News & Moves: October 24, 2008

The outlook for the housing market remains grim and uncertain, say experts, despite the Oct. 3 passage of the Emergency Economic Stabilization Act of 2008, also known as the $750 billion bailout. Builders, however, seem optimistic.

Although the bottom-line objective of the bailout, as it pertains to the housing industry, is to help stabilize the banking system so that it will ease up tightening restrictions on loans, it is still unknown exactly how the U.S. Department of the Treasury will do that, says David Seiders of the National Association of Home Builders. There are just so many variables at play that even forecasters are full of “what if” scenarios.

Fitch Ratings, in its report, “U.S. Homebuilding: The Chalk Line – Quarterly Update: Fall 2008” released this week, shows its uncertainty about the market as it offers several scenarios.

In the report's first scenario, total and single-family housing starts are projected to decline 7.3 percent and 6.2 percent, respectively, in 2009. New home sales are forecast to rise about 5 percent. Fitch assigned a 40 percent probability to that scenario. The second scenario, which has a 60 percent probability, estimates total starts are down 12.5 percent in 2009 as single-family starts fall 10.8 percent. New home sales are projected to decrease approximately 7.0 percent.

To further play it safe in this volatile economy, the 173-page Fitch report authored by Bob Curran, added a box labeled “What if.” The text begins, “Although not Fitch's current forecast, there is a possibility that the U.S. economy may enter into a sharp recession, extending into 2009. If so, housing macro statistics could prove to be weaker than currently forecast.”

When the economy does start to improve, a stronger, better new-housing market will emerge, some say, but it will take some time for builders to ramp up their business, re-hire laborers who have left the slowing industry, boost pre-sales and wait for a new administration to get situated in the Oval Office.

During the last presidential debate, although both Senators John McCain and Barack Obama mentioned favoring a plan to help homeowners renegotiate mortgage terms so owners could afford to stay in their homes, they disagreed, without giving specifics, on exactly how that should be done.

If the next builder confidence survey from the NAHB/Wells Fargo Housing Market Index (HMI) reflects a similar reaction to the $750 billion bailout as it did with the survey released after the passage favoring the first-time home buyer tax credit and the placement of Fannie Mae and Freddie Mac into conservatorship, Builder confidence will be up. According to the HMI released in September, builder confidence for newly built single-family homes rose for the first time in seven months.

But don't rush out and start rebuilding too quickly, says Rick Peters, president of consulting and construction business R.E. Peters Co. in Huntington Beach, Calif. Home builders will need to ease back into housing starts as they still have 10-plus months of inventory to sell off.

“What is going to happen here if we are not careful is as all of the builders are selling off their remaining products, the economy gets better, people submit plans and everyone starts up [building] around the same time, in the same quarter, then that will create other impacts and we are not quite sure of what magnitude that will be,” says Peters. As a result, the industry could end up with a surplus of homes again and the cycle could quickly repeat.

His advice: Take it slow and get prospective buyers to sign on the dotted line. “Pre-sales are going to be important.” — Sheree Curry, Contributing Editor

The Federal Housing Finance Board announced two new appointments to the boards of Freddie Mac and Fannie Mae. John A. Koskinen will be the new non-executive chairman of Freddie Mac. Philip A. Laskawy will serve as the non-executive chairman of Fannie Mae.

Watch this interview from Bloomberg TV with Hovnanian Enterprises CEO Ara Hovnanian that discusses whether the government is doing enough for home builders in its rescue plans. Listen to what Hovnanian thinks should be done – including a tax credit for home buyers. Also, what's in store for debt-laden Hovnanian Enterprises?

Ryan Homes must pay about $500,000 to residents of Odessa National who were misled into paying membership dues for a golf course they were originally told they did not have to join, the Delaware Online reports. According to the report, under the agreement, homeowners of Odessa National's 55-and-older community, Hearthstone, have the choice of opting out of the $800 annual fee or retaining their golf club membership. For those who opt out, Ryan Homes must pay the golf-related assessment fees for as long as the homeowner lives there.

In Collier County, Florida, the local chapter of Habitat for Humanity has found the silver lining in foreclosures. Because of the down housing market, the local division decided to purchase and renovate foreclosed homes. It has 20 homes for families applying for housing assistance. According to the chapter, building a new Habitat home cost around $140,000. With this silver lining in foreclosed homes, they will save between $20,000 to $30,000 per rehabilitated home.

6.2%

The U.S. Department of Commerce released data on housing starts and permits for August. Housing starts plunged 6.2 percent, the lowest since 1991, and housing permits are down 8.9 percent.

7.5 million

According to the Census Bureau, data from 2007 reveal that more than 7.5 million people, or 15 percent of homeowners with mortgages, are spending half their income or more on housing costs. But 38 percent of homeowners with mortgages are financially burdened by the government's definition because they spend 30 percent or more of their income on housing costs. That's 19 million homeowners strapped for cash.