According to Reid, facets of the plan include "$4 billion in grants for local governments to buy and refurbish foreclosed homes, new authority for states to issue bonds to be used to refinance sub prime mortgages, and a $7,000 tax credit for people buying new homes or properties in foreclosure."
For homebuilders, the measure includes a provision that would "permit homebuilders and other money-losing businesses to reclaim previously paid taxes, new disclosure requirements aimed at preventing unsophisticated borrowers from being duped by mortgage brokers, and additional money to provide counseling to people threatened with foreclosure and help them in negotiating with their lenders."
Those reclaimed taxes first mentioned are a huge deal. This is a $6 billion emergency tax break that would let companies use losses from 2008 and 2009 to offset profits earned over the previous four years, instead of the usual two-year time frame. A move like that is good news for some of the larger homebuilders that have been faced with losses, such as KB or Pulte Homes.
Forced to be left out of the bill was a plan to have the Federal Housing Administration guarantee near $400 billion worth of refinanced loans if lenders reduce loan amounts to reflect reduced home values.
The bill won't be of much help to homeowners facing bankruptcy. Though the mortgage industry managed to get interest going in a provision to let bankruptcy judges redefine the terms of 'distressed mortgages', the provision was ultimately left out. The Mortgage Bankers Association felt it would have hurt more borrowers in the long run when it would require higher interest rates and down payments to offset the risks.
It may sound good, but economists are skeptical that it will actually have any effect on the housing crisis. Mark Zandi, a chief economist, has been quoted as saying. "They're good steps, but small steps and certainly not big enough steps to solve the problem [. . . ] at least not in 2008."
Some are also critical of the tax carryback, seeing it as a giveaway to big businesses. Protestors are mainly rallied around the homeowner, feeling it unfair that a bill to help struggling homeowners ends up giving half the money away to the companies that overproduced and "caused this mess in the first place."
The NAHB interestingly enough has been keeping quiet. After the economic stimulus bill was passed in February, they've stated that they would stop making contributions to congressional candidates until further notice. NAHB has given nearly $20 million to federal candidates since 1990.
We at SMA Consulting feel that these measures coupled with some additional positive media attention will go a long ways toward restoring consumer confidence in the housing market. We support every positive initiative that the government and the building and related industries are working on. These are steps in the right direction.
SMA Client Index Results for first Quarter 2008.
Our small but accurate index of client and selected Inner Circle members show that the first quarter 2008 is down from First quarter 2007 but up significantly in traffic, and net sales over fourth quarter 2007.
This is leading us to feel that the market in many locations may have hit bottom in late 2007. We are seeing improved traffic and sales results in the eastern seaboard states, the mountain states and even in Florida (although here the results are suspect due to limited participation). The mid-west and south central states are seeing some sales and traffic drop off in the first quarter against the average quarters of 2007. These markets were slower to stall out and may just now be seeing a significant market softening.
Overall traffic was up 15% and sales were up 22.1% from the October through December 2007 results.
Inventory levels of finished speculative homes dropped 12% for this same builder index group. This is in contrast to the national inventory levels which are falling at a rate of less than 1% per month according to national statistics quoted in an issue of the Wall Street Journal last week. The SMA Index group is dropping inventory at a rate more than 4 times the national average. Of course, we do not have a good handle on how the national group is counting or classifying inventory.
We still feel much of the market is dependent upon greatly reduced spec levels to hope for a significant turnaround in the housing crisis. It is a simple law of supply and demand.
Have a good week!
Bob Whitten
P.S. - Should anyone be interested, I know of an experienced CEO/Senior Sales Executive who is seeking employment. If anyone is looking to fill a position like this, please e-mail me at bwhitten@smaops.com for further information. |
