Fixing the housing market

Posted on December 8, 2008 by IC N in Residential

Home builders have much to gain if a stimulus actually encourages consumers to buy houses, even if the builders don’t pick up a hammer for months.

 

“Fix Housing First,” a proposal supported by the National Association of Home Builders and others, involves giving all home buyers a tax credit that they don’t have to pay back, having the government buy down mortgage interest rates and continuing foreclosure prevention efforts to keep people in their homes.

But here’s how dire conditions are for home builders: Even with a stimulus, the industry doesn’t expect to be breaking ground on a fresh batch of subdivisions in the near future.
The proposals only begin to attack the lingering problem that created a virtual “moratorium” on new home building — the huge inventory of homes already built and preventing more from entering the pipeline, said Jerry Howard, president and chief executive officer of the NAHB. He insists it’s not a giveaway to any business, but a measure to simulate consumer spending and confidence.
“This would stimulate people to come and take homes already in inventory off the market,” he said. If the stimulus proposals are put into place, “we will see house values start to come back up and see an increase in home building toward the end of next year,” he said.
That time frame looks pretty good to an industry hit hard when the housing boom deflated. The home builder sentiment index hit a new low in November.
The proposal may gain some traction. At least one housing expert who has the President-elect’s ear acknowledges that the overabundance of inventory is one of housing’s big problems right now.
“The housing problem does not get fixed until we clear the inventory,” said Nicolas Retsinas, director of the Harvard Joint Center for Housing Studies, and a member of Obama’s transition team. Retsinas couldn’t speak officially for the transition team, but did give his views on housing.
To clear the inventory, it’s important to get at some of the problems that are restricting housing demand. A big one relates to consumer confidence: People still believe that a home they buy today will depreciate tomorrow, Retsinas added. Also, “if you’re worried about losing your job, you think twice about buying a home,” he said.