Affordable Housing on the Obama Radar
Nicolas Retsinas, director of Harvard’s Joint Center for Housing Studies–an inductee Friday into the Affordable Housing Finance magazine Hall of Fame in Chicago–accepted the same honor on behalf of Congressman Barney Frank (D-Mass.).
“Had Barney been able to be here with you, he would have,” said Retsinas. “Other than ‘thank you,’ he asked me to offer his support with the comment, ‘we have to stop being Marie Antoinettes.’ I said, with all due respect Congressman, but what do you mean, ‘we have to stop being Marie Antoinettes?’ Barney said to me, ‘For too long now, our answer to all our nation’s economic challenges has been to respond, “Let them own homes.” We have to stop doing that.’”
2008 Inductees
AFFORDABLE HOUSING FINANCE inducted five deserving individuals into its Affordable Housing Hall of Fame in November. These inductees were honored at a luncheon at the conclusion of AHF Live: The 2008 Tax Credit Developers’ Summit, held Nov. 5-7 at the Hyatt Regency Chicago.
Conrad Egan
• June: Conrad Egan, president and CEO of the National Housing Conference
• July: The late Clara Fox, founder of the
Settlement Housing Fund
• September: U.S. Rep. Barney Frank
• Silicon Valley Bank
• October: Nicolas Retsinas, director of
Harvard University’s Joint Center for
Housing Studies
• November: Carla Hills, former secretary
of the Department of Housing and
Urban DevelopmentAFFORDABLE HOUSING FINANCE created its Affordable Housing Hall of Fame in 2006 to recognize outstanding achievement in the industry. Past inductees have included leaders instrumental in the establishment of the low-income housing tax credit program and the Community Reinvestment Act.
Washington Post columnist and MSNBC political commentator Eugene H. Robinson addressed the same business community this past week at the AHF Live Conference, offering observations about what a Barack Obama presidency means–historically and for the moment. Where housing winds up among priorities that include healthcare, national security, infrastructure needs, and the immediate need to stimulate the economy, Robinson would not speculate. He did say that it makes sense that Obama’s focus on the less privileged middle class population would translate into housing initiatives as part of a strategic program he puts together once he forms his braintrust for both transition and a new administration.
However, in Multifamily Executive, senior editor Rachel Z. Azoff, zeroes in on expectations among multifamily and affordable community business leaders, who are counting on the President-elect to catalyze new momentum toward affordable housing solutions.
NLIHC's Linda Couch
“The expansion and implementation of the new national housing trust fund should be the No. 1 priority for the new administration,” says Linda Couch, deputy director of the Washington, D.C.-based National Low-Income Housing Coalition (NLIHC). “The resources serve the lowest income households and those are the households most in need of affordable housing.” Couch also expects Obama to push for increased funding for the Section 8 voucher program and to help combat homelessness.
Like every other part of the housing [and broader] economy, affordable development and finance has hit a hard wall as key parts of the complex layering of private and public finance have been sucked into the vortext of credit paralysis and risk aversion.
Multifamily Executive senior editor Les Shaver reports on how even market rate apartment deals have stalled amid wrenching credit and finance uncertainty in his report, Confidence in Apartment Sales, Credit, Even Occupancies Declines, NMHC Reports.
Considering what’s happening on the equity and debt markets, its little wonder deals aren’t going down. Among the other indices, the Equity Financing Index, fell to four, the lowest result on record, while the Debt Financing Index also declined to four—another record. A whopping 93 percent of respondents said financing conditions have worsened compared to three months earlier; one-sixth of respondents said that the crisis hadn’t affected their current activities.
October: Worst So Far, But not Worst to Come
From PROSALES, by Craig Webb: Top 10 home builder MDC Holdings’ CEO and chairman Larry Mizel talked briefly with Eric Belsky, executive director of the Joint Center for Housing Studies at Harvard University, in the halls of the Big Builder ’08 Conference in Washington, D.C. this past week. Belsky said to Mizel, “What did you think of the September numbers for new home sales? Up 2% sequentially from August, but still pretty ugly, eh?” Mizel’s response: “Wait’ll you see October’s. Much worse.”
While New Home Sales rose 2.7% sequentially to 464K in September, slightly better than the Street’s 450K estimate, we note they retained most of August’s sharp 13% seq. drop, and moreover, remain down strongly YOY at -33%. — Michael Rehaut, executive director for home building and building materials research, JP Morgan
Still, much worse to come, as in many home builders report that their sales went into an eerie radio silence in October as the lending crisis, home price trends, and pre-election sentiment fell off a cliff. A hazard of all the benchmark data points we obsess over is that it’s not enough for companies and their industry sectors to live through the difficult days as they occur. They have to relive them in the reports that torturously follow what happens weeks, months, quarters later.
Among the many companies whose senior managements reported earnings in the past couple of weeks, parading historically punishing performance, were lumber, building materials, and other supplier companies to the residential and light commercial construction area. Well after home building companies realized collectively that the bottom had fallen out from under them, building materials and supply companies were cranking at full capacity. Why? The time warp created by backlogged sales of homes made it so that trades and materials suppliers alike continued in great demand.
So, just as in almost every other business sector where signs were clear that a huge storm was brewing, companies in the building materials and supply area could hardly shrink enough in preparation because their wares were still needed for the building machine until demand all but vanished. Now the outlook for a rekindling of activity is bleaker than bleak. While veterans know that recovery must occur, it’d be foolish to guess when that might be in light of a real economy recession and an angry 10-plus month supply of homes to burn through before supply and demand order gets restored to housing.
Covering many of these companies’ quarterly [non]-earnings performance, ProSales editor Craig Webb offers analysis of three mega players who manned the phones this week with analysts and investors seeking clues to what may come next. Loathe to forecast for better or worse, most business leaders are talking about shrinking balance sheets to ride out harsh times in the months ahead. Here are Webb’s write-ups of BMHC, Boise Cascade, and LP.
- BMHC’s Net Losses Reach $45.2 Million in 3Q
- Sales Fall at Boise Cascade
- LP’s 3Q Net Loss Hits $111 Million
“As the unprecedented volatility in the capital markets and the downturn in the homebuilding industry persisted, we remained focused on our goal of realigning our business to the current environment,” Robert E. Mellor, BMHC’s chairman and CEO, said in a statement. “We made significant progress on our restructuring program during the third quarter, executing on a wide range of operational and financial actions designed to address the impact of the homebuilding industry downturn. Importantly, we successfully negotiated an amendment to our $540 million secured credit facility.
“Year-to-date, we have reduced selling, general and administrative expenses by $51.2 million, or 16%,” Mellor said. “We continued to enhance our liquidity during the quarter through the wind-down of certain operations and the sale of underperforming business units and excess assets. We remain on track for these and other restructuring initiatives.”
For a broader perspective on what to expect–although what to do about it is up to you–comes today via Australian TV. We picked this up originally from Calculated Risk, which featured a video link spotlighting Yale economist Robert Shiller speaking about what is going on economically. Watch the whole video and note the way the professor is practically undone as he tries to get words around the magnitude of the crisis.
Equally noteworthy is Calculated Risk’s quote from Fed Governor Kevin Warsh. Warsh does not dismiss the central role housing has played in the sequence of financial shocks to the global economy. However, he puts the sector into proper perspective, pointing out that the error of our ways extended to overpricing far more than housing. The most sobering takeaway: Things are going to get worse, broadly, before they can get better.
Acknowledgements:
Calculated Risk, Nov. 6, 2008, Fed’s Warsh: Fundamental Reassessment of Every Asset Everywhere, http://calculatedrisk.blogspot.com/2008/11/feds-warsh-fundamental-reassessment-of.html
What’s Good at the Wood
At this past week’s National Association of Home Builders’ forecast conference in Washington, D.C., HousingCrisis.com heard the plight of new home builders described this way. “It is possible to get a loan,” said a senior level executive from a sizable privately held home building firm with operations in the D.C. metro market. “It’s just that people can’t sell their homes. ” People who can’t sell their homes mostly can’t buy a new one, nor can they buy a new “used” home.
Freddie Mac chief economist Frank Nothaft confirmed the sentiment during the daylong confab at NAHB HQ in DC. Builder senior editor Ethan Butterfield was there to report:
The bad news, according to Nothaft, is that those are the only people who can get loans, and they can only get certain kinds of loans (traditional 30-year, fixed-rate mortgages), and that while mortgage rates are still well below historical norms, they have inched up since the boom.
And even these prime loans, as credit conditions remain bleak, are getting tougher to acquire, Nothaft said.
Jumbo loans, traditionally loans for more than $417,000, are also more difficult to secure because banks are charging higher interest rates on them. During the peak of the housing boom in December 2005, 33% of all prime loans were jumbos. In March 2008, jumbos had fallen to just 8% of all prime loans, Nothaft said.
Seems that easy money and high prices trump hard to get money and plummeting prices as motivation to buy, sell, or do anything else but sit back and try to ride out the worst of it.
The reason it’s so hard to sell a home–new, used, or anything in between? Because it’s hard to get a loan for the amount a buyer needs to pay the seller’s price, which is overpriced with paper profit and of practically unknown value today. No comps, no bottom. Even worse, when comps are short sales and foreclosure deals, squeamishness becomes outright nausea. Bank executives, like the rest of us, are afraid to pay their part for something when the price structure of that something is so shaky.
So, on the surface, while the assertion that it’s possible to get a home loan even today may be technically correct, the number of conditions, contingencies, and stars that need to align for that to be the case is mind-boggling. Who it is that can qualify for a loan today, and for how much of the purchase price of a home someone can get a loan, has shrunken.
Not only that, the drama around a $700 billion economic emergency rescue plan and the $250 million bank recapitalization measure carried out by the Treasury a couple of weeks ago, appears, as it works out, to have done little to improve the outlook for banks to lend more money for home mortgages in the near future.
This fact–one of the focal points of the housing crisis–is laid out in the clearest way by New York Times business columnist Joe Nocera. This issue and its time sensitivities amount to a smoking gun, an agenda being pursued by the U.S. Treasury that is not the one it has said it would pursue as it gained authority to spend money in efforts to ease credit, calm the system, and address housing, where to trace the genesis of today’s economic paroxysms.
When you’ve read that piece have a look at some of the stronger housing-related reporting and analytics from around and about Hanley Wood’s residential and mixed use development titles.
There are a number of pieces that will help you see around the next corner, if not quite across the dark abyss toward a rebound in 2010. First up, a slew of reports from Builderonline.com that focus on the macro data releases, and zone in on a isolated blow-ups on a more local level.
- A topline piece on the first blip up in existing home sales for more than two years.
-
Bigbuilderonline.com provides analysis on the data that warns players not to get overjoyed about the National Association of Realtors figures quite yet, as there’s plenty of pain and downside left before the good times will roll.
-
In “Bloody Thursday,” Big Builder senior online editor Bill Gloede deciphers where the public home builders are in stock valuation trends, …. and where they may be headed.
-
Builder Group editorial director Boyce Thompson offers a sum up of the collective sentiment of economists brought in for their housing forecasts by the NAHB. A flicker of light at the end of the tunnel, he surmises, may mean good news as it almost always has. But who knows?