And, no, her homeowners insurance won't cover the damage.

 
At 3/26/2011 10:09 AM, Blogger PeakTrader said...

Consumers in dark over
risks of new light bulbs
(continued):

Since she could not afford the cleanup, Bridges has been forced to seal off her daughter's bedroom with plastic to avoid any dust blowing around. Not even the family pets are permitted into the bedroom. Her daughter is forced to sleep downstairs in an overcrowded household.

 
At 3/26/2011 10:16 AM, Blogger Che is dead said...

Building codes are often nothing more than cronyism dressed up as "safety concerns". As an example, in San Francisco, as a sop to the unions, all waste plumbing must be cast iron as opposed to PVC which has been used in other states for years because it is cheaper, just as safe and less time consuming to install. The building codes are littered with this gargbage. Of course, if you try to change these things you are immediately tarred as someone who is trying to reduce safety standards and hurt the kids.

 
At 3/26/2011 10:17 AM, Blogger PeakTrader said...

The article states:

Kevin Reinertson, supervising deputy for the California Fire Marshal...He said accidental sprinkler activations or sprinkler plumbing breaks that cause flooding are rare.

My comment: Smoke detectors don't flood houses.

 
At 3/26/2011 10:30 AM, Blogger Jason said...

This is a very bad precedent. More and more of our disposable income is being diverted to inefficient use by people supposedly concerned with our welfare and safety. Soon we will all be poor, unemployed, prisoners in our homes and cars (if we can afford them) and, oh, safe.

 
At 3/26/2011 12:27 PM, Blogger NormanB said...

I would like to know how many home fires there are each year in California. Anyone know?

 
At 3/26/2011 1:12 PM, Blogger bix1951 said...

Looking into this I find that fires resulting in death and injuries are a lot more common than my experience would expect. But the real problems seem to be smoking, alcohol, poverty, and rural living.
Sprinklers? Maybe this will end up causing more homelessness by driving up the price of being housed.

 
At 3/26/2011 2:05 PM, Blogger PeakTrader said...

Norman, the article states:

Bob Raymer, the California Building Industry Association's technical director, argues that more lives would be saved at less cost by putting hard-wired smoke detectors into homes built prior to 1992 when smoke detector requirements were strengthened in the state building code.

"It is extremely rare to see a fire fatality occur in a home built after 1992," Raymer said.

 
At 3/26/2011 2:11 PM, Blogger PeakTrader said...

I'm sure there are many home fires in California:

S. California fires destroy hundreds of homes
More than 265,000 warned to flee; 14 blazes cover 310 square miles

Wildfires blown by fierce desert winds Monday reduced hundreds of Southern California homes to ashes...At least 655 homes burned — about 130 in one mountain area alone — and 168 businesses and other structures were destroyed.

“The sky was just red. Everywhere I looked was red, glowing... It was like Armageddon. It looked like the end of the world."

 
At 3/26/2011 2:43 PM, Blogger Ron H. said...

"The latter sent over a specialist to test the air in her house for mercury levels. While the rest of the house was clear, the area of the accident was contaminated above the level considered safe. The specialist warned Bridges not to clean up the bulb and mercury powder by herself – recommending a local environmental cleanup firm.

That company estimated the cleanup cost, conservatively, at $2,000. And, no, her homeowners insurance won't cover the damage.
"

It seems obvious to me, that CFLs, rather than being part of an energy program, are really a job stimulus program. Look at how many glaziers are getting work because of this broken window.

 
At 3/26/2011 2:47 PM, Blogger Ron H. said...

"Wildfires blown by fierce desert winds Monday reduced hundreds of Southern California homes to ashes...At least 655 homes burned — about 130 in one mountain area alone — and 168 businesses and other structures were destroyed."

And sprinkler systems would have saved how many of those homes?

The 168 businesses already had fire sprinkler systems.

 
At 3/26/2011 4:27 PM, Blogger juandos said...

Is it now mandatory that to be a good citizen of California one must undergo an orchiectomy, a lobotomy, and maybe a backbone removal just be sure that there isn't any rebelious nature left to fight against these asinine laws?

 
At 3/26/2011 9:30 PM, Blogger geoih said...

Quote from PeakTrader: "Since she could not afford the cleanup, Bridges has been forced to seal off her daughter's bedroom with plastic to avoid any dust blowing around. Not even the family pets are permitted into the bedroom. Her daughter is forced to sleep downstairs in an overcrowded household."

The amount of mercury in one CFL is miniscule and is vapor form inside the bulb. Once the bulb breaks, the mercury disperses into the atmosphere in seconds. Unless you have your face right in front of the bulb when it breaks, the exposure risk is minimal, if not zero. There's a greater risk to her kids from the glass in the carpet than from the mercury that has already gone out the window. The cleanup advice being given by the government and retails stores is just legal CYA.

Don't misunderstand me, I think the whole CFL issue is ridiculous. The idea that the Federal government would mandate the kind of light bulb you can use is a perfect example of how out of control government has gotten. And while the mercury exposure from one bulb might not be something to realistically worry about, the idea that would would deliberately introduce such large amounts of mercury into our environment just illustrates how stupid the environmental movement is. Unless you break a whole case of fluorescents right in front of your face, the mercury exposure risk is not something that should normally concern you. The local coal fired power plant is a much bigger mercury risk.

As for sprinklers in houses, this probably is a good investment of your money. House fires are a significant domestic hazard, but so are falls on stairs and in bath tubs (not to mention ladders). Is it a good investment of $4,000? Yes, if you have a fire. If you don't have a fire, it's a waste of $4,000.

If the nannies of the world want to really make an impact, I suggest they watch a few episodes of Funniest Videos to decide what they should focus on. (I probably shouldn't give them any ideas.)

 
At 3/27/2011 1:28 AM, Blogger PeakTrader said...

Geoih, maybe there isn't enough mercury to affect people's health. However, here's what Wikipedia says:

Compact fluorescent lamp

"It is unlawful to dispose of fluorescent bulbs as universal waste in the states of California, Illinois, Indiana, Michigan, Minnesota, Ohio, and Wisconsin.

The amount of mercury released by one bulb can temporarily exceed U.S. federal guidelines for chronic exposure. Chronic however, implies that the exposure continues constantly over a long period of time and the Maine DEP study noted that it remains unclear what the health risks are from short-term exposure to low levels of elemental mercury.

The Maine DEP study also confirmed that, despite following EPA best-practice cleanup guidelines on broken CFLs, researchers were unable to remove mercury from carpet, and agitation of the carpet — such as by young children playing — created localized concentrations as high as 25,000 ng/m3 in air close to the carpet, even weeks after the initial breakage.

The U.S. Environmental Protection Agency (EPA) recommends that, in the absence of local guidelines, fluorescent bulbs be double-bagged in plastic before disposal.[58] The Maine DEP study of 2008 compared clean-up methods, and warned that the EPA recommendation of plastic bags was the worst choice, as vapors well above safe levels continued to leach from the bags. The Maine DEP now recommends a sealed glass jar as the best repository for a broken bulb."

 
At 3/27/2011 11:53 AM, Blogger James said...

$4,000 for a Fire Sprinkler system? Get Real!

The merits of such a system aside the price quoted is unrealistic. An online search in the Los Angeles area turned up several organizations willing to do a full copper repipe for less. Several years ago I had the galvanized water pipes replaced with copper pipes. The price I paid adjusted for inflation was less than $4,000. That involves cutting holes, removing the old pipes, installation of new copper pipes, and repairing the holes cut to gain access. That is a far larger job than running a pipe and a valve to each room in NEW construction. In today’s tight market the best a home builder is going to get is the recovery of cost. I would not even bet on that. I recently read a stock market research paper advising against buying the home builders (DHI, KBH, BZH, etc) because the price they are getting for new construction is declining.

 
At 3/27/2011 12:33 PM, Blogger PeakTrader said...

This comment has been removed by the author.

 
At 3/27/2011 12:35 PM, Blogger PeakTrader said...

This comment has been removed by the author.

 
At 3/27/2011 12:39 PM, Blogger PeakTrader said...

James, a $4,000 increase in new home prices won't make much of a difference, e.g. on a 30-year mortgage. Interest rates are more significant.

A stock, e.g. KBH, has become profitable again, although the median new home price fell from $248,000 for all of 2007 to $202,000 in Feb '11.

Also, new homes sold in the "West" fell from 268,000 units in 2006 to 58,000 in Feb '11 (annual rate).

 
At 3/27/2011 1:07 PM, Blogger PeakTrader said...

Why U.S. home building stocks look cheap
Mar. 04, 2011

1. Pent-up demand.
2. Fed focus on unemployment.
3. Inflation hedge.
4. Population growth
5. Housing stocks still out of favor (pessimistic sentiment).
6. Home builders in better shape (balance sheets best shape in years).
7. Mean reversion.

Balance sheets:

William Mack, a former Standard & Poor's equity analyst who now manages individual investment accounts. “The average builder has cut its net debt by roughly $1-billion since 2006 peak levels” through lower inventories, reduced operations, tax refunds and secondary share issuances.

The process of writing down land holdings appears just about complete. In fact, Mr. Mack says, the majority of existing land inventories now consists of land purchased in the past two years at relatively reduced, or distressed, prices.

Many of the smaller builders went out of business during the recession, leaving the larger builders to benefit disproportionately from any upturn.

 
At 3/27/2011 1:38 PM, Blogger Ron H. said...

"The Maine DEP now recommends a sealed glass jar as the best repository for a broken bulb.""

But, wait. What will likely happen to that sealed glass jar by the time it reaches the landfill? Or, have I missed something?

 
At 3/27/2011 2:08 PM, Blogger Ron H. said...

James

"$4,000 for a Fire Sprinkler system? Get Real!"

You are correct if your local regulations allow the addition of a fire sprinkler system to the main supply system for the house.

Requirements vary widely by locale, and in fact may be confusing or even contradictory, as separate government agencies have their own requirements, and seldom do the right hands know what the left hands are doing.

One consideration is that the existing or planned meter & supply system must be capable of handling the high flow rate required by a fire sprinkler system.

In some areas, a seperarte water system is required including an additional meter. This could easily cost a lot more that $4000.

 
At 3/27/2011 2:16 PM, Blogger James said...

Peak,

Of the 12 homebuilders covered in the Valueline standard edition 6 (bzr, hov, kbh, mdc, joe, tol) are projected to post a loss and 6 (dhi, len, nvr, phm, ryl, spf) a small profit for 2011. My finance professor proposed three rules by which to judge an investment: 1) more is better than less, 2) sooner is better than later, and 3) certain is better than uncertain. The homebuilders look like a poor investment on all three rules. It is too early to bet on employment. Besides unemployment improvement in coming months will be from removing people from the workforce rather than job creation. That will be no help to new home sales. Pent up demand will be covered by homes in or on their way to foreclosure. These stocks are dead money for one or more years. A better bet would be the REITS. Those people losing their homes to foreclosure will have to rent.

 
At 3/27/2011 2:20 PM, Blogger Ron H. said...

Peak

While you are correct that $4k doesn't make much difference in the cost of home ownership over a long period of time, it is an upfront cost, that affects the initial price. This makes a difference to those at the margin.

If, in fact, sprinkler systems save many more lives than an alarm system only, then they can be considered worth while. I doubt that they save much in property damage, as you are trading fire damage for water damage.

Are you aware of any statistical information on this?

 
At 3/27/2011 2:51 PM, Blogger PeakTrader said...

James, that may explain why your finance professor is teaching.

Here's a few investing tips:

1. It's the information you don't know that's most important.

2. When a stock is consolidating, there's little risk, and you can make money trading a range, until it breaks-out, which can take years.

3. A quality stock with a small market cap, e.g. $1 billion, can double faster than a large market cap stock (or in the case of small biotechs, and other small techs, can spike several hundred percent in weeks or even days).

4. Inherent quality and the future economy mostly determine stock prices.

 
At 3/27/2011 3:04 PM, Blogger Ron H. said...

Peak

I like your investing tips, but would modify #4 only slightly.

"4. Perception of inherent quality and the future economy mostly determine current stock prices."

 
At 3/27/2011 3:14 PM, Blogger PeakTrader said...

Ron, perception helps explain why a stock is too high or too low.

 
At 3/27/2011 6:49 PM, Blogger Ron H. said...

Peak

"Ron, perception helps explain why a stock is too high or too low."

I agree. We judge whether we think a stock is priced too high or too low based on our perception of the future. We can use mathematical formulas to help us make better decisions, but ultimately, we will guess.

If this were not so, there would be no trading, as the future would be known, and we would all arrive at the same future value for a stock, and thus the same current price.

 
At 3/28/2011 8:12 AM, Blogger geoih said...

Quote from PeakTrader: "Geoih, maybe there isn't enough mercury to affect people's health. However, here's what Wikipedia says: ..."

Wow, you can read Wikipedia. Now tell me something I don't know. You're simply quoting more government bureaucrats covering their collective asses.

 

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