BluefoxToday blog : Home builders are extending the tin cup for Washington aid. Should they be rewarded?

Home builders are extending the tin cup for Washington aid. Should they be rewarded?

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.



Provided by: 

Esko Kiuru
Mortgage, real estate and apartment industry analyst - syndicated mortgage, housing and property management blog
My cell: 702-499-1006

Comment balloon 18 commentsEsko Kiuru • November 25 2008 09:22PM


Hope about the Russ Ravary 2 million dollar bailout.  I'm sending my lobbist

Posted by Russ Ravary ~ Metro Detroit Realtor call (248) 310-6239, Michigan homes for sale ~ (Real Estate One) over 10 years ago

I'll go you one better.  I'm a builder, a broker and an investor.  They need to not only stop the overbuilding, they need to build a better product. 

I only build customs and I only build "green".  As a result, my homes cost about $20-80K more than production built crap.

They run on about 1/3 of the energy and monthly outlays for ownership are about the same or less, so they pay for themselves from the first month of ownership.

The government needs to get out of incentivizing anything.  Let market demands dictate what gets built, produced and consumed.  All the government is doing is bleeding us all and making the situation much worse in the long run.

They took the depression from just that and turned it into the GREAT depression.

Mike Michaud

Guru of Green for the AR community.

Need a green home? Talk to me.


Posted by Mick Michaud, Your Texas Lifestyle is Here! (Distinctly Texas Lifestyle Properties, LLC Office:682/498-3107) over 10 years ago

The line for the bailout needs to be drawn.  Everyone is getting in line for assistance.  Real Estate and home building is a historical given.  It will go up and it will come down.  If you choose this profession as a builder you embrace the good as well as the bad.

Posted by Connie Goodrich, CRS ABR (McKinney Realtor)Texas (Keller Williams Realty) over 10 years ago

To stop building would be certain demise for most builders, however, I do believe they need to build a better product and going green is fabulous.  These homes will be better all the way around.  There is a local builder that pays attention to detail and still gives all the bells and whistles, his homes are selling while others are sitting because many started building a cheaper house and cutting corners for the sake of price. 

Sometimes when are minds are worried and not right, we don't make the best decisions!

Posted by Valerie Springer, Home Loan Officer AL, FHA, VA, Conventional and Re (Benchmark Mortgage nmls 2143) over 10 years ago

If you work in land acquisition, development and marketing, you know how many jobs are created when a home is built as opposed to the resale of a home where the funds that are profited may leave the area or may buy another home but don't create not only create jobs, they increase property tax bases which improves your schools and infrastructure.....

Posted by Julie Chapman, New Homes Sales Lakeland Florida (DR Horton ) over 10 years ago

It is true they are asking for these concessions, but for all home sales not just new. The idea is to fix real estate and get homes off the market. This will also fix the toxic mortgages as these homes are sold and mortgages closed out. I think it is a great idea. You must fix real estate to lessen the mortgages from continuing to go into default.


Posted by Richard Stabile, Bergen County New Homes Builder Realtor (Re/Max Real Estate Limited) over 10 years ago

Esko, this will be the year of the bailout. All I can say is this is crazy.

Posted by Gary Woltal, Assoc. Broker Realtor SFR Dallas Ft. Worth (Keller Williams Realty) over 10 years ago

Esko this whole bailout thing is getting out of control and it is time that it comes to a stop.  Tax payer money is being handed out like candy on Halloween.

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) over 10 years ago


Everybody has to have a lobbyist on the scene.

Posted by Esko Kiuru over 10 years ago


Many agree that green building is the future in housing.

Posted by Esko Kiuru over 10 years ago


Think about all the money builders made during the boom.

Posted by Esko Kiuru over 10 years ago


That's a good example of how quality still sells homes.

Posted by Esko Kiuru over 10 years ago


Thanks for bringing another perspective to the discussion.

Posted by Esko Kiuru over 10 years ago


It sure is a mess and every segment needs to be looked at.

Posted by Esko Kiuru over 10 years ago


Year of the bailout is right on.

Posted by Esko Kiuru over 10 years ago


It appears the bailout line just keeps getting longer, unfortunately.

Posted by Esko Kiuru over 10 years ago

I am so infuriated by the post (not shooting the messenger, however, thank you Esko!)  What did these grand mega production builders do with all the excess profits from their ABA (affiliated business agreements?)

This is absolutely sickening knowing what I know about how they operate on the back end?  Going into newer housing tracts and seeing sign after sign after sign that state 'bank owned' or 'foreclosure'.  NO bailouts or handouts or "bridge loans" (sexy term) for builders!

Sorry for my rant and I am featuring this in LV RE Pros!

Posted by Renée Donohue~Home Photography, Western Michigan Real Estate Photographer (Savvy Home Pix) over 10 years ago


Let's see in the coming weeks what their lobbyists can do.


Posted by Esko Kiuru over 10 years ago