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Letter to the Editor: Higher Economic Ground Is Far Off
Dear Editor:
As an occasional reader of NAHB who from time to time appreciates its perspective on economic news, I found “Economic Growth Now Heading to Higher Ground” (April 27, 2009) quite misleading when you take a good look at how this recession differs from those that preceded it. In the current case, to get the economic ball rolling in a positive direction, the consumer and corporate markets need to return to a level of savings and liquidity that has not existed in this country since the 1950s. The average consumer is overleveraged, both with real estate and short-term credit borrowings.
The typical corporation and small business has lived off of credit for the past several years. Home builders are in there somewhere. To get back to a place our economy can achieve growth, those debt borrowings must be paid back and a significant amount of cash must be accumulated. This is a huge swing of the economic pendulum. Frankly, today’s banking environment is requiring it. Corporations need to have cash balances in order to get loans and small businessmen are being asked to personally guarantee loans and have cash balances at the bank.
Looking at today’s home mortgage lending standards compared to those of the past five years or so provides an idea of what has to be achieved by the borrower to begin to get momentum going in the home buying markets. Asking for 15% to 20% down, a good credit score (above 700) and cash for closing costs means that a home buyer attempting to buy a modest $300,000 home needs at least $45,000 in cash and additional monies for closing. Given the current demographics of possible buyers, this suggests a quite small group of available people, who may or may not be interested in buying. Couple that with the current inventory of existing homes for sale and new builds and a growing list of available foreclosed homes, and you are headed for an exceedingly slow recovery process. For real proof of how “thin” the available pool of buyers is, take a poll in your office to see how many of your existing employees who don’t own a home have enough savings and a 700+ credit score to buy the average home in your market. That is the reality.
If we are now at the bottom, I fully expect us to stay there for at least the next year. I don’t think we’re there yet, and the economic picture will deteriorate further in the third quarter as the impact of the unemployment numbers continues to roll through the economy.
Mark Wright
Acadia Windows & Doors
Baltimore
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