A Surge in Home Buying? Well, What Do You Know?
Case in point (see our previous post). The New York Times has this report leading its business pages today.
Real estate agents say buyers and sellers are hurrying to take advantage of the tax credit, which is worth up to $8,000 for home buyers. But the last-minute rush is also prompting some foreboding about what will happen to the market on April 30 when the credit ends — and whether it is too risky to let it end at all.
The Times reports that “arguments for extending the tax credit for a second time are just beginning.” This is not the case. The argument to extend it yet again cropped up practically the moment it was extended for the first time last November.
Our Hill sources say some Congressional staffers have asked National Association of Realtors and National Association of Home Builders lobbyists to test their constituencies’ pulse on an extension, but smart money would say that an extension would be highly improbable.
November’s mid-term elections loom.
The press no sooner gets finished reporting that the home buyer incentives were having little to no effect, when now we’ll see a spate of media reports on the surge in buying just before the program’s deadline.
Why we wouldn’t surmise that it makes sense for as many people as possible to wait as long as possible until just before the expiration to get the best price ever? While prices in a few markets have started to flick up a bit, most sellers are highly motivated to discount enough to get the deal.
The economy has trained home buyers the way supermarkets once trained double-coupon shoppers to strike at the optimal moment for the deal of a lifetime. So the weather is better and the floodgates are open.
Now, naysayers can go back to calculations on how much the home buyer tax credit program costs taxpayers, and worrying about what happens to the marketplace when the program sunsets.
Nevermind the headlines.
Home Builders Never Say Never for NOL Extension
Jobs data dominate the headlines and buffet the pre-holiday markets. The numbers look grim, and grow grimmer.
Here’s a Calculated Risk summary on the latest Bureau of Labor Statistics jobs report:
For the current recession, employment peaked in December 2007, and this recession was a slow starter (in terms of job losses and declines in GDP).
However job losses have really picked up over the last 9 months (4.4 million jobs lost, red line cliff diving on the graph), and the current recession is now the 2nd worst recession since WWII in percentage terms – and also in terms of the unemployment rate (only early ’80s recession was worse).
Elected officials–assuming they’re opting for re-election–want to take job creation or at least job preservation wins back to their constituents this Fall. As home building companies drop like flies, and there aren’t enough people buying houses right now to keep them in business (as employers), the NOL Carryback has emerged Hyrda-headed as a measure that could offer liquidity as a cash tide-over to keep some businesses in business.
The Senate and House are each working on legislation that would change tax laws to allow companies to carry their losses back, and apply them to taxes paid on profits up to five years ago.
Here’s the Senate version of the NOL Tax Carryback Act, introduced in Senate on April 2, by Olympia Snowe (R-Maine) and Max Baucus (D-Mont).
As she introduced the bill, Senator Snowe said:
Click to access Finance Committee lineup.
“While the recently enacted economic stimulus bill included a modest NOL carryback provision to assist smaller firms, this legislation will help any company that has losses from 2008 or 2009 carry back those losses to offset taxes paid in the previous five years when they were profitable. This will go a long way in helping to keep more workers on payroll and stabilize overall operations.”
Senator Baucus heads up the Senate Finance Committee, and he and Senator Snowe have gotten traction enough in the Senate with 28 co-sponsors to make passage highly likely. Identical legislation in the form of H.R. 2452 has been introduced by Representative Richard Neal, (R-Mass.), and so far, 58 House co-sponsors have signed on in support. Which means there’s a summer worth of work to do if there’s hope for an NOL extension to win the day sometime this Fall.
Leading the charge on the latest NOL push for the home building sector is Ken Gear, executive director of a coalition of home building companies called Homes for America Alliance.
Per an article in Floor Daily:
The new entity, the Homes for America Alliance, includes about 75 big and small builders. It will focus on passing a net operating loss (NOL) measure that was included in the House and Senate stimulus packages earlier this year but was removed in conference.
An NOL extension got this close to passage in February 2009, but never made it into the reconciliation bill handed over by Congress to President Obama as the 2009 stimulus program. Why?
Long story short, leadership at the NAHB felt that changing the NOL rules would unfairly advantage the largest, mostly public builders over smaller, rank-and-file players in residential construction. NAHB chief Jerry Howard appealed in the 11th hour to Rep. Nancy Pelosi, speaker of the House, and, lo and behold, the NOL was declawed so that only businesses whose sales are $15 million a year or less could avail of the extension. That revenue constraint cuts out a lot of home building businesses.
To debrief on what’s past in the relationship between big builders and the National Association of Home Builders on NOL, have a look at previous posts here.
Most everybody’s moved on since then. Now, we’ve got a new “coalition”–the Homes for America Alliance–that is working on lobbying Congress for NOL independent of the NAHB. The NAHB has agreed to support the bill this time, right through the vote expected sometime in the Fall.
A testy relationship–between big builders and the broader NAHB leadership, which has to try to represent small to medium size companies as well as national enterprises–is getting its test with NOL this Fall.
The initiative that seems to unite real estate companies large and small is (R-Georgia) Senator Johnny Isakson’s S. 1230, which would extend the current home buyer tax credit into 2010, expand it to include all home buyers (not just first-time buyers) of primary residences, and increase the actual credit to $15,000.
Home Buyer Tax Credit Update
We’ve posted a couple of times on Senator (R-Ga.) Johnny Isakson’s latest proposal to bump up a home buyer tax credit from $8,000 to $15,000, change it to include all home buyers, remove income caps, and extend the timeline on it through at least the middle part of next year.
It’s far from being a sure bet, and isn’t expected to get real traction publicly until closer to the November sunset of the current Federal first-time buyer $8,000 tax credit. Any hope for the measure at all lies in convincing opponents in the House of Representatives that a big buyer incentive is not simply a home builder bailout. Clearly, two votes this past Winter showed that’s exactly how many Congressmen and women view the Isakson measure.
CNBC’s Diana Olick noted in her blog an informed estimate on the taxpayers’ price tag to fund the program, intended to jolt the economy by spurring a flood of demand for housing, setting off multiplier effect economic activity and hiring. Here’s her source on the cost of an expanded tax credit program.
A letter to Sen. Isakson from the Joint Committee on Taxation provides a revenue estimate for Isakson’s bill, S.1230, the “Home Buyer Tax Credit Act of 2009.” Assuming an enactment date of July 1, 2009, we estimate that your proposal would have the following effect on Federal fiscal year budget receipts:
2009 2010 2011 2012 2013 2014 2009-14 2009-19 -0.3 -23.5 -13.3 -1.6 0.1 — -38.5 -38.5
Existing Home Sales/Prices, New Home Sales/Prices, Housing Starts/Permits, HMI
Isakson is busy working the Senate for support to his big jolt plan, which back in February got a yea from Senators before being nixed into oblivion during the reconciliation process that led to the actual $790 billion Stimulus bill that became law.
Here, from his own press statement, is who’s lined up with him so far:
Isakson immediately picked up a bipartisan group of co-sponsors for his legislation, including Senators Lamar Alexander, R-Tenn., Jim Bunning, R-Ky., Saxby Chambliss, R-Ga., Chris Dodd, D-Conn., John Ensign, R-Nev., Joe Lieberman, ID-Conn., Lisa Murkowski, R-Alaska, James Risch, R-Idaho, and David Vitter, R-La.
In addition, the National Association of Realtors and the Housing Working Group of Business Roundtable today endorsed Isakson’s efforts to expand the current home buyer tax credit as part of recommendations to help return stability and growth to the U.S. housing market.
As with many of the initiatives under consideration to help set the nation back on course toward recovery, a bigger, bolder tax credit for home buyers sparks vehement debate. It’s the free-marketeers vs. the Keynesians who believe that the private markets won’t work efficiently without a little public sector TLC.
Hence, the recurrence of a proposal to kickstart the broader economy by firing up its engine: housing.
Here’s a story that sums up various tax-credit initiatives kicking around committee in Congress.
After a latent period, the NAHB-backed Fix Housing First Coalition is kicking back into action in support of the Isakson proposal, according to the coalition executive director Ken Gear.
“We’re certainly going to work for an extension, and hopefully, even an expansion of the $8,000 program,” said Gear. There’s delicacy in the timing, however.
“We don’t want to disincentivize people from going for the tax credit that’s in place now by making too much noise about something that may not even happen,” Gear said. Right now, the high priority focus is on extending the time-line to beyond November 30th into next year.
“When you look at the May 29 HUD announcement that buyers would be able to apply the tax credit to their down payment, the November 30th expiration doesn’t really allow that to take full effect,” Gear said. “The State Housing Finance Agencies have a lot of work to do on their part to get up and running with the programs to monetize that tax credit, so for that effort to be worthwhile, they’re going to need more time.”
Gear says that indications that Federal and selected state tax credit programs have been working to stimulate demand among buyers should strengthen the lobby to legislators for more.
Meanwhile, Gear updated us on another initiative near and dear to many of the larger home builders, the net operating loss extension. Per analyst Ivy Zelman quoted in the Wall Street Journal over the weekend, home builders have availed of about $2.55 billion in tax rebates from Uncle Sam, and if rules change to allow companies to reach back to taxes on profits dating as far back as 2004, there’s a whole other mountain of cash they can put in their coffers.
This has been a divisive issue among home builders. The largest ones–including the publicly traded ones–have been rabidly supportive of extending the NOL carryback period. The NAHB, which needs to represent the interests of the broader rank-and-file builder, has not been so.
But lately, the big builders and the NAHB have agreed to work together in support of NOL, and a big-and-little builder coalition, the Homes For America Alliance, has united behind extension appeals that should surface on the autumn Congressional docket for vote.
Stay tuned to see if strange bedfellows continue to make it through the long dark night of this downturn.
Isakson Back with Home Buyer Tax Credit Bump
Senator Johnny Isakson hasn’t given up on an expanded tax credit for home buyers as a way to juice up economic recovery.
The Georgia Republican shepherded a similar initiative through Senate approval in February, only to meet an untimely demise in the stimulus reconciliation bill eventually signed into law in mid-February as the $787 billion American Recovery and Reinvestment Act of 2009 .
Well, now a measure looking eerily akin to a demand-stimulus plan proferred last fall by the Fix Housing First Coalition of organizations including builders, real estate agents and brokers, building material suppliers, home inspectors, and home owners associations is making its way through committee as S 1230. The long and short of it is that it would up the current $8,000 credit to a maximum of $15K, open the deal to all home buyers (not just first-time buyers with a ceiling on incomes), extend the deadline for another year, and maintain historically low mortgage interest rates for that same time period.
Here’s Isakson’s take on the measure.
Johnny Isakson, D-Ga.
“The first-time homebuyer tax credit has made a difference. First-time home buyers used it and the market stabilized, but we don’t have a recession in first-time home buyers. We have a recession in the move-up market,”Isakson said. “One of the biggest problems facing the American people today is an illiquid housing market, a decline in their equity, a decline in their net worth and a depression in the housing market that we are obligated to correct if we possibly can.”
Isakson has some pretty high voltage backing on this one. A group, formed in April, called the Business Roundtable Housing Working Group, consisting of the CEOs of $5 trillion worth of U.S. corporations with almost 10 million employees is wholly behind Isakson and a bi-partisan support group in Senate.
Here’s a link to the Business Roundtable.
Problem is the House of Representatives, where elected officials thought the Fix Housing First measure and its benefits smacked of a bailout for builders, the ones many voters thought caused the financial crisis in the first place.
One way or another, the Obama Administration and House chief Nancy Pelosi are going to have to get behind the plan for it to go anywhere.
Still, you got to hand it to Johnny Isakson to keep carrying the torch for a “housing-will-be-the-engine-of-recovery” plan. At a time broad economic signals seem to be short-circuiting and mixed, and the best hope now is for an anemic bounce back, a housing-led rebound sounds about as dreamy as anything.
The Mortage Interest Rate Wild Card
Three stars aligned–home prices, interest rates, and first-time buyer/new-home tax credits. Toss “seasonality” into the mix of positive catalysts, and you can start discounting the nascent March, April, May run in housing as a marketplace behaving the way an injured athlete does after a big cortisone treatment. He might look okay for a while, but you can only wonder whether and how long the painkilling effect will last.
Now, just when data starts rolling in that supports this alignment, interest rates have begun shaking loose from their virtuous bond with more affordable house prices and a kick-back from Uncle Sam or a state for a home purchase.
The Wall Street Journal leads this a.m. with its take on the quantum leap percentage point-plus increase in mortgage rates since the end of May.
“Mortgage rates at these levels will hobble the [housing] recovery, and it was just the beginning of the recovery,” says Kenneth Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley.
Investors have been anxiously watching bond yields climb over the past few weeks, pushing up mortgage rates, which normally track 10-year Treasury notes. The yield on the those briefly hit 4% on Wednesday afternoon for the first time since mid-October before ending the day at 3.937%.
Many policy makers see the rise in Treasury yields as a sign that investors are optimistic that the economy is on the mend. But many market participants say higher long-term bond yields indicate investors are increasingly worried about inflation.
What unfortunate timing! Look at a key “take-away” from Wachovia senior analyst Carl Reichardt’s latest “Neighborhood Watch Survey” of new-home community sales managers.
With three straight surveys and a broader base of SMs reporting better-than-expected sales and traffic, we now believe that field conditions saw their low ebb in early 2009. While seasonality plays some role in our data, SMs expect strength this time of year, yet still see activity above these expectations.
This verbiage is rosy, given where it’s coming from. Reichardt notes that upward pressure on interest rates may stall the new-found momentum. Other analysts point also to the fact that tax credit programs for first-time home buyers expire on a Federal level by the end of calendar 2009, and state-funded programs will only last until the coffers run dry.
Hanley Wood Market Intelligence has done an extensive market-by-market analysis that ties the effecitve date of California’s $10K tax credit to new-home purchase activity. The Orange County Register’s Jonathan Lansner quoted the HWMI study at length in his blog post about how the O.C. was SOL when it came to an upside of the combined California and U.S. government tax credits for home purchases.
Click to Enlarge graph of Hanley Wood Market Intelligence Data.
Costa Mesa-based Hanley Wood Market Intelligence reports that Orange County buyers signed 35% fewer sales contracts for new homes in March and April, the first months of a homebuyer tax credit designed to spur the purchase of newly built residences.
The California program gives homebuyers a tax credit of up to $10,000 for new single-family homes selling after March 1. (Uncle Sam will chip in another $8,000 if you’re a first-time buyer!) But while demand has been high statewide for the California tax credit, that has yet to impact the pace of sales and construction here:
What Lansner neglects to report on is whether the 35% decline year-on-year for the two-month March/April period is more or less than the decline year-on-year from, say January-February of 2009 from a year earlier.
He does acknowledge that statewide, the $10,000 tax-credit appeared to have jumpstarted sales in many communities.
In Reichardt’s Neighborhood Watch survey, he notes:
Trends in the West — especially No Cal — made a surprising turn as SMs cited the strongest sales trends compared to expectations.
The big question post the “Spring Selling Season” uptick must be how to keep whatever momentum there is in the market going through the balance of the year… especially without the critical tailwind of low, low interest rates.
California, as of June, is said to be 85% through its $100-million allocation for home buyer tax credits, and nobody expects below 5% home loan rates to come back to roost anytime soon.
Here’s Calculated Risk’s take on mortgage rate trends, and how to stay ahead of the curve on them:
Here is a new tool from Political Calculations: Predicting Mortgage Rates and Treasury Yields
This is based off the chart I posted last Friday and is very timely with the Ten Year Yield pushing 4%.
Using their tool, with the Ten Year yield at 3.99%, this suggests that 30 year mortgage rates will rise to 5.8% based on the historical relationship between the Ten Year yield and mortgage rates.
The question is, does the demand resubmerge when the three stars are not in alignment? Will those who move off the sidelines because of the sense that “there will never be a better time to buy” now begin to feel they’ll do better if they wait out further house price declines?
As most new-home builders have discovered, the monthly payments riddle is the one they need most critically to solve. If interest rates go up, prices have to go down to solve that riddle.
It strongly suggests that in the current policy environment, a strong likelihood is that Fix Housing First’s original plan for both a compelling tax credit and a mortgage buy-down may do the trick of sparking demand, clearing more inventory, restoring scarcity, and putting a new floor of value under residential real estate.
We see a Stimulus 2.0 package emerging during the Fall session of Congress, designed to capture any green shoots still out there, and accelerate the economy’s ability to begin paying down the “Wall of Capital” with which the Fed and Co. met the economic crisis starting last Fall. A mortgage buy-down might likely be in that program, to test new residential construction’s capacity to serve an accustomed role as an engine driving the broader economy.
State Tax Credit Worthy?
The United States Congress passed a $787 billion stimulus bill that includes an $8,000 tax credit for earners who buy their first home in the 12 months, from January through December 2009.
States, which have seen California get some fast traction with an additional tax credit for any home buyer up to $10,000, are starting to ante up programs of their own, providing their tax coffers permit such an allocation.
Big Builder senior editor Lynn Norusis has compiled this map, indicating which states are working resolutions through their respective legislatures, and the status of each bill.
View Larger Map
Notes from the Eight-is-Not-Enough File
The vicious circle of declining home prices, rising foreclosures, and further depressed home prices has created a parallel vicious circle of economic policy getting ripped apart by political self-interests, requiring an even heavier hand of economic policy.
By looking at where new-home sales have perked up, one can guess that California, which has added its state income tax credit of up to $10,000 to the first-time home buyer tax credit ante rolling out from the United States government, can serve as a poster child for more stimulus to jolt some virtue into those vicious cycles.
Movements in support of higher home buyer tax incentives are still operating at a state and national level.
Here’s an argument from yet another Ivy school economist about the shortcomings of the Obama plan to stabilize housing by stopping a slew of foreclosures from occurring. Yale economics professor John Geanakoplos stopped by Squawk Box to talk about foreclosures with Huffington Post diva Arianna Huffington, Becky Quick, Carl Quintanilla and Joe Kernen. Watch below to see why Geanakoplos thinks the Obama administration’s plan to prevent foreclosures will be ineffective.
One Blip at at Time
Debate among economists about whether the February new-home sales release from the U.S. Census Bureau, the Commerce Department and the Department of Housing and Urban Development was postive or negative is a glass-is-half-broken (yes, not half-empty nor half-full) argument.
Anyone who claims that the gist 120-word summary for Febuary 2009 one-family new residential sales fits his or her predictive model for how housing is behaving is not mortal, or lying.
Sure, if you’re applying disciplined economic analysis, there’s no other way to look at data for Febuary 2009 vs. data for February 2009, (notwithstanding the one-day difference due to 2008 being a leap year).
But those who are raising a ruckus about the media numbskulls who are getting it wrong by noting that the month-to-month upward swing is a positive miss at least part of the point: The barrage of adverse headlines contribute to negative sentiment which feed negative trends. Barry Ritholtz’s The Big Picture blog is on a withering tear against print and TV media for inaccurately reporting on the new-home sales data.
A parade of the mathematically innumerate business writers (and even worse headline writers!) continue to misread data. The latest evidence? New Home Sales.
After incorrectly reporting the Existing Home Sales, the mainstream media misread the Census department report of New Homes.
No, New Home Sales data did not improve. In fact, they were not only not positive, they were actually horrific. The year over year number was a terrible down 41%. Sales from this same period a year ago have nearly been halved.
Why did the media report this as positive? If you only read the headline number, you saw a positive datapoint: February was plus 4.7% over January.
To get the the facts, you need to read below the headline. In the present case, it wasn’t the seasonality factor that was confusing, it was the “90-percent confidence intervals” — or as it is more commonly known, the margin of error. (more from The Big Picture post)
There are several issues at work here, but for home builders and real estate professionals, the best advice might be this. Put your fingers in your ears and don’t listen to anyone who nay-says the little gains you’re making in your communities.
Economists–whether they’re positive or negative about the data–want an audience for their business and career interests. It seems as if some of them make a good living by telling people that the media has no credibility, and asking why anyone reads a newspaper or watches a news telecast.
Economists who profess that they’ve been right all along about what is going on in the economy are doing so because the marketability of their theories redound to their financial well-being.
Journalists, on the other hand, work for at least two bosses these days. One is their management, and the other is their audience. Always and forever, the audience is the toughest boss when it comes to the so-what? factor of relevance and accuracy of facts and perspective. Also, journalists, in more ways than ever, work collaboratively with their audiences on getting the whole story that matters, especially as citizen journalism surfaces as part of every media title and channel.
It’s illuminating to get corrected perspective and insight on the new-home data. Here’s how avuncular Calculated Risk steers people to understand how not to get too overjoyed at a blip up in new-home sales from January to February.
Click on image for access to Calculated Risk post.
This graph shows the February “rebound”.
You have to look closely – this is an eyesight test – and you will see the increase in sales (if you expand the graph).
Not only was this the worst February in the Census Bureau records, but this was the 2nd worst month ever on a seasonally adjusted annual rate basis (only January was worse).
Calculated Risk’s assertion–oft-repeated these days whether the media headline is positive or negative–is that a sales volume bottom for housing is likely in 2009.
It’s important to understand, however, the level that neither The Big Picture nor Calculated Risk matter when it comes to the viability and vitality or morbidity of home builders and real estate.
Their measures of correctness or error are on a national, macro level. They can be right, and still get it totally wrong when it comes to understanding what’s going on in home building and sales organizations in the first half and second half of 2009.
Even with the full measure of their economic skills, they’re not set up to catch the first flickers of recovery, just as they do not get the challenge of marketing and selling about 340,000 homes a year into the teeth of this environment.
Clearly, home builders are telling us that where they can get some traction with their prospective home buyers, they’re making some progress. In California, where a $10,000 tax credit jolt compliments the national $8,000 first time buyer tax credit, you’re starting to see home price correction and stimulus combine to pull people off their duffs on the sideline.
While home builders, manufacturers, and trade groups are willing to support the $8,000 tax credit initiative in the fledgling $787 billion economic stimulus program, their point organization, the Fix Housing First Coalition, is carefully watching the California front in hopes of renewing its case for a bigger one-time credit for all home buyers.
Yesterday, two House Republicans, Eric Cantor (R-Va.) and Mike Pence (R-Ind.) introduced a “Responsible Homeowners Act” measure that would bring back a $15,000 tax credit for buyers of primary residences who put a minimum of 5% down on their purchase.
Economics, being the dismal science that it is, has not solved the math problem of where home prices need to correct to and what policy pushes are necessary to wrench open the spiggot of real estate transaction.
Which means home building operators and their leadership need to keep turning a deaf ear to the blather about national data points–especially ones that dowse morale, confidence, and focus–and just keep selling so that one blip can turn into two, and 30 days later, maybe a third blip in a row.
Then, even the nay-saying-est economists around will have to admit that you’re creating a blip tide, otherwise known as an economic trend.
HUD Taps Carol Galante for Key Multifamily Role
From MULTIFAMILY EXECUTIVE, by Chris Wood: The Department of Housing and Urban Development was a morale morass, and still needs attention internally it probably won’t get until its chief Shaun Donovan chalks up some wins on the foreclosure front… So, we’re talking 12 months minimum.
Click image for access to Multifamily Executive Q&A with Galante.
Every bit of new blood in the department sends a critical message, and clearly, with the hire of BRIDGE Housing Corporation president Carol Galante, Donovan’s playing from strength and resolve to change what has chronically ailed the organization for almost a decade.
Multifamily Executive, which last fall named Galante its executive of the year, assigned senior editor Chris Wood to chat at the end of last week with the new appointee, for her perspective on overseeing $58 billion in development and preservation of privately-owned rental housing as well as a key role in sustainable residential development initiatives.
A Q&A with Galante reveals she intends to serve as an important counterpoint voice to Donovan as priority focus remains on single-family–foreclosures and duress–issues.
There is definitely a role for multifamily, and I think this administration gets that. The administration understands that rejuvenating and refinancing our nation’s multifamily housing stock is critical. Equally important is keeping that housing stock healthy. Greening it, and building more of it in the right places is important as well as economic stimulus.
Read more of Chris Wood’s interview here.
An Economic Engine on Blocks
Home building, its industry leaders believe in their heart of hearts, is the engine of the United States economy. When new rooftops multiply, GDP steams merrily along, and when housing starts decelerate and thin to a trickle, they take the economy down for a harrowing ride.
Well, the economy’s engine has been up on blocks for going on 36 months now, because Americans are generally paralyzed and aghast at having $12 trillion in home value and stock market equity vanish into thin air in the past four calendar quarters. Not to mention 3 million jobs eliminated in what seems like a heartbeat. Perhaps as horrific for people who are suddenly faced with having no choice left except to fix their household balance sheets or suffer for it is the prospect that losing that $12 trillion and the possible doubling of unemployment rolls will cost another $12 trillion in new taxes in the years ahead.
Wall Street, Main Street, and Washington, meanwhile, are embroiled in a comedy of finger-pointing errors, the lender blaming the borrower, the borrower blaming the broker, the investor blaming the lender, everyone blaming AIG, and Capitol Hill trying to figure out who to blame and who to try to rescue from the great sucking sound of economic Dooms Day. Face it, few of us really had to deal with the significance of the term “trillion” until we watched Bear Sterns’ white collar workers file out to the streets of Manhattan with a box of their desk belongings and a look of “what just happened?” in their eyes.
Many things happened, many are to blame, and many of us will be paying the price of both idiocy, deceit, and sheer miscalculation for years and years to come, and one of the few illuminating notions we can take away from it all might well have been perfectly evident all the time: Homeownership gets is reputation as the American Dream for a reason. It’s not an entitlement for all or even the majority of citizens, although policymakers and profiteers banked heavily on a theory that quantum-leap homeownership rate expansion could be engineered along the economic and social lines of quantitative easing.
Instead of an ownership society we’ve got a classic monster that eats its own young. The instant in the past six or seven years it didn’t take above-and-beyond planning, sweat equity, a parent’s helping hand, an inheritance windfall, and commitment to own a dwelling that would return value by providing shelter and safety and the feeling of home, everything changed. The house became a paper asset to be leveraged and margin-managed, and after that it became a financial component that begot financial products that in turn begot breeder-reactors of pooled, sliced, diced, and tranched global investment vehicles.
Which brings us back to the engine of the economy: America needs new home building. New home building will get its start off the blocks of paralysis first and foremost when a dozen or so public home building companies leverage their capital structures, gut their costs, and tug home buyers who are capable off the sidelines into their American Dream.
In this issue, we focus on the financial performance of those public companies. The key take-away from the analysis is that a few of them excelled not only in managing their balance sheets in 2008, but managed their company for more stress tests in the months and years ahead. Given the hard choice between shareholder value and thousands of talented associates, most companies took their medicine and chose survival.
This year and next will go far to clarify whether the engine of the economy is ready or not to come off the blocks. What’s more, as various stimulus programs and tax relief measures take effect in the months ahead, each new initiative will deliver a telling indicator about which measure motivates people to buy a home or not.
The very nanosecond there is evidence of a solid floor under the V in loan-to-value, borrowers, lenders, investors, policymakers, and taxpayers will all know where they stand, and they’ll work with it.