Won’t You Please Come to Chicago?
Here is a direct quote from last Wednesday night from one of the principals embroiled in a conflict the Wall Street Journal reports today is “a firestorm that could cost [National Association of Home Builders CEO Jerry] Mr. Howard his job.”
As a close observer of the recent legislative activities and the subsequent give-and-take that has occurred, I know you can appreciate the importance of unity for the future success of our industry. That’s why we are actively engaged in a constructive dialogue with our trade association. We all want to ensure that home builders are recognized for the important contribution they make to the economy and to our way of life here in America. Having a cohesive voice in Washington has never been more important.
- See two previous Housing Crisis.com posts on the NAHB/big builder struggle over laws that would extend NOL tax carryback provisions. One is “BIG HOME BUILDERS VS. NAHB BRUSH-UP UPDATE,” and the other is “HOME BUILDER TRADE GROUP GOES PUBLIC, OR RATHER, GOES AT ITS PUBLIC MEMBERS.”
Conciliatory, careful almost to the point of mincing, this from-the-horse’s-mouth phrasing–which we believe will rule the day amid more hot-tempered militant voices–concludes with this line:
While we would differ with the approach that was taken and with the characterizations contained in the information published by NAHB recently, we believe it is best to focus on the future and how we can be more effective and successful as an industry. We are looking forward to having solutions-based conversations with the leadership of NAHB and anticipate a productive outcome.
You’d scarcely read into those words the stunning speculation reported by Michael Corkery in the WSJ article:
Executives from some of the trade group’s largest home-building companies are scheduled to meet Monday in Chicago with the NAHB leadership to discuss the possibility of ousting Mr. Howard, according to people familiar with the meeting. An NAHB spokesperson declined to comment.
At the meeting in a private club at Chicago’s O’Hare International Airport, representatives from KB Home, Centex Corp. and Pulte Homes Inc., some of the largest home builders in the U.S., may call for Mr. Howard’s ouster or threaten to break away from the 200,000-member trade group, these people said. A Pulte spokesman declined to comment. Executives from Centex and KB Home couldn’t be reached.
“According to people familiar with the meeting” could mean many things. Last week, we talked to some home building company senior level executives who were so aggrieved by the NAHB leadership’s behavior that they mentioned calling for his ouster as a condition to their agreeing to remain part of the trade association. But as we reported more extensively among public company leaders, we were told calmer heads would prevail, and that a very likely outcome would be a note of compromise.
Among the issues are economics. Association members pay dues according to a sliding scale, which puts a disproportionate onus on larger companies to ante up more for local home builder association and national dues each year. Big companies think that since they pay so heavily into the association’s interest, the last thing they should expect is the kind of treatment they received as the net operating loss tax carryback measure surfaced for final consideration as part of the $787 billion stimulus program passed by Congress and signed into law last month.
What’s more, the association went for a referendum among its 200,000 members last week, seeking support for its lobbying strategy and tactics as a point of proof to the largest companies that rank-and-file builders fear the big guys will get unfair advantages with an extension of carryback allowances to five years.
Ultimately, we believe that the big builders’ conversations with NAHB will be “solutions-based.” We’re just not certain that the solutions can or will be status quo solutions. In so many ways, the top 10 or 11 public company peers in home building resemble other Fortune 500 manufacturing and marketing organizations more than they share kinship with home builders who construct 10 or 12 homes a year.
Now that there’s talk of yet another gargantuan stimulus package in the planning, there’s not a shred of doubt that as one of the key players in the drama says above, “Having a cohesive voice in Washington has never been more important.”
If policy on housing hopes to offer a measurable improvement over the next couple of years, it’s certainly going to need to get high volume home builders back into the business of high volume building and marketing more affordable home products to home buyers. If that means getting rid of land that cost too much before, and buying it back at a lower price later so that the entire cost base of a home can be lower, then that may be what it takes for all of housing to claw its way back.
Home Builder Trade Group Goes Public, or Rather, Goes at Its Public Members
Home builders met with only flashes of success after their big, exhausting fight on Capitol Hill for stimulus and business tax programs they believed could help the economy help itself. They won an $8,000 tax credit for first-time home buyers. They wanted as much as $15,000 for new or existing home buyers, and they wanted a mortgage buy-down program to jolt demand. They didn’t get nearly that.
For the moment, the battle for more substantial stimulus measures has run its course.
Now, it seems, some of them are going after each other. For, in the wake of the charged, 24/7 lobbying blitz that concluded with Congressional reconciliation of a $790 billion stimulus bill on Friday, Feb. 13, second-guessing and defensiveness have flared up, opening up chronic wounds among long-polarized parts of the industry group.
This week, National Association of Home Builders leadership broadcast to its 200,000 members an aggressive defense of its strategies and its record of effectiveness among elected officials and new Adminstration policy-makers.
At the same time, the trade group distributed a series of documents and has them posted on the members-only pages of the nahb.org Web site that appear to try to rally member support amid a divisive exchange with a small but powerful part of the home building universe–high production builders.
The documents chronicle a controversy whose most recent focus is a scrap over whether net operating loss carry backs would be extended. It’s an issue that home builders have been fighting for among elected officials practically since many of them started reporting quarterly losses in the second half of 2006. But this latest go-round has had a particular sting to it.
Here’s why. At the 11th hour in lobbying and deliberations, on Wednesday, Feb. 11, NAHB President and CEO Jerry Howard wrote to Speaker of the House Nancy Pelosi saying that, as crafted, a measure that would extend NOL carrybacks from 24 to 60 months would give public home builders an unfair advantage at the expense of small home builders. Howard attached a Wall Street Journal article that appeared that morning, which focused precisely on the issue of how extension of the NOL provisions to five years could damage smaller builders’ chances of survival in an already hostile market.
A letter dated March 2, 2009, from NAHB Chairman Joe Robson to High Production Home Builders Council chair and Centex CEO Tim Eller, asserts that the timing of the appearance of the Wall Street Journal article and the case Jerry Howard wanted to put before the Speaker of the House was coincidental.
Robson
The article by Mr. Corkery in the Wall Street Journal on Wednesday, Feb. 12 [editor's note, Wednesday was Feb. 11] highlighted this potential for abuse in the NOL legislation. This was not a onetime occurrence by Mr. Corkery. Attached is a series of Mr. Corkery’s articles on NOL and housing since January, 2008.
NAHB had information about the potential for an article by Mr. Corkery, by way of his inquiry to interview some of our members and asking for a quote from Jerry Howard. We did not know what angle the article would take, who he would quote nor the timing of the article. NAHB has numerous and similar press requests on a regular basis. Obviously, Mr. Corkery’s article was published on the very day the Conference Committee on the Stimulus Bill was to begin.
The events of Wednesday, February 11, 2009, were unprecedented, ending in a four hour Conference Committee on the largest spending Bill in the history of this country.
The morning began with Mr. Corkery’s article. On your regular FHF conference call, Bill Killmer, as replacement for Jerry Howard, who had another engagement, discussed the article and a possible fix to the NOL legislation to prevent abuse. Clayton Traylor in your office volunteered to help write the legislative fix. Jerry Howard in his capacity as President and CEO of NAHB wrote the letter to Speaker Pelosi supporting NOL but requesting a fix to potential abuse which could result in further deterioration of real estate values.
There was not time to review or edit as the events of the day were unfolding at such a rapid pace. I saw the letter after it was sent. If I had the opportunity, I would have edited the tone and order of the letter but not “the ask” as I believe there was an opportunity for abuse.
At the end of the day, I do not believe the article, Jerry’s letter or anything our lobbying staff tried to do could have saved NOL in the Stimulus Bill.
Here’s what the Wall Street Journal reported the following day, on Feb. 12. “Stimulus Bill Deals ‘Major Blow’ to Big Homebuilders.”
The final version of the bill, hashed out in conference between the House and Senate Wednesday night, dropped a tax measure that would have allowed large corporations to claim write-offs on taxes they paid five years ago, instead of a two-year carryback allowed under the current law. The stimulus bill only allows for a five-year carryback for companies with under $5 million in revenue, leaving the larger builders out in the cold.
Big builders are expected to use the current tax law, allowing a two-year carryback, to reap as much as $2.4 billion in cash this year, far more than they will generate from selling houses. But small builders complained that the law, if extended to five years, would encourage their large competitors to dump land to obtain tax write-offs. That would continue to depress values across housing markets, they argue.
The stimulus also axed another home builder plum: a proposed $15,000 home buyer tax credit. The bill includes an $8,000 credit that does not have to be paid back, up from the current $7,500 credit that did have to be repaid, which builders have declared entirely inadequate at spurring demand. In a research note, housing analyst Ivy Zelman called the downsized credit in the bill “a major blow to builders.” Share of the large builders had slipped in morning trading by as much as 10%.
We can only regard the appearance of Corkery’s piece on the polarizing effects of the NOL issue, and the way it was presented as an attachment to Jerry Howard’s letter to Pelosi as highly intriguing timing.
Interestingly, when you do the math on which “small companies” wound up qualifying for the extended NOL provision–those with annual sales of less than $15 million–it takes 60 houses a year at $225k to get there. So, there are quite a number of home builders, even in the broader NAHB universe, that lost out as a result of the ultimate dollar threshold contained in the stimulus that passed.
It should be noted that HousingCrisis.com and sister publication Big Builder are in a delicate situation that we should disclose. Our parent company Hanley Wood has ongoing business relationships and long-standing association with the NAHB.
Our questions have to do with the need for aggressiveness and clear antagonism toward the large companies in the association’s membership. For example, association leadership and the Fix Housing First Coalition leaders were said to have had a daily 9 a.m. call most days a week for months. Still, according to Robson’s letter, the NAHB felt that larger company members of the coalition were pursuing their own agenda.
From the beginning, NAHB was to take the lead on strategy, lobbying and the media. You mentioned instances where by the leadership of the HPHBC were miffed by NAHB’s negative reaction to some efforts to promote the Coalitions goals.
In any effort of this magnitude, coordination of efforts is key. Sending the right message at the right time by the right people keeps the message and ask consistent. We all knew a perception problem existed. Many members of Congress, the media and the general public believe that home builders, most notably the large national builders, created the housing bubble and subsequent bust. I certainly do not agree with that, but perception is reality in most instances.
From the outset, FHF was to have a broader appeal than just the home building industry. The message was to stem the further devaluation of most American’s largest single investment, their home, by curtailing more distressed inventory from coming on the market and stimulating demand so that a floor in prices could be achieved and the free market in homes could begin again. When Mr. Hovnanian, without prior approval from the Coalition, went on Fox Business News and CNBC, it had the appearance and was perceived by many that those who caused the problem were asking for a government bailout. This was the exact opposite of the message FHF was trying to send.
Subsequently, Mr. Miller’s presentation to the National Association of Realtors(NAR) to join the FHF, again without approval of the Coalition, did not follow trade association protocol of not interfering in each other’s business and created a credibility and relations problem for NAHB leadership and staff with the NAR. We live in America and everyone is entitled to free speech. However, when a coalition is formed, ground rules set and then not adhered to, frustration sets in and more damage than good is the result.
Again, if there’s a sincere hope on the part of the association to work through these issues in a sincere, good faith way, one would think there might be more politic ways to talk about differences and misunderstandings that may have arisen. We called Jerry Howard to discuss the tone and substance of these communications to NAHB members, 200,000 of them, and he declined to talk, saying it was an “internal discussion.”
This comes across as a shot-across-the-bow not intended to offer olive but to inflame.
Here’s how Robson’s letter concludes:
We have many challenges facing our industry and I fear many more with this Administration and Congress. The High Production Builders are a significant and an important segment of our industry and of NAHB. I hope this letter will set the frame work of the HPHBC and NAHB leadership discussions in the near future. We, the leadership of NAHB, are available by either conference call or a face to face meeting at your earliest convenience.
The documents from the NAHB leadership to its membership represent chronologies of events and assertions as factually correct and true. Clearly, though, there is another side not represented in these chronologies of events and assertions. That of the companies and individuals mentioned.
From what we hear, a meeting under the auspices the NAHB’s High Production Home Builders Council will take place within two weeks. Senior management from among the top home building companies will be individually keen on a framework of discussion that may find common ground or not.
Here’s Centex CEO Tim Eller’s only response for the moment to questions about the controversy:
“We’ve have been having and continue to have an active dialogue with the NAHB leadership on industry issues which has been one of the roles of the High Production Home Builders Council from the start.”
We do know that there is anger and aggrievement among CEOs of a number of the companies, who believe they’ve been wronged in the way they’re represented in these materials.
Is NAHB chief Jerry Howard on the hot seat? Not likely. His board and the minions of committees and executives that comprise association leadership support him. But if 20 to 30 of home building’s largest companies had their say, it might be a different story.
We could go so far as to speculate that long-standing differences may just cause a split-off of the biggest home building organizations from the NAHB, an agreement to disagree, and perhaps to part ways. So many of the ways the industry has already consolidated bifurcate the interests of the largest companies from the rest.
And the next round of consolidation has not even begun yet.
From Nest Egg to Neg Eq
One in five–a number you can actually count on your fingers–homes bought with a mortgage are under water on the loan.
The Wall Street Journal this morning has a report based on data just released from First American CoreLogic.
That’s more than 8.3 million mortgages that were upside down at the end of the year, compared with 7.6 million three months earlier. It’s a problem that is expected to get worse as home prices continue to fall.
“The accelerating share of negative equity, combined with deteriorating economic conditions, means that mortgage risk will continue to increase until home prices and the economy begin to stabilize,” said Mark Fleming, chief economist of First American CoreLogic, in a news release. First American CoreLogic is a Santa Ana, Calif.-based provider of real estate data and mortgage analytics.
“The worrisome issue is not just the severity of negative equity in the ‘sand’ states, but the geographic broadening of negative equity that is expected to occur throughout the year,” he added. “Sand” states include California, Nevada, Arizona and Florida.
What’s the line where correction crosses over to deflation? Will most adverse scenarios model for a contagion in home price declines unchecked?
Who seriously doubts that well-thought out policy needs to play a role in stopping the contagion?
The Boom Gloom Factor
Face it. A lot of this might be Baby Boomers’ fault. We’d like to credit “the big troubles” to subprime borrowers who wanted to waltz into homeownership without the financial necessaries.
Not so fast.
What about Baby Boomers, 78 million highly entitled adults who’d begun to believe that scrimping and saving was an “old hat” anachronism? Many of them thought they could ride the 401K Express to retirement, with the bonus of home appreciation to add extravagance to their Golden Age. Short cuts are us. The Golden Age, by the way, would never end because rock and roll and boomers will never die.
News flash.
Comeuppance is not pretty.
Here’s a CNBC article that’s like a lightbulb going on for those who may have needed a wake up call. The government and entrenched Wall Street establishmentarians are locked in a fierce school yard scrap, and that leaves a population that thought it would have its nest feathered featherless, spectators who’ve bought tickets to the rumble.
Check out a blog post from a real estate pro/radio host who’s been hearing it from Boomers who’ve slammed up against painful reality as their hasty home-appreciation retirement strategy gets drawn into the home price give-back.
Essentially, these callers are all asking the same sorts of questions: Is now a good time to sell my home? Should I sell my house and trade down to something smaller and less expensive? Will I have to keep working to afford the mortgage on a property I would have sold to help fund my retirement?
What these Baby Boomers have begun to realize is that when a market has stalled, it stalls for pretty much everyone, not just a few souls here or there.
Sure, some houses are selling. But in October 2008, around 45 percent of existing homes sold were bank-owned foreclosures, according to data from the National Association of Realtors. That means just 55 percent of homes were sold by homeowners (with or without agents) to buyers.
As the economy continues to slog through the current recession, the news won’t be good anytime soon for sellers who are looking to get out from under their adjustable rate mortgages (ARMs).
HousingCrisis.com sister brand, Builderonline.com last week analyzed recently released data from the Center for Economic and Policy Research that attempts to tally the dollar impact of the downturn on Boomers’ wealth.
The median wealth of 55 to 64 year olds in 2004 was $315,400. CEPR projects that this wealth will fall to $168,800 in 2009, or to $143,200 in the worst-case scenario. The average wealth drop would be 29% to $708,000. Even at the top wealth quintile, the average falloff is projected to be 25% from $3.8 million.
The 45 to 54 year old group is generally less affluent to begin with, so the hit it has taken from the downturn in the housing market is starker. The study projects the median wealth of this group will erode by 41% to $101,800 in 2009. In the worst-case scenario, the decline would be more than 45%. This group’s average wealth will decline 36% to $408,500, with the losses in scenarios two and three notably larger. For example, in the second scenario, median net wealth in 2009 is $94,200 (a drop of 45 percent) and the average net wealth is $387,900 (a drop of 39 percent).
This age group’s median equity in real estate was $83,600 in 2004, but that’s fallen drastically since. For instance, in the first scenario, median real estate equity in 2009 is projected to be $27,100—a drop of 68%—while in the third, median equity is projected to be only $6,600, or a loss of 92%. The projected decline for 55 to 64 year olds from their 2004 equity median of $142,000 will range from 47% to 63% in 2009.
The wealth of baby boomers could be further compromised when they are trying to sell their houses. The CEPR study states that only 2.6% of 45 to 54 year olds had less than 6% equity in their primary residences, meaning they’d have to bring cash to a closing when selling their homes in 2004. This year, however, 17% to 28% of each wealth quintile (depending on which they fall into) would need to bring cash to close a resale in 2009. Even households at the top of the wealth ladder won’t be immune: In 2004, no households in the top quintile of the survey had less than 6% equity in their primary residences. By 2009, between 10% and 20% of the most affluent households in this age group would need to bring cash to a closing.
Obviously, an owner’s wealth exposure magnifies if his or her house is worth less than the mortgage. The study projects that between 23% and 38% of homeowners in this age group with negative equity would need to bring cash to close a resale in 2009, versus only 3% in 2004.
Boomers can only take heart in knowing that if and when home prices revert to their century old mean, it’s more likely that their kids might be able to afford one of the suckers. It’s a be careful what you wish for thing, as in a bridge to what otherwise would be Generation Gap No. 358.
Where the Most Houses Aren’t Homes
The “negative feedback loop” is a fancy new name business folks are giving to the Catch-22, vicious cycle, self-confirming prophecy that has foreclosures, home price declines, job loss, lower consumer spending, reduced earnings, and more job loss in Brian Eno hell …
A key factor in the negative feedback loop is absolute vacancies, the number of home units capable of housing people but aren’t. This factor erodes motivation to act on the part of consumers, and stands as the distance between the recovery of demand and the eerily silent inertia that reigns o’er the housing economy.
If there’s no fear that one will miss an opportunity of a lifetime by not buying now, then there’s little trigger to jump in off the sidelines.
CNBC has pulled together a U.S. Census-based ranking of the 10-metropolitan areas with the most homeowner vacancies, and cobbled a slideshow to highlight the markets.
Have a look-see.
Rental Breakdown: Tenants Drive the For-Rent Bus Downward
Theoretically, the rent is the rule, a constant, with incremental increases built in to an inalterable profit model of management for 30-some percent of United States households, and countless businesses.
The rental model, it seems, has gotten the flu when the for-sale model sneezed.
Now the rent, which was once almost as certain as death and taxes, is not a slam dunk any more.
Michael Shedlock, a k a Mish, waxes prophetic in a post that springs off a rental mutiny among retail tenants at Grand Central Market in downtown Los Angeles.
The takeaway?
The mass mutiny at Grand Central Market provides a strong hint at what’s coming.
With rising unemployment and falling discretionary spending, the economy is not coming back anytime soon. Thus, tapping credit lines to pay rent is a tactic guaranteed to fail. Yet, the economic situation is such that using lines to pay bills will continue until every cent of those credit lines are used up. After all, what vendor will voluntarily go out of business now?
Those lines of credit will eventually be defaulted on and that in turn will sink the regional banks who made the loans.
This crisis was “resolved” for now, but how many more rounds like this can the tenants take? Equally important, how many more rounds like this can the Yellin Company take? Next, multiply this scene by every similar market in the US. A conclusion is not hard to reach: A massive fallout on commercial real estate is right around the corner.
This is not to say that Mish has been scooped, but Calculated Risk has been sounding the same alarm about rents–both residential and commercial–for several months.
CR’s spare comments accompany a chart that maps a stark reality ahead for those who’re trying to make a go of it in the for-rent trade who have exposure to tricky capital structures and heavy leverage.
Click on graph for access to original Calculated Risk analysis.
This shows three scenarios for rents in the U.S. over the next two years: Flat, a 10% decline in rents, and a 25% decline in rents.
As I noted yesterday, with the “more severe” scenario and flat rents, the price-to-rent ratio will be slightly below the normal range. If rents fall 10%, this metric would be in the normal range, and with a 25% decline in rents house prices would be too high.
With the largest bubble in history, I’d expect house prices to overshoot and the price-to-rent ratio to decline to the bottom of the normal range. This suggests even a 10% decline in rents would make the “more severe” scenario too mild.
For an applied take on what this heralds for those in the multifamily business, check out an analysis by Multifamily Executive senior editor Les Shaver: “Final Tally for Multifamily is Grim in the Fourth Quarter.”
“The really ugly performance seen for the end of 2008 was in line with what our models predicted in the worst-case scenario,” says Greg Willett, vice president of research and analysis for M/PF Yieldstar. “But you don’t usually expect that everything that can go wrong actually will.”
With massive slowing in places such as Atlanta (which is now in worse shape than any market in Florida), Charlotte, N.C., and Austin, Texas, the South’s vacancy rate rose to a whopping 8.5 percent. The Midwest fell just behind with an 8 percent vacancy rate, while the West had a 7.3 percent rate, and the Northeast returned a 6.2 percent vacancy rate at the end of the quarter.
“It was a little surprising to see just how quickly the Pacific Northwest markets, which had been in such great shape, lost momentum,” Willett says. “And the complete collapse of the performance in Los Angeles was stunning. That metro saw occupancy levels fall nearly five percentage points during 2008, translating to huge net move-outs for a market that contains more than 1 million units.”
Willet expects vacancies to reach their highest points in late 2009 or early 2010. With vacancies rising, it’s little wonder that rents also took a hit. In institutional-grade units, M/PF Yieldstar reported that rents dropped by 0.3 percent, which was the first decline since the third quarter of 2003. Without adjusting for inflation, rents increased in the Midwest (1.1 percent) and South (0.2 percent) and fell in the West (-1.7 percent) and Northeast (-0.1 percent). With inflation-related adjustments, rents fell in every region.
“Rents are going to be cut significantly during 2009,” Willett says. “We’re expecting rates to come down at least 3 percent for the nation as a whole, which would be the most severe annual slide ever seen.”
Apartment owners are seeing this as well. “We would trend almost every market down a little bit to a lot this year,” says Greg Mutz, CEO of AMLI Residential, an apartment owner with properties in the Midwest, Texas, California, the Northeast, Florida, and Atlanta.
Black Clouds and Silver Linings
If you’re in housing, you’ve probably been obsessively looking at the second derivative for inklings of encouragement for more than 24 months now… waiting for the inflection point moment things don’t get worse so fast.
Now, even as new worst-ever metrics continue to pop up in one economic measure after another, we’ve finally begun to get what you hope for when everything’s been going dreadfully wrong for so long–a slowing down of the rate of deterioration.
For-sale housing’s prices and volumes peaked in early 2006, teetered, slipped, skidded, tottered, and finally, by November of 2008, swan-dived into an abyss to their worst levels of both sales and supply on record. The world awoke to the house-of-cards reality that exuberance and soundness [or lack of it] are two entirely different factors at work in economies.
Like all things, though, perpetually growing from bad to worse and from worse to worst is ultimately unsustainable. Calculated Risk‘s grim tidings regarding data just released on nonresidential construction’s outlook embed the faintest flash of hope with respect to the residential side of things. Even amid a draconian credit environment for borrowers and a virtual lock-out of bank funds for ongoing construction operations, the pace of decline in residential construction spending is beginning to taper off. After the pace tapers off, it flattens at its low point. That is called the bottom.
Here, accompanied by some of the Calculated Risk commentary on the data, is analysis of Census Bureau data on construction spending for January 2009, which Calculated Risk believes is a forward indicator of economic activity.
Click on graphic for access to Calculated Risk post.
The first graph shows private residential and nonresidential construction spending since 1993. Note: nominal dollars, not inflation adjusted.
Residential construction spending is still declining, and now nonresidential spending has peaked and will probably decline sharply over the next 18 months to two years.
…
These are two key stories for 2009: the collapse in private non-residential construction, and the probably bottom for residential construction spending.
The question now for new-home builders is “is there life at the bottom?” Or rather, not in generic terms, but can you make a go of it? Federal Reserve stress test criteria map house price decline scenarios from 15% (baseline) to 25% (more adverse) from today’s prices.
What does that mean with respect to where your directs per square footage come in? We’ve picked up rumors that even some of the publics are building new homes at $25 per sq. ft. in directs, a number almost unimaginable even a year ago.
The related question that remains is would a re-link with longstanding cost-to-rent and household income formulas–a reversion to the mean–get us there to kick-start volumes or is that too a mirage?
The biggest question of all–and the one we’re seeing answered more and more frequently in filings for protection under Chapter 11 laws–is do you want to be in the business if it means a 100% give-back to 2001 dollars?
Something to think about as people take the first sign of slowing demand destruction, and begin to work out of this deep, deep hole we’ve dug.
Other States Wonder, Is California Dreamin?
California, home to world entertainment capital Hollywood, has just attracted a new audience. As California begins to roll out a spending plan that allocates $100 million in new-home buyer tax credits so as to give new-home sales a cardiac jolt, other states’ legislators want front-row center seats to see how the plot develops.
Georgia lawmakers are considering a form of tax credit for home buyers, in addition to other stimulative programs to assist a new-home building economy that has seized up, according to Big Builder senior editor Lynn Norusis in an article called: “California Tax Credit Breeds Optimism.”
Whether The Golden State’s plan is a success–generating new-home reduction in inventory, jobs, and municipal revenues–or not won’t be known for months as a complex process of applying for the state’s new home purchase credit plays out.
California’s credit allows any primary-resident buyer of a new home–resales are not eligible–an amount equal to the lesser of 5% of the home purchase price or $10,000, with a total budget package of $100,000,000 enough available for approximately 10,000 to 12,000 new home sales. The credit begins March 1 and will last a year, or until the state appropriate runs out.
The program comes on top of a nationally available $8,000 home buyer tax credit that’s included in the stimulus package Congress and the President enacted into law on Feb. 17th.
Clearly, other states whose economies have relied on new residential construction to fuel revenue growth over the first part of the decade will be interested spectators. Some states, however, like Nevada, don’t have a state income tax via which to extend such a benefit.
Mortgage Interest Deduction on the Ropes
Once upon a time, it was common to aspire to being healthy, wealthy, and wise.
Welcome to the Trillions Economy, where now it seems the best anyone can hope for is two out of three, which we guess is not bad in light of the moment that it is.
President Obama’s priority is health [care]. It’s what he believes he was voted into office to do, to figure out, and to transform, and he’s putting big, big money where his mouth is, parlaying heaps of his political currency in exchange for making the wealthy less so so that the less healthy can be more so.
Consequently, the income tax benefit homeowners and home buyers have been getting vs. their mortgage interest and real estate taxes is about as vulnerable right now as an ingenue at a casting call.
The Orange County Register’s real estate columnist Jon Lansner vents:
In what would be another blow to the California housing market, the Obama administration’s new fiscal year 2010 budget proposes to cap the mortgage deductions on “higher income” households — well, if you consider making $208,850 extremely high income!
Here’s what the budget — it’s HERE — says, in part: “The Administration’s Budget includes a proposal to limit the tax rate at which high-income taxpayers can take itemized deductions to 28 percent — and the initial reserve fund would be funded in part through this provision This provision would raise $318 billion over 10 years.” (more)
The National Association of Home Builders and the National Association of Realtors both object. Here’s part of the NAHB statement.
“With the housing market still reeling from its worst downturn since the Great Depression, this is not the time to talk about raising taxes on home buyers and home owners. This proposal will increase the cost of housing for many middle-class families, particularly in high-cost areas such as California and the Northeast, which will only further undercut the housing market, exert more downward pressure on home values and work against the President’s efforts to stabilize housing and turn this economy around.
“The proposed budget would also tax a ‘carried interest’ as ordinary income, which could significantly impact the multifamily and commercial real estate sectors at a time when they are already experiencing a severe downswing. At this critical point in the recession, we should be doing everything we can to stimulate demand in housing and avoid proposals that would reduce housing affordability and further destabilize prices….
The trade-offs get rougher by the moment. As Calculated Risk points out, “the mortgage interests deduction is capped to $1 million in mortgage debt.”
Trade association rhetoric aside, it’s clear that the President’s plan is to put health care above wealth care on the national agenda. Stay tuned for a rocking battle on this part of the President’s proposed budget.
Our own Bill Gloede, who writes a Big Builder online blog called Wall Street and Maine, has a typically strong opinion about this:
The Obama budget proposal, as well as much of the Administration’s action during the month that it has been in office, reveals that one of its guiding principles is a false notion of equality that exists neither in nature nor in the U.S. Constitution. There is no right, specified or even intimated, to economic equality, or even the gauzy concept of “fairness” invoked by those bent leftward.
The NAHB and its allies ought to express themselves through their PACs by withholding contributions from any politico who supports this package (and others like it sure to come from this Administration). Builders should quietly “educate” the employees they still have that a vote for anyone who supports this budget is a vote for future joblessness.
And all the rest of us would best be reminded that what happened in November was an election, not a coup d’etat.
We’d guess that a fair majority of HousingCrisis.com’s audiences might share this opinion. No?
Ben Bernanke in the House
Fed Chairman Ben S. Bernanke continued testimony on the state of the economy in Congress today, this time in the House of Representatives after a morning with the Senate yesterday. Here Rep. Ron Paul gets his moment in the spotlight with the Fed chief.
Ron Paul poses the question, “What if you wake up five years from now … and say, ‘I really messed up?’ What if you’re wrong?” Fed Chairman Bernanke’s reponse: “We’re not entirely in the dark.”