NAHB May Be On Its Way To Irrelevance

For some time now, friction has been building between the major, public homebuilders and the National Association of Homebuilders. As the housing crisis droned on, public homebuilders increasingly felt that the NAHB was really focused on the needs of small homebuilders nationwide, and not of much use to the larger builders.

 

For one example, homebuilders were unhappy with the NAHB's decision last year to cut off contributions to legislators campaigns and initiatives until they do a better job of taking care of the housing industry. Looking somewhat extortionist, that move obviously didn't go over too well with the public.

 

Builders also didn't like the way the NAHB handled the whole tax carryback issue when the government passed its stimulus bill in July. Builders made enormous profits during the boom, paying outsize taxes on those profits. When the housing market tanked, builders were eligible for tax rebates on the losses they were currently suffering against previous taxes paid. The NAHB pushed to include a provision on the July stimulus bill to extend the tax rebates longer.

 

They didn't succeed, and the public fallout for the large homebuilders was enormous. Those who had made fat profits while overbuilding, shouldn't be asking for millions of dollars in tax rebates now that they were cutting prices and sending homeowners underwater on their mortgages.

 

Increasingly vocal on the disconnect, homebuilders have apparently finally taken matters in to their own hands and coordinated their efforts outside of the NAHB forum.

 

In discussing a new tax incentive builders are pushing congress for to help the housing market, note the striking similarity in language from the various homebuilder executives on their recent earnings calls.

 

From Centex's FQ2'09 conference call: (CTX)

We have to think about a stronger tax incentive to buy a new home. This was successful back in the mid-70s when it was done. The tax incentive that was passed earlier this year is proving not to be sufficient because it is not high enough and it requires repayment. We need a true tax credit for home buyers who buy a house. Not just first-time buyers, but any buyer for any house… [And,] we need to have a below-market mortgage rate.

From M/I Homes Q3'08 conference call: (MHO)

We urgently need to stimulus package being the housing that provides a real and meaningful credit for all homebuyers... Such a credit, if coupled with the temporary rate by down would in our view go a long way is helping to stem the tide of falling home prices and will help us store real demand. A program like this… was employed in 1975; it worked then and it will work again now.

From M.D.C. Holdings' Q3'08 conference call: (MDC)

We are expecting to see presented a substantial tax credit for not only new homes but maybe existing homebuyers… We believe that Congress is going to look at a way to probably bring [average mortgage rates] down by 150 basis points. They are using a little bit of the example of the story of the early 70s, when they had a buy-down of rates and investment tax credit.

From Pulte Homes' Q3'08 conference call: (PHM)

[We need] a government stimulus… a one time tax credit of $20,000 or more for all homes… should contain no repayment provision and should be in effect for a relatively short period to heighten buyer urgency. The tax credit should be combined with a temporary mortgage rate buy down of 150 to 250 basis points. This exact combination strategy was employed during the severe housing correction in 1975 and it worked.

And in case we weren't certain:

Pulte CEO Richard Dugas Jr.: Just recently we have formed a much stronger alliance than we probably have working collectively with the National Association of Homebuilders, reaching out to other trade groups.