• WisBusiness

Neumann: Housing will lead the recovery
3/9/2009

By Brian E. Clark
For WisBusiness.com

The Wisconsin economy may be in a slump, but home-builder Mark Neumann -- a former Republican congressman who may run for governor in 2010 -- says his company is going strong and had its second- or third-best February on record.

“We’re finding we have to do things a lot different than we used to,” said Neumann, who represented the 1st Congressional District from 1995 to 1999 and got beat by U.S. Sen. Russ Feingold in 1998.

“We’ve had to cut back on operational expenses, and we’re not spending money on some of the things we’d like to,” said the 55-year-old Nashotah resident who runs The Neumann Companies.

“But we are supplying a quality house. With the help of our subcontractors and suppliers, we’ve been able to bring our prices down by 10 to 15 percent. Which is really what the market is looking for and with those price reductions, those houses are in fact selling.”

Neumann, a former science teacher, says his company builds homes from Kenosha to Port Washington and out to Lake Mills with some projects as far west as Madison. The entry level price range of $210,000 to $350,000 is “very good” for his company.

Prior to the economic slowdown, he built homes that ranged in price from $250,000 to $400,000.

“It’s a matter of reacting to the marketplace,” Neumann told WisBusiness.com in early March.

To lower the price, he said the houses being built today have fewer “bells and whistles,” substituting Formica countertops for pricier granite, for example.

“We are providing a quality base product that is energy efficient and green-built,” he said.

Neumann wouldn’t provide details but is working on plans to begin building houses that actually produce energy.

“It will be exciting and do something about energy use,” he said. “We’ve just seen the Obama administration come out with its cap-and-trade rules, which will hurt our manufacturing companies.

“We need to look for other ways to improve our environment and air quality other than taxing our businesses and causing them to go to other nations to produce their products, taking their jobs with them,” he declared.

Neumann's policy interests extend beyond the housing market -- he's seriously considering a challenge to Democratic Gov. Jim Doyle next year. If he runs, he'd likely be in a Republican primary against Milwaukee Co. Exec. Scott Walker, who's been preparing for a run of his own.

“We are leaning very heavily toward getting in this fall and baring anything unforeseen at this point, that is the direction in which we are headed,” Neumann said. “But no decision has been made at this point.”

As governor, he said he would make Wisconsin a “tax haven” for both people and businesses.

“So when people are making decisions on where to locate jobs, they will locate here in Wisconsin,” he said.

On the housing front, he said the key to cutting prices has been working with subcontractors and suppliers “and our own people to bring the overall cost of the product down to where people are willing to buy it.''

He notes that the houses he builds remain in the 1,500-square-foot to the 2,500-square-foot range.

“These are entry level, but top-quality houses,” he said. “That’s been my niche since I got in back in the early 1980s.”

Financing to buy a home remains difficult, he said.

“But the notion that’s out there that people can’t get financing is not true to qualified buyers,” he said. “There are still programs out there where they can do 100 percent financing if they want to, but for the most part people are coming in with 3 percent to 5 percent for a down payment, anywhere from $8,000 to $12,000.”

Neumann said he isn’t a big fan of 100 percent financing and recalled that a 20 percent down payment was required when he got into the home-building business 30 years ago.

He said his company is promoting a lease-option for people who don't qualify for financing. Under this program, they can rent a house and also save up for a down payment.

“For example, if you pay us $1,800 a month rent, we will apply $500 of that toward a down payment, so over a two-year period, you’d save $12,000,” he said. “So part of our business is now working with people to save up that down payment.”

For the most part, he said people who have bought homes through his company have been able to make their payments “unless they have lost their jobs.”

Neumann emphasized that his company had to change to adjust to the recession.

“The business is just not like it was before,” he said, acknowledging some Wisconsin builders have gone under. “If we had not adapted to what was going on around us, we’d be struggling like everyone else.”

Some companies had too many debts, while others had operating costs that were too high, he said.

“The real problem we are having today – and this is on many business fronts – is that banks are not renewing notes,” he said.

Even if businesses have good track records and have paid off their loans on time, banks are saying “no,” he complained.

“That is causing major upheaval,” he said. “They are doing it because they do not want real estate loans on their books… and do not want that classification of that investment. That is probably the biggest single problem in the industry today.”

Neumann said Wisconsin has excess housing inventory that needs to be sold off before prices can rise again.

“But we certainly have not been hit like the housing industry has in other parts of the country,” he said.

Neumann declined to predict when the state or national economies will rebound but says the turnaround hinges on housing.

“As long as housing prices continue to slide, we’re not going to have a recovery in our economy as a whole and you’re not going to see more problems with the banks,” he said.

“So when you see Obama or Jim Doyle focus on a variety of spending plans, what they really need to do is focus on how to fix housing,” he said.

“Because when housing gets fixed, banks are fixed. And when banks are fixed, then the rest of the economy can start to function again.

“When you start to see housing turn around, I’d suggest that will be the front end of the recovery,” he said. “And whether that is this year late or next year… I can’t tell you that.

“But I can tell you that I have great confidence that we will come out of this because this is America and we’re going to figure out how to make it work under the set of circumstances that we are given,” he said.
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