It's becoming the fad of the year that major industry lobbyists are sent to march up the long, stone steps of the U.S. Capitol and ask for federal help for their flagging businesses. The belief seems to be that Congress is the cradle of group therapy that will cure their ills by handing out taxpayer money and somehow that will turn their fortunes around. The mortgage lenders have been there, the insurance lobby has been there, the banks, the car manufacturers, the list is long.
Now it's the home builders.
They did get a modest tax credit package passed in the spring but it didn't do much good at all. Now they are aiming higher. Their current proposal, which is called "Fix Housing First", seeks a home buyer tax credit of 10% of the property's value that would face a limit of $22,000. Moreover, their wish list has a 30-year fixed rate, government-backed conforming mortgage product subsidized so that the rate drops to 3% for the first six months in 2009 and 4% for the rest of the year. The National Association of Home Builders, or NAHB, figures the interest rate initiative alone would cost around $143 billion to the government.
It's true that housing is a key component in our huge economy. When it develops a serious flu like now the whole economy starts coughing and its joints aching and making noises. In the big picture, though, their plan totally ignores the impact the dramatic rise in foreclosures is having on home values. The main focus ought to be there now, slow down and reverse the foreclosure epidemic. And with that stabilize the price levels.
What happens on the resale side is also indirectly affecting how home builders can set prices for their product lines. A good example of that is Las Vegas where existing homes in the lower end of the price scale are presently selling rather well because foreclosures have forced values way down where buyers can afford them. New homes cannot compete with that and are largely sitting vacant in builder lots.
Basically, the NAHB proposal is trying to artificially create demand for an overpriced product at the taxpayer's expense. In this scenario money would be taken out of the taxpayer's pocket one day and handed back to him the next in the shape of a mortgage interest rate subsidy and a tax credit when he purchases a new house. Think about it. Who makes money off of that?
The better way, it seems, for home builders to cure their industry woes is to halt building more homes. In other words, bring more balance to supply and demand.