Debate Over Tax Credit / DPA Programs [Housing Tracker]

Includes: HOV, PHM
by: Judy Weil

Boom Times for Job Site Thieves. “Larceny at residential construction sites across the country has increased significantly in the last two years because of soaring prices of building materials like copper, lumber and cement. National Association of Home Builders: The annual cost of theft to the industry has reached $5 billion. The problem has meant higher material and insurance costs for builders, who pass them along to buyers… In the end, that can add as much as 10% to the cost of a home, builders and developers said… The situation is worse in regions where homebuilding remains relatively strong, like in parts of Texas, North Carolina, New York and Louisiana.” (NY Times, Aug. 27)

Don't Get Burned by Phony Assets. “While many [homebuilders] will likely survive this crisis, some price-to-book ratios are extremely low for very good reasons. The market is expecting further asset writedowns that will knock even more assets off their balance sheets. As a result, book values should be viewed with a jaundiced eye; they don't provide the backstop they would if the banks' assets could all be readily converted into cash. A company's book value is only as strong as the assets that appear on its balance sheet. If they can't be readily converted into cash, they may as well not exist at all… A firm's earnings potential is far more important than what it owns.” (Motley Fool, Aug. 27)

Homebuilders Scramble To Sell Before Option Fades. Oregon: “In recent months, up to 50% of local first-time buyers relied on the seller-to-charity-to-buyer down payment program… But lawmakers axed the programs — effective Oct. 1 — because almost 40% of FHA borrowers who went into foreclosure since October had down payment assistance… Builders [like] Pulte Homes (NYSE:PHM) and Hovnanian Enterprises (NYSE:HOV) are urging [homebuyers] to take advantage of the DPA programs before they expire. [Also,] the minimum down payment for an FHA-insured loan is scheduled to go up from 3% to 3.5% on Oct. 1. That means buyers will have to come up with an extra $1,153 to buy a $230,700 home, the median price of a new home last month.” (AP via Register Guard, Aug. 27)

Cramer's 'Mad Money' Recap: Aug. 26. “Cramer said the charts clearly show the top of the market in July, 2005, one year before the "beginning of the end" in July 2006. Given that 12-month lead, Cramer identified the bottom for the homebuilders on July 17 of this year. Normally, he said he would go with a 6- to 12-month leading indicator for this bottom, but in this case, he's giving some more leeway and is predicting it will take 309 days before the housing market bottoms.” (The Street, Aug. 26)

NAHB Letter to the Editor: Too Early to Judge Effects of Tax Credit. “NAHB: It is too soon to try to measure the tax credit's impact on sales activity in the housing market… [though] 39% of sales reps surveyed reported… “favorable buyer interest”... That's a strong response, when you consider that first-time home buyers make up only about 40% of the overall market… Many buyers of newly built homes stand to indirectly benefit from the credit because it will help them sell their existing homes. This activity will obviously take more than a couple of weeks to show up on the radar… An average of 10,000 visitors per day are viewing [our] Web site to find out about the tax credit, without any advertising.” (Big Builder Online, Aug. 25)


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