HUD Watch Heats up as Obama Roster Fills
From HOUSINGFINANCE.COM, By Donna Kimura: Each day brings news of an addition to president-elect Barack Obama’s dream team. Each pick gets a litmus test–how smart? how proven? how centrist? how collaborative?–and each selection affirms the moment calls for a cast of heavy hitters the likes of which may never have assembled with so critical a mission since the fledgling days of the first Continental Congress, or just after the War Between the States in the 1860s.
Housing is at the center of the economic scourge as it unfolds across the latter years of one decade, no doubt into the next. However, it’s been noted that when the President meets with the assembled Cabinet, the secretary of the Department of Housing and Urban Development sits down at the end of the big table, barely visible.
Obama's "Econ-Team"
With all the high-voltage talent Obama has recruited into big roles on the economic counsel front–Timothy Geithner as Treasury Secretary; Larry Summers to head up the National Economic Council; Peter Orszag as chief of the Office of Management and Budget; and today, former Federal Reserve chairman Paul Volcker to chair a new White House advisory board that will include economist Austin Goolsbee as staff director–the magnitude of the role of HUD secretary as regards the pall over housing economics remains in question.
That doesn’t mean a HUD secretary won’t play a critical part in carrying out the Obama agenda, reports Affordable Housing Finance senior editor Donna Kimura in her analysis “Obama’s New HUD Secretary?”
In an Oct. 20 letter to John Gage, president of the American Federation of Government Employees, Obama wrote that HUD is critical to the millions of working families. “As we tackled the effects of the current fiscal crisis on Americans, HUD must be part of the solution,” he said.
“I am committed to appointing a secretary, deputy, and assistant secretaries who are committed to HUD’s mission and capable of executing it. I know that the department needs resources to successfully implement the expansion of programs required by the Housing and Economic Recovery Act of 2008. I pledge to work with Congress to secure resources necessary to meet HUD’s important mission,” Obama’s letter continued.
“Because of the fiscal mess left behind by the current administration, we will need to look carefully at all departments and programs. We plan specifically to look at work that is being contracted out to ensure that it is fiscally responsible and effective. It is dishonest to claim real savings by reducing the number of HUD employees overseeing a program but increase the real cost of the program by transferring oversight to contractors. I pledge to reverse this poor management practice.”
Thumbnail profiles of some of the individuals whose names are said to be under consideration for the position are part of an analysis on the HUD secretary sweepstakes Builder senior editor John Caulfield filed yesterday.
Some people who have been bandied about as possible nominees, such as Atlanta’s Mayor Shirley Franklin, have said on the record that they aren’t interested in the job. But two names keep cropping up as front-runners:
•Manny Diaz, a Cuban-American lawyer elected as Miami’s mayor in 2001, and who completes his second term next year. Diaz currently serves as president of the U.S. Conference of Mayors and is credited with resurrecting a bankrupt city government and leading Miami into a resurgent period by attracting major developers, improving city services, and tackling crime. Diaz’s legacy includes Miami21, an ambitious land use and zoning master plan designed in accordance with the principles of New Urbanism and smart growth. He has also pushed for reductions in greenhouse gas emissions via stringent green building codes and other measures.
“I have not received any formal communications from President-Elect Barack Obama’s team regarding a position in his administration,” Diaz said in his official statement on the matter. “The rumors are just that, rumors and speculation. I remain focused on being Mayor of the City of Miami and completing the projects I started seven years ago. My main concerns are taking care of the needs of Miami’s residents and continue to build a city we are all proud of.”
•Congressman Jim Clyburn (D-SC), a former civil rights activist and member of the House since 1993. With his recent re-election as House majority whip, Clyburn retains a powerful position as the third-ranking member of the House and the highest-ranking African American in Congress. Clyburn made headlines when he told former president Bill Clinton to “chill a little bit” and tone down his rhetoric against Barack Obama during the primary race in South Carolina. Clyburn has denied any interest in serving as HUD secretary. “He plans to stay in Congress and continue to serve as majority whip for the 111th Congress,” said Christie Greco, a spokeswoman for majority whip’s office.
Four for Fighting
From CONSTRUCTION PULSE, by John McManus: A sobering quatrofecta on the data front this morning–consumer spending, durables orders, jobless claims, and new homes orders–has four leading economic indicators all leading backwards to months and years past for the date when each hit a similar low point.
- The Wall Street Journal reports “Data Indicate Faltering Demand,” mapping out how both households’ and businesses’ spending has fallen off a cliff.
- CNBC flashes: “New-home sales Tumble to 18-year Low in October,” with new-home median price now at $218,000, a 7% slip from year ago levels.
- Bloomberg reports “U.S. Durables Orders Fall Twice as Much as Forecast.”
- Weekly job-loss claims data are coming in consistently above the half-million mark.
The direction of these indicators would only be news to a proverbial Sherlock. They’ve been heading south for more than a year since many of their mid-2006 peaks, and will do so until well into the second half of next year, or later. The magnitude of the negative momentum, though, keeps exceeding The Street expectations. This is what astonishes us.
For a good preliminary look at the devil in the new-home sales details, best stop in with Calculated Risk, which pulls Census Bureau new-home sales data across several cycles for comparison, and charts out both months-supply and absolute inventory for analysis. The obligatory reminder–Census Bureau numbers don’t account for cancellations, for which there are reasons galore these days. The following is analysis from Calculated Risk.
The second graph shows New Home Sales vs. recessions for the last 45 years. New Home sales have fallen off a cliff.
Sales of new one-family houses in October 2008 were at a seasonally adjusted annual rate of 433,000, according to
estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development.This is 5.3 percent below the revised September of 457,000 and is 40.1 percent below the October 2007 estimate of 723,000.
Over the last year, we’ve cheered some dismal NHS statistics as the market booed. Today, while we are not booing the results, we are not particularly cheering like the market is. So why are we more subdued? Well, when we look at the revisions to last month’s data, it is all sharply higher on inventories, the mix of inventory has changed for the worse and total sales were revised down a bit. All of these revisions combined with the economic malaise makes for a continued struggle for builders (ignoring the long overdue government help yesterday). We believe next month will witness Sales revisions down, inventories up and the mix to be more unfavorable, skewed toward finished homes.
After all’s said and done, we’re preoccupied with where housing prices new and existing will correct to and when that will be.
- The WSJ posts S&P/Case-Shiller’s latest home price analysis by metro area on this link.
Many of us are trying to do the math on where the least-worst fix is, given the $8 trillion-and-counting in rescue spending already in play–consumer spending, corporate stimulus, home purchase inducement, etc. Imagining a scenario where 36% home-price drops necessarily mean that residential investment would erode by trillions, and where real estate owned vacancies proliferate like dandelions, leaving many communities with a scorched-earth future even more compromised than their present, the domino-effect consumer spending decline, earnings evaporation, and job loss stretching beyond 2009 should shape prioritization at the policy level.
Meanwhile, even as the Federal Reserve and other government finance agencies take action to grease the wheels of the consumer credit engine, it’s the other side of banks’ business–the commercial real estate side that does construction, acquisition, and development lending that has a death-squeeze on the jugulars of housing’s rapidly shrinking band of mostly regional and local free-market stalwarts, privately-run home builders.
The rock-and-the-hard-place for many of these private home building companies is that finishing out their projects is their last best hope at not slipping into a capital-deprived coma. Even to liquidate at a loss, they need to get done with what’s started and sold, The FDIC’s scorecard on the viability of a project unfortunately may not incorporate consideration of a grim prognosis for the project builder-developer if credit on the project freezes.
The whirlygig of de-risk can make an enemy of someone who seemed like a friend, and will likely work to make a good number of new fast-friends from among longtime rivals in the housing market.
Priorities Need a Re-Look
JP Morgan's Tom Block at BB'08
Tom Block, JP Morgan senior VP for government affairs, boldly predicted a big victory for Barack Obama on Monday evening, Nov. 3, 2008, during opening proceedings at the Big Builder ‘08 conference in Washington, DC. He also said Democrats would prevail in many of the Senate contests, as they have done, repainting blue in what had been red state bastions for a decade or more.
One more crystal ball assertion Block made that evening almost a month ago flew directly in the face of crusaders who aim to escalate housing stimulus in the order of economic triage to patient No. 1. Based on extensive privileged access to insiders on Capitol Hill, Block noted that aside from an economic stimulus package designed to provide tax rebates, infrastructure spending, aid to states, unemployment benefit and food stamps extensions, etc., taxes, health care, and energy would take dominant places on the Obama-Democratic Congress agenda, while housing might drift to a second tier of issues that would get more lip service than urgent attention.
True, the newly knighted economic brain trust will come or return inside the Beltway with passels of theory ready to spark into earliest action. Here’s the way an Obama prioritization of issues stacks up in Tom Block’s mind.
Stimulus
Tax Rebates
Infrastructure
Aid to states
Unemployment/Food stamps
Housing/TARP
Yes, that’s housing there at the bottom of the pile of initiatives that would take precedence. The question for all of us–as the U.S. nationalizes so many fundamental building blocks of its system of banks and financial services network–is where a free-market correction in home prices to normalized 50-year trends fits into an economic stabilization agenda.
We keep hearing that house prices must give back another 10% to 15% of their bubble gains in the past five years to reconnect with such multi-decade trends. As is true for almost all corrections, declines will likely overshoot the mark before they resume equilibrium, which they’ll do only after people start buying at the overshot level and start the fever.
One of the fallacies in the assumption that prices need to come back to trend in order to get transactions going again is that income growth–except in the higher echelons of household income–has been negative for the middle level households. Save for the money falling out of the sky for a few years until well into 2006, most earners would not have been capable of affording an on-trend house price let alone one that wafted up in the bubble
The smartest person in the room will come up with an answer to the question, “What comes first, jobs or a healthy housing economy?” Then they’ll come up with a way to address what you have to do when you know the answer to that question if there’s anything to do other than wait and work it through.
Still, of all the tricky variables and factors that come into play as we try to zero in on where the housing economy is heading, one of the more sketchy is that home prices will find the long time pricing norm and remain there. Corporate earnings, job growth, local, county, and state tax base, and the coffers of the now only too generous U.S. Treasury grew thanks to the bounty of consumer spending bouyed by the home price juggernaut. Lots and lots of capital returned back into the economy during those years thanks to all that wealth creation.
If incomes had kept pace with the same trends we want to re-couple housing prices to, then it might make sense to assume that we could expect home prices to re-settle at levels no higher than 38% of household incomes. But they haven’t; and healthcare expenditures represent a much higher outlay than during that multi-decade trend; and more households are non-married with children homes. So much is different about household composition and earning, so why would 50-to-70 year price trends be the accurate indicator of normalized home prices?
Point is, if you take away “creative” financing, home prices will have to correct far lower than the 70 year trends. We’re spending too much on too many other household expenditures to bring the balance sheet into the same kind of harmony that prevailed during that longitudinal halcyon period.
Here’s another way to look at re-prioritizing, and why a free-market solution will start with a national policy strategy.
Just as we’re taking a hard look at the troubled asset tally of some of our biggest financial institutions’ capital structure i.e. Citigroup, we need to do the same with residential investment. If it takes $1 trillion for the U.S. to buy back troubled real estate assets to put a floor under house pricing once and for all; to keep people in homes to prevent those properties further denigration due to neglect, which would continue the vicious circle of local price declines due to depressed comp values; and to stabilize $14 trillion in residential investment, it may be the painful investment of good money after bad that we need to make.
Link-O-Rama Leads to Obama
Today’s Cassandra award goes to the aptly-named Calculated Risk analytics blog. There’s a difference between I-told-you-so and what’s-happening-now-is-what-I-tried-to-tell-you-about. Credit CR for letting the data speak for themselves.
- See Calculated Risk’s analysis of how a bubble economy decoys for real economy “fundamentals” and what happens when the bubble bursts, as in California’s Inland Empire.
Jobs beget the need for housing which begets more jobs, and when those who are in the jobs can actually afford housing without steroidal financial assistance, real estate becomes a low-risk and limited-reward place to force-save hard-earned dollars.
With 50-or so days to go before he swears in and takes office, President-elect Barack Obama’s stepping up an aggressive attack on the nation’s pulverized collective confidence level. How smart to set expectations around a 24-month economic overhaul rather than to continue a series of tactical pings that seem to do no more than glance off the problem like toy darts.
The New York Times reports on Obama’s first sketch-out of his economic stimulus package, and offers insight into the broader casting of his economic brain trust beyond Treasury Secretary designee Timothy Geithner.
- See the NYT’s “Obama Vows Swift Action on Vast Economic Stimulus Plan“
The president-elect no doubt is correct in getting that the storyline of his administration’s first chapter will be all about jobs. Will unemployment reach double-digits? Most economists’ forecast hover at around 8% and then some, but few are predicting one in 10 of us will be on the dole.
- The Wall Street Journal gives both analysis and illustration of the current bleak job picture.
Jobs beget need for housing, which begets more jobs.
Timothy Time
Friday’s bear rally came in the nick of time to rescue a pre-Thanksgiving holiday weekend from painkillers and paranoia.
Geithner for Treasury
The Barack Obama plan–change from what’s just been back to a little more of what was [under Bill]–is taking shape decisively. With Timothy Geithner, Treasury will be able to play offense in a cross-the-aisle way necessary to build both consensus and conviction. The New York Times reports:
Mr. Geithner, 47, for weeks has been the subject of speculation for the administration’s top economic post, a job that has gained out-sized stature as the economy has weakened and the Treasury secretary has been put in charge of a $700 billion financial bailout program. His chief rival was his former boss at Treasury, Lawrence H. Summers, President Bill Clinton’s final Treasury secretary.
Check in tomorrow for a look at a “whew” moments from the past week worth reviewing.
Rounding the Hope of Good Cape
A cause celebre of the moment, now that a lame-duck Congress and the Administration have determined that the economic and housing crisis will respond to the “Pause” button until the presidential transition is complete? Loan modification. We’re seeing more and more signs of it on the home mortgage side, but what happens as commercial default proliferation adds even more strain to banks’ capital structure.
We’re seeing re-terming of mortgages, and the intended outcome of modifications–slowing and/or suspending foreclosures–in various and sundry iterations, among banks themselves, the GSEs, and government agencies like the Federal Deposit Insurance Corp.
FDIC chair Sheila Bair’s mortgage modification crusade, being piloted among IndyMac bank customers on the brink, is regarded as one of the least flawed models yet offered to stanch hemmorhaging foreclosures–whether they be among those who are incapable of meeting monthly payment obligations or those who are capable but unwilling, given the dis-incentive to keep paying for a house under water on its loan.
Her plan centers on getting the monthly payment to a manageable level so that a struggling homeowner can stay in the home–for a price to the government, the lender, and the buyer. Weighing in the balance is what is more expedient in the present [it's technically easier to foreclose] with what is less expensive in for the future [the cost of houses rotting unoccupied and dragging down the comps in the neighborhood].
At the same time Bair may be regarded as a hero for her efforts to stem the tide of REO home properties inundating the system and enlarging an already bloated inventory of for-sale residences, Bair’s getting blasted by home builders and their building materials suppliers as a goat when it comes to many of those same banks’ commercial real estate deals.
ProSales editor Craig Webb reports on National Association of Home Builders’ president and CEO Jerry Howard’s lament to Bair about how her regulatory heavy hand is snuffing out whatever feint access to capital builders had up to the last few weeks.
NAHB's Howard
“Builders with outstanding loans that are placed under FDIC control are frequently unable to contact a decision maker to deal with routine but time-sensitive matters related to loan draws or extensions,” NAHB president and CEO Jerry Howard wrote in his letter. ”Some builders have encountered what seem to be arbitrary criteria on whether or not loans receive continued funding. Again, these developments are unnecessarily turning good loans into problem assets that will significantly exacerbate the losses that must be absorbed by the FDIC and the building and banking industries.”
At Construction Pulse, we’ve been hearing from more and more home builders who corroborate that they’re unable to contact an actual decision-maker at their lending institution, but we chalk that up less as a result of FDIC take-overs and more to the Ice-nine credit funk that has paralyzed commercial real estate lending, period.
Still, if Bair’s logic as regards incentiving lenders to work out home loans, saving home buyers from losing their homes to foreclosure, could apply as well to home builders and developers, her status might again revert from Bair the goat to Bair the hero on both the mortgage and commercial real estate counts.
Higher up the policy food chain, policy makers and elected officials face having to try to quantitatively analyze the cost to taxpayers, private, and public organizations of resetting the principle owed on both home and commercial real estate loans to reflect real estate’s correction.
Galbraith on Housing
The massiveness of such an initiative is the subject of discussion on a segment of CNBC’s Squawk Box this morning, guest-hosted by former General Electric CEO Jack Welch. Texas economics professor James Galbraith believes a multi-dimensional economic program would address housing in such a way as to fully recognize the need to put a floor under residential investment as a foundation for all the other fiscal and monetary stabilization initiatives that might occur.
- See the WSJ coverage of Fannie and Freddie’s plans to cease foreclosures through the New Year.
- Via Seeking Alpha, commentator Anthony Freed provides analysis and opinion on the prudence and effectiveness (or lack thereof) of initiatives to forestall foreclosures.
Data Set
This latest macro data download from friends in the Hanley Wood Market Intelligence group.
Housing Market
National average mortgage rates declined to 6.04% in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on November 20th. This is the third straight week that mortgage rates have declined. In the week ending November 14th, the MBA’s seasonally-adjusted Purchase Index dropped to 248.5 from 284.4 in the previous week. The purchase index is now at its lowest levels since January 2001. The latest figure reflects a 12.62 percent drop from last week and a 41.41% drop from the same period last year.Housing reports produced mixed signals last month as increased sales activity came at the expense of falling home prices. Both new and existing home sales posted gains in September. New home sales in September increased 2.7% to a seasonally-adjusted annual pace of 464,000 units. Sales for the previous three months, however, were revised lower by 12,000 units. The number of new homes for sale continued to decline as builders continue to scale back production. New home inventory declined to 396,000 which is the lowest it has been since June 2004. New home prices remained weak in September as it recorded its second straight monthly decline. Median new home prices now stand at $218,400 which is the lowest median price recorded since September 2004.
Annualized sales of total existing homes in September rebounded 5.5% from August levels to 5.180 million units which is the highest annualized pace of existing home sales since August 2007. Sales of existing homes are now up 1.4% from the 5.11 million units in September 2007. Median existing home prices in September declined to $191,600 which is the lowest it has been since August 2004 and the third straight month that median existing home prices have recorded a decline. Inventory figures continued to improve last month as the number of existing homes for sale fell for the second straight month to a preliminary 4.266 million units for sale. Inventory levels are now at their lowest since March.
For market-level data and analysis please visit our website at http://www.hwmarketintelligence.com.
Employment Growth (1,181,000) D- Unemployment Rate 6.5% C- Real GDP Growth (0.3%) F Consumer Confidence 38.0 F Purchase Mortgage Applications 248.5 F Mortgage Rates 6.04% A+ Median Price Existing Home $191,600 F Existing Home Sales 5,180,000 C Existing Home Inventory 4,266,000 F Existing Home Affordability 56.7% B+ Median Price New Home $218,400 F New Home Sales 464,000 F New Home Inventory 396,000 F New Home Affordability Ratio 51.3% A
And if you think this is tough grading, have a look at the following.
Housing Supply INDICATOR STAT GRADE CLICK INDICATOR FOR ANALYSIS > Total Building Permits 708,000 F > -Single-Family Permits 460,000 F -Multifamily (5+) Permits 218,000 F > Total Housing Starts 791,000 F -Single-Family 531,000 F -Multifamily (5+) 247,000 F > Manufactured Housing Placements 75,000 F -% of Households 0.06% F -1 year % change -20.21% F Housing Growth Ratio 3.4 F > Housing Vacancies 9.9%/2.8% F -Rental Units 9.9% F -Homeowner Units 2.8% F
Housing Demand INDICATOR STAT GRADE CLICK INDICATOR FOR ANALYSIS Employment 137,656,000 D- -1 year Growth -1,181,000 F -Growth Rate -0.85% F Unemployment Rate 6.5% C- Population 301,621,157 D - 1 year Growth 2,866,338 C - Growth Rate 0.96% C Households 108,888,000 C - 1 year Growth 1,342,000 C - Growth Rate 1.0% C Homeownership Rate 67.9% A Household Income $46,326 D+ -median $46,326 D+ - 1 year Change 1.1% Employment/Permit Ratio (1.67) F Demand/Supply Ratio (1.39) F
Waiting for Sideways
There’s trouble in the Capitol Hill methadone clinic, or what was apparently masquerading as one for $350 billion and six or seven weeks or so. Leverage, and lots of it, has been an addiction for years and accounted for such heights of euphoria that we collectively began to take it all for granted. Now we all have to get off it, but doing that instantly puts us at our peril. Shrunken balance sheets–both granularly in the home, micro-economically in companies, and macro-economically in nations–are now where it’s at. All the norms of lifestyle, market position, and GDP contribution have now been exposed as grandiose. They must be reset. What do we pick when we can only pick two things to retain in our lives for every five?
Now, the line-up for a fix has suddenly stalled in lame-duck limbo; withdrawal symptoms don’t look or sound pretty, so get ready for agony incarnate in all its gory forms.
De-levering is deflating, and record amounts of wealth and worth and wherewithal vaporize in flashfloods of sell-offs. Lower and falling prices look mighty attractive on goods and services we might be interested in buying but when they cross the line and whack the market value of our own goods (i.e. home prices) then deflation becomes a scourge. There’s so much about deflation we like that it has to tell us something about ourselves–such as, we often like what’s not good for us.
- See The Wall Street Journal report: “Congress Postpones Stimulus Plan to ‘09” for more insight into the transition timewarp that indicates elected officials are calling a time-out in dealing with a series of crises that worsen each day.
As the course of the economic cycle gobbles up corporate earnings and jobs sector by sector, the viability of stimulating home purchase demand even with the lovely inducements of hefty tax credits and seductive mortgage rate buy downs pencils with more futility with each passing day and each large-scale layoff. A rate of 250,000 job losses a month easily trumps even a $22,000 tax credit and a 2.99% temporary rate on buying a home.
Duration and depth of this thing hang in the balance of what’s done both at the policy level, the household level, and the company level. Each has its say in whether we’re looking at a “U” shape or an “L” shape for the recession–we’ve already probably gone beyond the possibility of the preferred “V”-shaped snap back. If we take our medicine willingly, will it make things move more quickly? It’s the safest bet.
Since psychology–fear, greed, confidence, and trust–is playing a co-lead role in the debacle of asset-revaluation, leadership at every turn needs to put all its conviction behind restoring trust as an anchor stone to eventual recovery.
In the high-volume home building business, restoring trust will need to occur across several plains, each essential, and each probably indicative of transformational business restructuring during the consolidation phase that will occur over the next 18 months. Trust among home buyers that their homes will carry every bit the value they promise across the parabolic swings of the market will be the first job. Trust among capital providers that equity positions, loans, credit lines, etc. are a sound solid means of gaining a return on capital is another. Trust among associates at all levels of the enterprise that strategy will steer clear of the Kool-Aid of lot appreciation as a growth hormone. Trust among trades, materials and products suppliers that the goal of true business partnership rule each relationship.
Home building’s leaders, in addition to petitioning Congress for action that would redound directly to their business fortunes, would best send a message to their customers, stakeholders, and workforce that maps a high-road willingness to work through the painful consequence of all of our addiction to leverage.
The Wall Street Journal names names among corporate titans, including home builder CEOs, whose compensation draws conspicuous attention as shareholders lose their shirts in “Before the Bust, these CEOs Took Money off the Table.”
As companies in housing battle with the dilemma over how to shrink their balance sheets and at the same time retain talent, they might look at the work of Big Builder ‘08 keynote speaker, Dan Ariely, who writes in today’s New York Times, “What’s the Value of a Big Bonus?”
Ariely at BB'08
“It turns out that social pressure has the same effect that money has. It motivates people, especially when the tasks at hand require only effort and no skill. But it can provide stress, too, and at some point that stress overwhelms the motivating influence.
When I recently presented these results to a group of banking executives, they assured me that their own work and that of their employees would not follow this pattern. (I pointed out that with the right research budget, and their participation, we could examine this assertion. They weren’t that interested.) But I suspect that they were too quick to discount our results. For most bankers, a multimillion-dollar compensation package could easily be counterproductive. Maybe that will be some comfort to the boards at UBS and Goldman Sachs.
Once trust and confidence peek in from the recesses of the gloom, what we’ll see is less vertical change and volatility in the markets, be they for real or paper assets. We’ll see sideways trades, slow moves up or slight moves down. That will be a welcome harbinger of better times to come.
A TARP-athon Moment of Truth
The CEOs of Detroit’s Big Three auto companies will daub on their war paint for another day defending their lives as debate over whether and when the Treasury Department coffers may open with billions in taxpayers’ rescue dollars. For residential construction companies who seek a huge consumer stimulus package whose direct consequence would come as a positive jolt for their interests, they get to see what works and what doesn’t fly with Congress and the agencies by looking at the car companies’ example.
A question that arises is whether the story, covered in today’s Wall Street Journal, “Big Three Plea for Aid,” is more one of collateral damage or collateral opportunity. After the media blitz and blare of the past week or 10 days, there can hardly be a soul alive who doesn’t now know that one in 10 U.S. jobs owes itself to the manufacture and sale of cars. The fact that so many Congressional seats come up for reelection every two years makes it highly likely that a lifeline will be extended.
Which brings us to the collateral opportunity part of the equation.
Will the tactics General Motors, Ford, and Chrysler are using to lobby Congress for help translate? Which of them will home builders’ and their compadres in the Fix Housing First alliance appropriate for use in trying to get equal time and consideration from House and Senate committee leaders and their associates?
CNBC’s Diana Olick clocks in with a post with her view–skeptical–of where housing might fit in the ever lengthening queue of bidders for a portion of TARP bounty.
Big Builder '08 CEO Panel
I’m all about the hope, but I’m also all about talking to the builders, and I don’t see a whole lot of hope there. On Election Day I moderated a panel of three builder CEOs and the Big Builder ’08 Conference. Two were CEOs of public companies, one private. None of them had anything particularly hope-inspiring to say, and all of them spent the bulk of the time pushing their agenda for a bailout. I don’t blame them, seeing as buyer confidence is lower than ever and home prices have yet to hit the water.
New construction represents far less than a quarter of the total number of homes currently for sale, so I guess a bailout for builders will have to come second to a bailout for the overall housing market. But as I sit here watching a hearing about a big bailout for the automakers, I wonder if the home builders aren’t just waiting in the wings.
Less Sentimental
Prospective buyers are either shut out of mortgage eligibility or scared of a newly purchased house’s price getting caught in the gravitational force of a 35% market correction still playing out. Prospective lenders, bedeviled as they already are in credit and liquidity vapor-lock, would as soon toss handfuls of cash to the November winds as they would do construction, acquisition, and development residential real estate business these days.
Getting it from both ends, home builders, a normally sanguine type, accustomed to the cyclicality of their business and its ups and downs, would seem to have capitulated once and for all. Before, they were blaming headlines and news segment teasers on pulverizing consumer confidence; now their own confidence in where the business is and where it’s headed is so low it’s hard to imagine it could drop any further. We’ll see though.
Here are a number of links to coverage of the National Association of Home Builders Wells Fargo housing index, a reflection of home builder sentiment.
- Big Builder reports on the HMI in “NAHB Confidence Index Plummets.”
- Builderonline finds a Florida-based home builder, Holiday Builders, that can speak of a silver lining in “ NAHB Housing Market Index Plunges to Reading of 9.”
At Holiday Builders in Florida, President and CEO Kim Shelpman says she has noticed an improvement in buyer traffic since the election, during a typically slow period for sales. “I’ve heard a whole different attitude from our sales force,” Shelpman says. “They’ve got multiple leads that they are working, not just one. The entire confidence level has gone through a tweak–I’m not going to say we’re in correction mode, but I do have my fingers and toes crossed that we have gone to the worst place and that buyers are now regaining some confidence…It’s a small glimmer of hope, but we’ll take it.”
At the same time, leaders in the for-sale segment are at work on trying to expand the net of influence in an effort to get Congress to vote in home buyer incentives with a next consumer stimulus package, likely for serious consideration only after president-elect Barack Obama swears in in January.
Big Builder spoke with NAHB CEO Jerry Howard today about the association’s role in a burgeoning coalition around a Fix Housing First initiative aimed at lobbying Capitol Hill for a home buyer adrenaline boost.
Howard said he is optimistic that the coalition will find a sympathetic ear in Congress. Just a short time ago, he allowed, builders were viewed as “just another interest group going to the trough.” But, after pointing out facts such as the three-million jobs that have been lost directly to the housing downturn and the success of a 1975 tax-credit-driven housing stimulus program at righting the economy, that view is changing.
There has been an increasing acceptance by leaders in non-housing-related businesses that “until you stabilize house prices, you can’t hope to stabilize the financial sectors,” said Howard.
This is the line of the coalition, and they’re sticking to it.