Homebuilder bailout: You can’t be serious
Today's Financial News - Posted November 25, 2008
The bailout frenzy is trickling into almost every industry. If Detroit’s request was not enough controversy, what the homebuilding industry is asking for will surely get your heart pumping.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): I am starting to wonder what kind of society we live in. Is there no shame? No honor? Are ethics antithetical to business?
These questions certainly are not new to the investing arena, but they are gaining renewed vigor. After Detroit executives raced to Washington to pander for taxpayer money in a convoy of private jets, I decided to blow the dust off my old business ethics textbooks.
I knew the vague material was going to tell me next to nothing, but I just had to make sure there was I was not missing something.
Of course, there was no chapter on excessive government bailouts.
The nation’s largest homebuilders must have referenced the same text. After uncovering no information telling them it was unethical and frankly despicable to ask for free money in an economy that you helped destroy, the builders found a place in line with dozens of other desperate men on Capitol Hill.
That takes guts
After spending the better part of the last decade greedily filling the country’s neighborhoods with an overabundance of vinyl-clad McMansions, these morally corrupt beggars want a $250 billion “Fix Housing First” stimulus package. Apparently, the homebuilding industry has yet to learn the basic tenets of economics, supply and demand.
If Congress were to bow to the industry’s demands, all it would do is extend the current crisis. It would put even more houses on the market and force existing valuations dreadfully lower.
Sure, Joe the Plumber would have a job for a year or two, but shouldn’t he be writing a book or something?
If we want to fix the housing market, which I say has already reached a bottom, we need to do whatever is necessary to rid the nation of its glut of on-the-market inventories. Lower interest rates and tax credits for buyers that purchase existing homes are two tools that must be used to pull us out of this mess.
A one percent decline in mortgage rates could effectively remove as many as 800,000 unsold homes from the market. Even with this knowledge, 30-year fixed rates have remained relatively unchanged throughout the current financial crisis. If the government wants to get in the mortgage business, here is its chance.
A fake tax credit
So far, very little has been done to create tax incentives for homebuyers. Sure, first-time buyers will get a $7,500 credit for buying a house this year. But that money is nothing more than a 15-year loan. Take the money and you will owe Uncle Sam $500 each year until 2024.
The answer to this crisis is not feeding the sharks that got us into the mess. Savvy homebuilders took advantage of eager buyers. They put them in houses and mortgages they could not afford and slept well at night on a bed of profits.
Now that their golden goose has gone infertile, they are in Washington asking for even more of your money. Fortunately, I do not think even Congress is stupid enough to write these guys a check.
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November 25th, 2008 at 4:50 pm
The builders didn't just overbuild shoddy oversized and artificially over valued houses; they also set up their own mortgage companies and engaged in predatory lending. If they didn't run their own lender they set up an affiliated business arrangement with a lender like Countrywide's bulder division which as you probably know has been in the news for predatory lending. BTW “predatory lending” is what they call it when consumers get burned. When a bank gets burned in the same scheme, it's “mortgage fraud” and something might be done about it, but consumers are just blithely told to “get a lawyer.” Builders and the entire real estate and lending industry created this mess, with the help of investors and ratings agencies, and the govt which looked the other way. There is no way these industries should get a dime. But our govt is in their pockets, so don't be surprised if they get it.