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weekly updates from your association
2935 Breezewood Avenue, Suite 100 Fayetteville, NC 28303         910.826.0648        admin@fayhba.org       RSVP
Week of November 7
In This Issue In Every Issue

 

Dangerous Deflation
Elliot Eisenberg, Ph.D., November 2014
 
   On the surface deflation sounds wonderful.  Rather than rising prices, deflation results in declining prices.  In this way, purchasing power rises, effectively giving everyone a pay raise.  Better yet, deflation is accompanied by near zero interest rates making borrowing cheap.  What on Earth could be better!  It turns out, almost anything.
   When people expect falling prices, they wait as long as possible before making large purchases, such as a car or a house because the longer you wait the cheaper the item becomes.   Similarly, deflation breeds a strong desire on the part of households and firms to hold cash as it continually appreciates.  By contrast, inflation creates an incentive to spend since cash falls in value over time. 
   Deflation is not simply falling prices, which can be good, but is also characterized by falling wages, not so good.  In a deflationary environment, due to a lack of demand for goods and services, firms fight for market share by slashing prices.  By doing that, total revenue falls, forcing firms to pay workers less.  However, since reducing wages of existing employees is hard, companies first hire fewer workers, then lay workers off, which leads to stagnant wages and eventually rising unemployment, which forces workers to accept lower wages. 
   Deflation also creates a reluctance to borrow, since loans have to be repaid in future dollars that are worth more than those borrowed.  Think about it - if you have a mortgage payment that is $750/month and inflation is 4%/year and your income keeps up with inflation, your mortgage payment becomes a smaller and smaller percentage of your monthly income.  But if deflation is 4%/year and your income falls by that amount each year, that $750 mortgage payment can quickly loom large and dramatically crimp spending.        
   As a result, borrowers find that the real amount of their debts rise over time.  In response they save more to compensate and in the process spend less.  Of course, lenders are better off, but they do not increase their spending by as much as debtors decrease theirs.  As a result, overall spending levels decline more. 
   Exacerbating this problem, in a deflationary economy banks have little incentive to lend, as the only way to entice borrowers is to offer negative interest rates.  But in this case, the more banks lend, the more they lose.  As a result, banks do little lending, firms struggle to grow and many of both fail, causing wages to fall.  In the end, consumers buy little more than essentials and everyone holds on to as much cash as possible.  Not a pretty picture.              
   Lastly, deflation makes it essentially impossible for central banks to set interest rates low enough to stimulate demand.  While central banks can set rates at 0%, it’s hard to get below zero.  With inflation of 3%, a zero interest rate is a -3% real interest rate.  But with -1% deflation, a central bank would have to offer an interest rate of -2% to achieve the same -3% real interest rate.  While theoretically possible it’s impossible in practice.                             
   Because of chronic falling wages, reduced spending and limited lending, deflation is something to be avoided.  Once it takes hold, it’s inordinately difficult to get rid of.  Japan has been struggling with deflation for decades and is now employing desperate measures to eliminate it, with limited success and high costs.  We don’t want to wind up like Japan.               
Elliot Eisenberg, Ph.D. is President of GraphsandLaughs, LLC and can be reached at Elliot@graphsandlaughs.net.  His daily 70 word economics and policy blog can be seen at www.econ70.com.
Gain the knowledge to improve your business at IBS 2015!
   NAHB members who register for the 2015 NAHB International Builders’ Show® (IBS) by December 5 can register for an IBS full registration for just $350! A full registration not only includes access to the five exhibits of Design & Construction Weekâ„¢ – IBS, KBIS, IWCE, the Las Vegas Market and TISE – it also includes access to more than 100 education sessions in 10 tracks.
   The value of an IBS full registration is evident in the 40% increase of attendees getting a full registration over the past two years and speaker ratings are at an all-time high. The message is clear – IBS education is in demand and if you aren’t taking advantage of all the great education happening at IBS, you’re missing out!
Don’t miss business-building education sessions, such as:

When Social Media Doesn’t Work: How to Build a Smarter Online Marketing System
Discover the secrets to converting your tweets, pins and posts into clicks, conversations and closings.
Speaker, Dawn Sadler gives you the tools with a scalable system to maximize your online presence.
 
What’s Hot in America’s Kitchens
Kitchens are no longer simply a place to cook and eat – they’ve become a room for socializing and entertainment. Explore the latest in kitchen trends with product selections, finishes, technology and design.
 
Builder-to-Builder Tell All: Around the Country in 60 Minutes
Learn from builders from various markets across the country in a session of lightening-round questions.
Gain applicable real-time information as builders respond to questions suggested over social media in the weeks leading up to IBS.
 
Moneyball: Using Home Building Metrics to Sideline the Competition
Small volume builders gain the tools to compete with big builders when renowned speaker, Bob Whitten uses lessons from the 2002 pennywise Oakland A’s to examine key financial, operational and sales/marketing metrics to reveal how those with limited budgets and resources can achieve home building success.

Up Coming

November 11
HBAF Office Closed


November 13
Board of Directors Meeting
9:00 am

November 20
Member Mixer
Awards Luncheon & Installation
Highland Country Club 
11:30 am
Register
 



Construction Statistics

Local Stats: October 2014 *new

Local Stats Residential Trend: 2008-2014 *new

Absorption Report: August 2014

Commercial Building Permit Index: September 2014  

The Market Edge Residential Building Permit Trend: September 2014  



NAHB NEWS
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Build Client Confidence and Increase Green Home Sales

Wednesday, Nov. 12, 2-3 p.m.
Sales and Marketing series 

After you meet all of the requirements for green certification, and all the boxes are checked, what comes next? This program will cover opportunities that will help you incorporate sustainable design and building principals into your business in a way that will peak client interest. In addition, panelists will examine the dos and don’ts of effective sustainability messaging that can increase green home sales.

HBA of Fayetteville
910-826-0648
910-826-0649 fax
www.fayhba.org
admin@fayhba.org

Natalie Fryer, Executive Officer
Pamela Grierson, Communications Manager

NAHB Member Discounts
www.nahb.org/ma
Dues Payments & Lobbying Expense 2014 Disclosure
Dues payments to Home Builders Association of Fayetteville are not deductible as charitable contributions for federal income tax purposes. However, dues payments may be deductible as ordinary and necessary business expenses, subject to an exclusion for lobbying activity. Because a portion of your dues is used for lobbying by NAHB, NCHBA and Home Builders Association of Fayetteville, 8% of the total dues for Builder & Associate Members is NOT deductible for income tax purposes. For Affiliate Members, 1.8% of the total dues is NOT deductible for income tax purposes. Membership Dues are non-refundable.
Copyright © 2014 HBA of Fayetteville, All rights reserved.


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