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.

 

 

Comments

[Dave Witherow:]

Judy-
I've been a big fan of your articles and article summaries for many, many months. I have particularly appreciated your article summaries and editorial overviews that precede them. But it seems that your Housing Tracker article summaries haven't appeared in a while, and I just looked up your article history and it seems that your last Housing Tacker summary was mid-October. Are you abandoning that format? I certainly hope not (but fear so) as that has been an invaluable resource for me to keep an eye on everything happening in real estate. I'd love to know what your plans are, and if you are indeed moving on from these summaries, do you know of anyone who does such a summary, even if it's only fractionally as good as yours? Thank you. Dave

2008 Nov 03 10:29 AM

[billddrummer:]

Hi Judy,

I echo Dave's comments. The Housing Tracker is an invaluable resource to me in my current position, because of its breadth, depth and relevance to the business I'm in--commercial lending.

If you're not covering the sector any longer, it's a great loss to SA. But if there is something even remotely similar somewhere, please let us all know.

All the best,

Bill

2008 Nov 03 01:14 PM

[Jane:]

I personally would love to see the NAHB disappear. Over the years this trade group has pumped many millions into lobbying for causes that ultimately harm consumers and protect bad builders. Good builders have grumbled privately how they think membership in builders groups is useless, just a cost of appearing to be qualified in the public's eyes, like membership in the BBB or local builders associations.

Good builders privately admit the industry has pushed for more and more shortcuts, that seriously shorten the life of new homes and force homeowners to incur many more expenses than they should have to. If only these good builders had taken the reins a long time ago instead of letting their industry become corrupted. If only that kind of money had instead been invested in education on PROPER construction, instead of legally advising members how to protect their assets and avoid liability.

The question is, will the NAHB disappear as they should, re-emerge as some new but equally useless group, or just continue to exist as is?

It's about time good builders again took control of this industry and restored it to respectability. Maybe w/the NAHB out of the way, they can. Restoration of credibility to this industry isn't going to be done by underhanded lobbying and spin. It'll be done by building houses right and honoring their contracts, for each and every customer, every single time. Only those builders who can do that tend to survive downturns, and only those who can do that, should. Most of today's builders, including publicly traded ones, have lost their way and should not be in business. Today's houses are far too often "disposable," the owners just don't necessarily realize it until it's too late.

2008 Nov 03 03:13 PM

[SA Editor J...:]

Hi Bill and Dave,

Thanks for the kind words and Bill, especially for your regular insightful comments. I'm happy to hear that the Housing Tracker has been useful to you both.

We made an editorial decision to slim down on in-house coverage of the housing market for several reasons. The two main ones are that our contributors do a remarkable job in analyzing and keeping abreast of what's going on in the housing market and the other is, well, because the real estate bubble has pretty much popped.

I'll probably be posting one or two weekly posts on a narrower field of interest in the housing market. I'd be interested to hear from you both which housing topics you'd like to continue reading about.

If I do come across anyone who does the same kind of research on the housing market I'll be happy to post it here for anyone who is interested. Of course I'm always happy to answer your questions at any time.

All the best,
Judy

2008 Nov 03 03:44 PM

[Dave Witherow:]

Judy-
Thank you for your reply and explanation. I certainly understand SA's editorial decision and I hear its rationale, but I respectfully disagree with the call and the conclusion. Your work to summarize the plethora of articles on real estate and your demonstrated ability to extract the salient essence out of a myriad of articles was incredibly value-adding. Echoing Bill's comment, I agree that this summary was invaluable to my efforts to stay abreast with everything going on in multiple real estate sub-domains. Your housing trackers were literally the first thing I read each and every day.

Not to take away from your contributors, but they are just another few contributors to a large body of editorial content available on the web, whereas your well-edited summary was indeed a unique resource.

And as to notion that the residential real estate bubble has 'popped', while that's well understood by now, there is still much news and commentary in the futrure about whether we are reaching the bottom, how that's going to happen, whether commercial real estate will follow and how, when lending will recover, how prices and sales volume are shifting nationally and regionally, etc. This is a huge body of information of considerable future value to SA's readers, which SA has apparently chosen to abandon.

I'm tremendously sorry to hear of this demise. I guess all I can do is get over the loss and thank you for the many months of summaries that you've provided. Thank you.
Dave

On Nov 03 03:44 PM Judy Weil, SA Editor wrote:

> Hi Bill and Dave,
>
> Thanks for the kind words and Bill, especially for your regular insightful
> comments. I'm happy to hear that the Housing Tracker has been useful
> to you both.
>
> We made an editorial decision to slim down on in-house coverage of
> the housing market for several reasons. The two main ones are that
> our contributors do a remarkable job in analyzing and keeping abreast
> of what's going on in the housing market and the other is, well,
> because the real estate bubble has pretty much popped.
>
> I'll probably be posting one or two weekly posts on a narrower field
> of interest in the housing market. I'd be interested to hear from
> you both which housing topics you'd like to continue reading about.
>
>
> If I do come across anyone who does the same kind of research on
> the housing market I'll be happy to post it here for anyone who is
> interested. Of course I'm always happy to answer your questions at
> any time.
>
> All the best,
> Judy

2008 Nov 04 11:25 AM

[billddrummer:]

Thank you for your kind words, and consistently excellent reporting.

One of the areas I'd like to see explored on a regular basis is the Option ARM phenomenon. As I've posted elsewhere, I believe the volume of resets to come will broaden the foreclosure phenomenon beyond the most oft-affected people who weren't qualified to purchase the homes they lost.

Option ARM and Alt-A credits were offered to many who had good credit, reasonable reserves, but lacked a verifiable income stream. The products were first developed for self-employed individuals, or those with bonus or incentive based incomes. The idea was that those individuals could make the small monthly payments required through most of a year, but 'catch-up' on the amortization when income spiked--bonuses, long-lead sales commissions, and the like.

What the mortgage industry did (and in retrospect, poorly), was to push those mortgage products onto regular wage earners, with the idea that appreciation would be the 'income spike' that would allow them to refinance to another product, preferably a fixed rate loan. (And the mortgage broker could pick up another commission from the refinance.)
There was seldom a mention of which payment would keep pace, nor was the idea of amortizing the loan on regular terms proposed.

Many mortgage brokers didn't understand the product well enough to explain the pitfalls. What if your house didn't appreciate? What if interest rates rose? What if you were laid off? What if you divorced? What if you became ill and couldn't work?

Now, unfortunately, the aftermath is just coming into view. And I believe that another round of defaults is on the horizon.

If that could be covered in future posts, I'd appreciate it.

Another area that would prove interesting is the effect of the changing retail landscape on commercial REITs specializing in shopping mall properties. I'd be interested in trends in rental rates across the country, whether landlords are providing additional concessions, what is happening with new projects, and how landlords are handling tenants who are seeking renegotiated terms on existing leases.

Thank you again for providing the kind of coverage that we in the trenches can rely upon.

All the best,

Bill

On Nov 03 03:44 PM Judy Weil, SA Editor wrote:

> Hi Bill and Dave,
>
> Thanks for the kind words and Bill, especially for your regular insightful
> comments. I'm happy to hear that the Housing Tracker has been useful
> to you both.
>
> We made an editorial decision to slim down on in-house coverage of
> the housing market for several reasons. The two main ones are that
> our contributors do a remarkable job in analyzing and keeping abreast
> of what's going on in the housing market and the other is, well,
> because the real estate bubble has pretty much popped.
>
> I'll probably be posting one or two weekly posts on a narrower field
> of interest in the housing market. I'd be interested to hear from
> you both which housing topics you'd like to continue reading about.
>
>
> If I do come across anyone who does the same kind of research on
> the housing market I'll be happy to post it here for anyone who is
> interested. Of course I'm always happy to answer your questions at
> any time.
>
> All the best,
> Judy

2008 Nov 04 07:06 PM

[SA Editor J...:]

Hi Bill and Dave,

I really enjoyed doing the Housing Tracker. I liked the fact that Seeking Alpha gave me a mandate to quote from articles and not to analyze. That way people got an objective view of what's going on in the marketplace and could make their own judgments.

But I also think people are not that interested in it anymore. There's no question that the housing market has to stabilize for the economy to recover, but the focus right now seems to be on what's happening in the general economy and not necessarily in housing.

I don't think the story is over. I agree that the alt-A and option ARMs are still lurking out there. I've been reading a lot of financials' conference call transcripts (that are free on SA, by the way!) and it's been interesting to see how different banks deal with those loans still on their books. I'm trying to cover it from this angle now.

I'll do my best to post updates on things like commercial markets and price/sales shifts around the country as well.

Looking forward to your comments,

All the best,

Judy

2008 Nov 09 02:34 AM