Homebuilders groups say: 'Fix housing first’

Kim Meier described the current housing situation as a “perfect storm” of shrinking values and rising inventory that has stymied demand and forced builders to the curb.

“That is why we have the foreclosure issue that we have,” said Meier, president of Richmond-based KLM Builders Inc. “Now with the employment situation tenuous, it has exacerbated the problem. Housing is a very large part of the economy.”

That is why the National Association of Home Builders have devised their own housing recovery plan dubbed “Fix Housing First.” It calls for Congress to support enhancements to the homebuyer tax credit, to provide below-market interest rates on 30-year fixed-rate mortgages, and to continue foreclosure prevention measures.

The coalition of more than 600 organizations, home building companies and manufacturers recommends a homebuyer tax credit equal to 10 percent of the home’s value – ranging from $10,000 to $22,000. This is nearly three times the $7,500 credit Congress offered to new buyers earlier this year.

“One of the things that the government could do to help stimulate demand is getting buyers ready and able,” Meier said. “We’re talking about a tax credit for anyone that buys new or existing homes, up to a maximum of $2,200. It will solve the housing problems in 90 days and we’d be on our way.”

Builders also want subsidies for interest rates on 30-year fixed-rate mortgages, dropping rates 2.99 percent through the first half of 2009 and 3.99 percent for contracts closed between June 30 and Dec. 1.

Both of these incentives worked in 1975, when Congress passed a short-term $2,000 tax credit for all new homes ($12,000 adjusted for today’s median home prices) coupled with subsidized mortgage rates.

Bernard Markstein, senior economist with the national home builder association, said the 4.2 million homes for sale at the end of November approached the record 4.57 million set in July 2008. He said the supply of existing homes, a 11.2-month supply, is nearly double what is usual. The new home inventory is a comparable 11.5 months.

“We had 374,000 homes for sale, a 7.3 month supply, for sale in November. Now we’re at 11.5 months,” Markstein said. “How can that be? It’s that the sales rate is much slower now than back then.”

Markstein said that in July 2006, 950,000 homes were sold at an annualized rate. The sales rate in November was less than half that. And Congress has done nothing to help.

Markstein said the U.S. Treasury Department’s TARP program, designed to bring lenders back into the mortgage market has had a negligible impact. Not only that, banks have used falling home prices and the subsequent lower appraisals to nix many deals.

“Appraisers use the foreclosed homes as comparables,” Markstein said. “But a foreclosed home is not the same as a new home or even an existing home.”

 Tom Stephani, former president of the McHenry County Home Builders Association and president of Stephani Enterprises of Crystal Lake, said there were a few positives to the housing impasse. He predicts more diversity of housing stock through an influx of independent builders. Also look for smaller, energy efficient homes with flexible floor plans and an increase in transit-oriented developments.

“The rubber-band effect has come into play,” he said. “Everybody is looking back at the properties that are closer in. People want to be closer to where they work and play.”

Alan Lev, president of the Home Builders Association of Greater Chicago and head of Belgravia Group Ltd. in Chicago, said he was “hard-pressed to find a silver lining” with so many companies going under and so little help in the offing.

“The proposal from the new administration is not going to do anything for housing,” Lev said. “I’m hoping to get some artificially low interest rates or some foreclosure relief. But I’m not sure if it should be funded by TARP money or a buy-down of interest rates.”

Lev also would like to see relief in impact fees, an up-front home cost meant to cover costs of classrooms, culverts, roads, and recreation. But that is just part of the puzzle. If the logjam is not reduced soon, the balance could tilt in the opposite direction.

“What we’re seeing nationally is the number of homes are going down; meanwhile, the population is growing,” Markstein said. “The 625,000 housing starts in November, at an annualize rate, is about one-third of the number of units we need per year to meet long-term demographic growth patterns. We need to 1.8 to 1.9 million housing starts a year on average. That is not a problem now because of the extra inventory, but at some point, there will be not enough home for sale. And then people will start chasing prices again.”