Larry A. Mizel, CEO of M.D.C. Holdings, and Ara Hovnanian, CEO of Hovnanian Enterprises, each urged support for the coalition during the Big Builder '08 conference in National Harbor, Md. earlier this week.
"We should act rather than be victims," said Mizel as he opened the conference on Monday by urging the assembled home builders to visit fixhousingfirst.com, which outlines the coalition's goals and provides links to contact members of Congress.
"The housing crisis is at the center of the economic crisis, and if we don't address housing head on, we can't fix the financial crisis," said Hovnanian during a panel discussion with Taylor Morrison president and CEO Sheryl Palmer and Standard Pacific Corp. chairman, president, and CEO Jeffrey Peterson, moderated by CNBC Real Estate Correspondent Diana Olick.
Hovnanian added that he thought Congressional plans to direct stimulus spending into infrastructure projects, while perhaps beneficial in the long term, would do little to mitigate the current economic slowdown.
"We don't have a bridge crisis; we have a housing crisis," he said.
Hovnanian's fellow panelists agreed that the beginning of an upturn will most likely not be realized until well after the fact, and that some builders will exit the industry in the meantime. "The world is divided between those who have the right capital structure and those who don't," Hovnanian said. "A lot of builders won't be around. When the market turns around; half of those competitors will be out."
"We need to get an inventory equilibrium," said Palmer. "To get there, we need to understand foreclosure exposure."
Standard Pacific is moving to mothball projects as opposed to selling land assets at depressed prices, and Peterson said other companies have adopted this strategy as well. "A lot of projects are being mothballed," he noted. "If you aren't motivated to sell for a tax benefit, the cost of selling at distressed values and exiting the market, plus the cost to re-enter the market might trump the cost of mothballing."
Palmer pointed out that liquidity is definitely not around for builders to move land and that "unsecured financing isn't even on the radar." She added that "amendments are difficult, and some institutions won't even lend [to home builders] as a matter of policy."
It was unclear at this writing how much support the Fix Housing First coalition has in the housing related industries, although other builders have expressed support for a true tax credit. The initial push behind the collation came out of the High Production Builders Council at the National Association of Home Builders, which was at odds with the overall association over the lobbying effort for an extension of net-operating-loss tax carrybacks, which failed earlier this year. The NAHB did not return phone calls seeking comment on the initiative.
The California Building Industry Association, however, is considering joining the effort, with its board slated to take up the issue at its meeting on Monday, Nov. 10., according to CBIA vp/public affairs John Frith.
The Fix Housing First plan advocates a $10,000-$22,000 true tax credit for all home buyers (dependent on FHA loan limits)--not a $7,500 loan--for all existing and new homes, with the provision that the credit would be incrementally re-paid to the government should the home buyer sell within three years. It also seeks below-market mortgage of 2.99% fixed rate for 30 years for all existing and new homes. The rate would be available for contracts signed between now and June 30, 2009. For contracts signed between June 30, 2009 and December 31, 2009, the rate will be 3.99%.
A potential key ally for the builders would be the National Association of Realtors. To date, the Realtors have not signed on, but at their annual convention, which opened in Orlando this week, the group put out a statement reiterating its support for a four-point plan to stimulate the housing market that was delivered to Congress last month.
Said NAR President Richard F. Gaylord, a broker with RE/MAX Real Estate Specialists, Long Beach, Calif. "The Treasury Department has gotten off track by focusing too much attention and stimulus money on Wall Street and banks that are in turn using the money for mergers and acquisitions. The administration needs to get back to the original intent of the plan--stabilizing the mortgage and housing markets--to help families avoid foreclosure."
The NAR's plan calls on Congress to eliminate repayment of the first-time home buyer tax credit and expand the credit to all home buyers; make the increased mortgage loan limits permanent; focus the economic stabilization efforts on supporting the housing and mortgage markets instead of providing capital to banks with no strings attached; and permanently prohibit banks from entering into real estate transactions.
The NAR also is pushing the administration to refocus the Federal Housing Finance Agency's efforts on restoring strength to the mortgage-backed securities market, which would help lower mortgage rates for all home buyers and for owners who need to refinance. A recent NAR economic analysis demonstrates that a reduction, or a buydown, of interest rates by just 1 percentage point could result in up to 840,000 additional home sales and reduce the inventory of homes by as much as 20 percent. The current 9.9-month inventory supply would decrease approximately to a 7.5-month supply.
"The result of these changes would stabilize homes values and the housing industry," Gaylord said. A lower interest rate combined with removing the home buyer tax credit repayment would reduce inventory by an additional 10%, down to a 6.5-month supply, and would produce modest home price gains of 2 to 4%, he said. Such price gains would provide up to $760 billion in housing equity for the nation's 75 million homeowners.
Learn more about markets featured in this article: Los Angeles, CA.