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Housing Not Falling Apart, State Governors Told
With concerns over the health of the nation’s housing industry increasing in response to slower sales and rising unsold inventories, NAHB President David Pressly and other association representatives have been stepping up their efforts to put the current downturn into perspective and respond to unsubstantiated, speculative reports in the new media “that the world is falling apart.”
The current slowdown in the pace of sales and construction “is pretty much what we were expecting” following the unsustainable levels of recent boom years and will still leave activity close to record levels, Pressly told a “Housing and Homeownership” conference of the Democratic Governors Association (DGA) in Aspen, Colo. on Aug. 26.
“Sure, it could be painful for some builders in the market who are overextended and some sellers who are having difficulty selling homes,” Pressly told the governors. “But if the Federal Reserve refrains from any additional interest rate increases, and other sectors of the economy pick up the slack and keep the U.S. economy growing at a respectable pace, we have all the makings for a relatively soft landing.”
Pressly provided the governors with statistics for their states gathered by NAHB/Housing Economics, including forecasts on housing starts and employment and population growth for 2006 and 2007, recent annual rates of home price appreciation compared to the nation as a whole, rental vacancy and homeownership rates, and rankings on annual housing growth and the OFHEO House Price Index.
Participating in the conference were Governors Bill Richardson, from New Mexico, who is also chairman of the DGA; Kathleen Sebelius, Kansas; Tim Kaine, Virginia; Brian Schweitzer, Montana; Joe Manchin III, West Virginia; and Jim Doyle, Wisconsin.
High Fees Making Affordability Worse
Among those attending, Larry Gotlieb, vice president of government and public affairs and associate general counsel for KB Home, noted that current housing affordability problems are being greatly exacerbated by unreasonable development fees for infrastructure improvements, which he called “some of the most regressive tax policies being utilized by governments of all levels today.”
“Believe me when I say home builders are willing to pay their fair share to support new infrastructure needs,” said Pressly. “But when the cost of fees, taxes and regulatory red tape adds up to $50,000 or more to the price of a home — that’s simply too much. Remember, these costs are passed on to our customers, and there’s a limit to what they can afford to pay.”
Pressly said that NAHB has worked with the National Conference of State Legislatures to identify infrastructure financing alternatives. “However, in order for a locale to engage in these financing alternatives, they must be granted the enabling legislation by you, their governor, and your respective state legislatures,” he said.
Updating the Fed
A delegation from NAHB, including Pressly and Senior Officers of the association, visited the Federal Reserve Board in Washington, D.C. on Sept. 5 to provide an update of conditions in the housing market.
The meeting was attended by five of the six Federal Reserve governors, including Chairman Ben Bernanke.
Housing has been one of the sectors of the economy that the Fed has been watching closely to gauge the impact of its monetary policies. A Sept. 6 “Beige Book” prepared by the Federal Reserve Bank of New York noted that recent reports on real estate and construction were uniformly weak in the residential sector across the country, while commercial construction showed fairly widespread strength.
Virtually all of the 12 Fed districts reported declines in home sales and construction activity, the report said, and most districts indicated substantial increases in the inventory of unsold homes.
Residential real estate contacts for the Fed report said they expected housing markets to remain weak, if not weaken further, in the months ahead. This concern was specifically cited in reports from Philadelphia, Cleveland, Atlanta and Kansas City.
Relatively flat or declining home prices were noted in the New York, Richmond and Kansas City districts, and decelerating prices were reported in the Philadelphia and San Francisco districts, according to the report. The high end of the market was described as particularly weak in the Richmond, Va., Chicago and Kansas City districts, as well as parts of the Minneapolis District.
The high ends of both the Dallas District’s housing market and the New York District’s co-op and condo market were reported to have experienced less softening than the more moderately priced segments. “One area of relative strength in residential real estate has been the apartment market — of the three districts reporting on this, New York and Chicago both indicate fairly strong demand for apartment rentals since the last report, while Dallas noted continued strong demand for condominiums.”
NAHB Chief Economist David Seiders carried the association’s insights into the state of the housing marketplace to the White House on Sept. 7, joining a discussion with Edward Lazear, chairman of the Council of Economic Advisers.
“As long as the economy remains in good shape, interest rates remain close to current levels, energy prices remain below recent highs and sellers of new and existing homes adjust prices or offer incentives to meet current market realities, the rest of the housing market correction should be of limited depth and duration,” Seiders said. He expects to see the housing market stabilize by the middle of 2007.
NAHB First Vice President Brian Catalde will be reporting to the Republican Governors Association later this month.
Photo by Herman Farrer
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