Week Five Assignment

Introduction

A brief introduction of The Department of Housing and Urban Development will start with the creation of HUD in 1937. This is also the year that the US Housing Act was created. On January 18, 1966 the first Secretary of HUD was announced, which was Robert C. Weaver. During Secretary Weavers time at HUD there were many changes in the housing industry such as the introduction of Federal Experimental Housing Allowance Program and a new corporation for Community Development was initiated. Other history making moments for the organization would have to be in February 2, 1973 when President Nixon decided to declare moratorium on housing and community development assistance. The mission of HUD is very clear and it states that the departments sole mission is to make sure they create strong, sustainable, inclusive communities and quality affordable homes for all people regardless of race, nationality, age, and gender. HUD continues to work strengthening the housing market ad to help bolster the economy while also protecting the consumers. HUD also wants to meet the needs for quality affordable rental homes, while The Department utilizes housing as a platform for improving the quality of life for all people.

Value Proposition

Value proposition is extremely important to a company; it tells customers why they should be utilizing the services of a particular company. The value proposition of HUD is very clear when a customer reads the mission of HUD. The Department wants to make sure that is provides good quality housing for all people. This is definitely something that HUD provides with another of housing programs for people of economic backgrounds. Starting with financing options that allow customer to only put $100 down to purchase a single family dwelling, to providing housing choice vouchers homeless veterans who have mental and physical handicaps. The products of HUD solve the number one problem of every person in the world and that is housing. There are currently seventeen programs areas within the HUD and they rand from single/ multi-family housing, public housing which includes section and project housing, HUD provides funding to housing entities to reduce the rent for occupants in certain areas in each US city. Other great housing programs of HUD include Indian housing and elderly housing which HUD provides funding to elderly facilities to offer affordable housing for the elderly who may be on low fixed incomes.

Market Position

Since HUD has been in existence it has played a major role in the housing industry. Since the year of 1934 HUD which represents FHA has insured over 40 million homes loans. In today’s housing market FHA and Ginnie Mae share the top spot of the market because they provide vital federal backstop that allows credit flows to continue for the housing market. Although HUD does a lot of good for the community there are some criticisms of the agency as well such as the amount of money that was spent in 2014 which is around $42 billion dollars and the breaks down to about $341 per household in the US. In the year of 2015 HUD had budget request of $46.66 billion, and of that money the agency spent around 84% on the rental assistance and helping homeless.

Competitive Advantage

HUD has a major advantage in comparison to the rest of the housing market. There are number of programs that are offered at HUD that no other housing agency offers such as Good Neighbor Next Door which offers single family housing properties to members of the police, teachers, EMT, and firefighters. The homes that will be sold to these individuals will be sold for a discount of 50%, this allows HUD to build neighborhoods that are safe ad free from crime. The discount that is offered are for certain homes because HUD wants to build the value of the homes in that area and provide protection for the current and future residence. Another program that is offered by HUD that gives the agency competitive advantage is HUD allows purchaser of single family dwelling an allowance to select a closing of attorney of their choice and HUD will pay for it. This program allows the purchaser to select which closing attorney close the loan they have with HUD. HUD used to have contracts with closing attorney but many of the purchasers had to travel to other states which were far away from the property they were buying. This program gives the purchaser the control to have the funds they need to close on their homes and be able to close in the area where they are buying the home.

External Environmental Scan/ Five Forces Analysis

Current Environment

In the current real estate market there is a lot to say. First many people have to understand that there are many elements that affect the real estate market and consumer’s ability to purchase and sell homes. First the increases of wages are not going the way most consumers would like. Most companies such as HUD have not had a raise in over five years. This is the same issues for many Americans today. Other items in the environment would be the stock market that really effect the interest rates of mortgages. Many of the top retailers such as Macy’s, Target are currently not doing so well. Also, there has been a huge spike in oil prices that will curve the spending habits of most consumers. However, new homes have been sold at the highest since 2008. The value of prices has also hit an all-time high as well, with foreclosure continuing to decline because consumer is able to stay in their homes. This has made the housing market stable, not great but stable and neighboring homes are able to maintain their value. (La Monica, 2016).

Five Forces Analysis

Conducting a five forces analysis will focus on the five most important forces that have been determined to have competitive power in regards to any business situations. The Department of Housing and Urban Development has many important sources that could potentially have power against HUD’s business. The first section of the five forces analysis is supplier power; in this section the power of suppliers will be examined. In regards to HUD the suppliers of this industry would be the lenders. However, the lenders only receive properties that have been foreclosed on by borrowers. The size of HUD’s inventory is dependent on the number of properties the lenders send to HUD after they have been received. Now, once the properties are in HUD’s inventory the contractors have to maintain the properties until they are re-sold. The prices are driven up by the contractor trying to receive higher prices for the services they complete for HUD homes. The second section would be buyer power and the buyers that purchase properties from HUD always low ball the asking price because there are so many properties on the market, so at this present time this is a buyers’ market and they have the option to select any home they want. HUD has to compete against every home that is on the market. The buyers will offer below asking price and when that is done that causes the appraisals of other homes to be reduced as well. The third section is competitive rivalry, HUD has many rivalries in the industry, when it comes to placing homes on the HUD rivalries are every other home that is currently on the market. The biggest competition would have to come from new homes sales. Builders are able to offer so many incentives to buyers and their agents for purchasing their homes. HUD only pays three percent of closing cost and doesn’t complete repairs. New home builders are paying all closing cost and offering to purchase new appliances and homeowners insurance for a year. This is definitely a better way to purchase a home. The fourth sections deal with threat of substitution; HUD customers can easily decide to conduct business with someone else. HUD has an online bidding process to allows customers to bid on properties online. The problem with this is that HUD doesn’t get the opportunity to review all the bids before a decision is made. Other companies submit their bids in person and this gives the seller to select the best deal for them. HUD customer would probably prefer to submit their proposal in person to give them a better chance to be selected by the owner. The fifth and final step in the analysis is threat of new entry, the good thing is that is takes a lot of money and time to enter the real estate market and to be able to stay in real estate. At the moment there are no threat of new entry that will affect HUD’s business. (Wrote, 2016).

Strategic Issues

Issue One: Property Value:

One of the main issues for HUD is the property value is not being received on the returns. When HUD hires an appraiser for provide the value of a home they property values are coming in at market rate, but when the home is listed on the market the listing price is below market. HUD has the ability put properties on the market for full appraisal prices, however the agency believes they have to lower the asking price to bring more customer to bid on HUD properties.

Issue Two: Holding Cost:

HUD has holding cost that takes away from the bottom line that HUD will receive after the property has been sold. The holding cost include fees that are paid field services contractors, who provide property maintenance for HUD homes, and asset manager contractors that conduct marketing activities on HUD homes. There is also a fee that is placed on each property for actually holding it in HUD’s inventory. The fee depends on the state in which the property is located. However, the fees range from $3000 to $5000 per property.

Issue Three: Agent Incentives:

HUD in recent years has removed their agent incentive. This is a huge mistake made by HUD, they are the only agency that doesn’t offer the selling agent an incentive for selling HUD homes. On top of not offering an incentive HUD pays the lowest amount for broker commissions. This causes many agents to walk away from selling HUD homes because they will not get paid enough money for all the requirements to sell a HUD home to consumers.

Issue Four: Property Repairs:

HUD is one of the only agency that do not provide property repairs for the homes they are sold. HUD does have a program that provides repairs on properties that require less than $5000 in repairs. The money is being wasted on these properties because they would have sold regardless of repairs.

Issue Five: Non-Performing Contractors:

HUD employees are required to manage the activities of contractors that are hired by HUD to perform property management and marketing activities. Some of the contractors do not perform duties are required according to property contract. HUD employees have to work with non-performing contractor even when evidence is given that the contractor is not performing. This causes the agency to loose tons of money because a lot of homes have to remain off the market because maintenance to prevent consumers from getting hurt have not be removed. When a property is off the market, there is no way for the property to sell which goes against the bottom line of the agency which is to sell homes.

Summary/Recommendation

In conclusion HUD has a great mission for providing homes for the citizens of the US. HUD has properties in all US states and there are many people that benefit from the many programs that have been discussed throughout the paper. However, it has been discovered through research for this paper that HUD is lacking in many areas. These areas keep the agency from receiving profits that are due to the agency because of many factors such as non-performing contractors, not providing repairs for properties, low property values, and agent incentives. Recommendations for HUD would include but not limited to paying selling agents a bonus for homes sold within 30 days on contract signing. Another recommendation would be providing repairs for properties that could raise the property value which items such as HVAC, electrical repairs, or possibly appliances for customers that cannot afford to purchase new ones. Other items for the agency to consider would be all HUD employees to replace contractors that are not performing in accordance with HUD standards, and list properties for the price listed on appraisals. With these recommendations it will help the agency with selling more homes and increasing the amount of money that is received in return for each home. When the agency makes a large profit that will help the consumers of the agency because more programs will be added.

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