The New American Home, the centerpiece of NAHB’s annual convention, died on the vine at last year’s show in Las Vegas because the construction lender pulled out midway through the project. That didn’t happen this year, not because construction financing is flowing again, but because the buyers already owned the three lots on which the gargantuan 9,700-square-foot showstopper sits. If anything, builders complain, financing is even harder to obtain than it was a year ago. “We had a number of builders who wanted to build The New American Home but they couldn’t get funding,” said building industry consultant William Nolan, vice chairman of The New American Home Task Force. “The only reason it got built at all is because we already had a buyer.” And so it is that the inability to obtain and hold on to financing to buy land, turn it into building lots and build houses has become the single most important issue facing the nation’s home builders. Construction financing isn’t an issue for high-production builders. For the most part, the big publicly traded industry giants get their funding from the capital markets. But it is a “big deal” for the small- and medium-sized builders who tend to rely on local community banks for their money and make up the majority of the NAHB membership. And it’s not just about no longer qualifying for financing on otherwise viable projects. It’s also about hanging on to loans they already have, according to numerous builders, who say lenders are unnecessarily calling loans due and forcing them into foreclosure. (www.nationalmortgagenews.com)
National Mortgage News (1/17/11); Lew Sichelman

Rick Mandell, a consultant with Aspen Portfolio Strategies Inc., urged builders at the NAHB International Builders’ Show to connect with sources of private institutional capital to get homes built. His message: Private builders need to learn how to pitch their projects to financiers as if they were traditional investments with promised internal rates of return and healthy profit margins. In other words, builders should go to hedge funds, private-equity firms, university endowments and state pension funds for construction loans. Most private builders learned their trade in an industry where small and regional banks made construction loans based on existing market demand and on the quality of the location of the project. In the future, says Mandell, private institutional investors will replace those small banks, and they will care more about projected returns. “The builders have to look at a deal on the basis of an unleveraged yield,” he says. “If you’re an institutional investor, you can either put your money in stocks, or buildings or housing, and say, what kind of return am I going to get?” (www.wsj.com)
Wall Street Journal (1/12/11) Robbie Whelan

Detroit-area real estate agents say up to 40% of their deals have unraveled in the past year as stringent laws regulating home appraisals have made it tougher for home owners to get the dollar amount needed to sell. Appraisals, many of them inflated during the market boom, have fallen to Earth. While appraisers argue that guidelines passed in 2009 protect home buyers and lenders by giving them a realistic value for the home, Realtors® and home owners say the appraisals are too conservative. This further depresses the housing market because most buyers are not able to put up the extra cash if there is a huge gap between what they offer for the house and what it’s appraised for — and sellers don’t want to lower the asking price if the appraisal comes in low. “As far as what is holding our market back, it’s the appraisal issue. It can be a value death spiral,” said Dan Elsea, president of brokerage services for Real Estate One in Southfield. Realtor® and home builders associations say appraisers should be familiar with the neighborhoods they are evaluating. They’ve also lobbied that appraisers and those involved in the deal have all the information necessary to assign a value to the home. (www.freep.com)
Detroit Free Press (1/16/11); Greta Guest

As the high end of the Westchester, N.Y., market shows tentative signs of rallying and the inventory of houses for sale is finally being absorbed, a handful of “spec” builders are re-entering the field — though more cautiously than during the real estate boom. “In the past, I would have built four spec houses at a shot,” said Joe Simone, the owner of Simone Development in New Rochelle, who in boom times built multimillion-dollar mansions snapped up by sports figures and others with deep pockets. “Today, maybe I’ll do two, and not as elaborate.” “Things aren’t as high-flying as they once were,” he added. “I got out during the meltdown, and now I’m coming back in a different economy and with a different approach.” A developer of residential and commercial properties, he expects to break ground this spring on two houses in Purchase, one on 1.51 acres, the other on 3.8, each selling for about $3.8 million. By contrast, in 2005 Simone built estate-style houses on speculation in Bedford, each on four to five acres, that started at $3 million and went as high as $7 million. Part of the caution stems from the difficulty in securing financing. With banks risk-averse, hedge-fund types and other private investors have begun to fill the void, said David Turner, a sales agent for Houlihan Lawrence in Bedford. “The downturn in the market eliminated some of the builders who didn’t belong in it in the first place, who weren’t experienced enough,” Turner said. “And it is now influencing how the newest group of new spec builders is getting financed.” David Crowe, chief economist for NAHB, described spec builders as “generally the little guys who don’t build very many homes a year.” Especially for them, he said, “financing is no small issue. We see some of these builders coming back now, but usually only in areas where the housing market has begun to improve.” (www.nytimes.com)
New York Times (1/16/11); Elsa Brenner

A small number of new home owners are benefiting from the Neighborhood Stabilization Program, which helps to buy, renovate and sell foreclosed, abandoned homes. Experts say the program is meant to help combat the blight of empty, deteriorating homes that can drag down a neighborhood’s property values. The effort has been slow to take off since Congress approved funding in 2008. And critics say the number of homes salvaged is paltry compared with the number of problems. For example: In Lake County, Ill., where Waukegan is located, 20 homes are set to be renovated. But the county saw more than 11,000 default filings in 2010, according to RealtyTrac. As a result, the U.S. Department of Housing and Urban Development said that it will provide technical assistance to speed the process. A study by the Furman Center for Real Estate and Urban Policy found that foreclosed properties can lower nearby property values and tax revenues and can lead to vandalism and break-ins. The center recommended targeting transitional neighborhoods, where one or two restored homes will have more impact, rather than severely distressed areas. Since the program was launched, Congress has allocated $7 billion, some of it through President Obama’s economic stimulus package. (www.washingtonpost.com)
Washington Post (1/22/11); Robert McCoppin

According to new estimates compiled by the nonpartisan Joint Committee on Taxation, the mortgage interest deduction is not quite as big a hole in the federal budget as previously estimated. In fact, $88 billion less in revenue loss is now projected over the next three fiscal years than the committee estimated early in 2010. There is less interest to deduct because home values are down, meaning smaller mortgage amounts, and interest rates have hit half-century record lows. The committee’s new projections have turned up other intriguing and previously unreported facts about key tax benefits for home buyers and owners. For example, the popular tax-credit programs in 2008 and 2009 for home buyers are now morphing into revenue-raisers to the tune of $6.5 billion from 2011 through 2013. Two factors are at work: The first credit was for $7,500, or 10% of the house price. But it was more of an interest-free loan than a typical credit. Under the terms of the program, buyers are required to make annual repayment installments of 6 2/3% of the credit they claimed over the next 15 years, and they’re beginning to do so. The two subsequent credits programs — $8,000 for first-time purchasers and $6,500 for repeat buyers — did not require repayments but they came with strict rules that experts think will add to revenue the IRS collects from 2011 through 2013. For instance, Congress required that credits be repaid if the owners do not continually use their house as a principal residence for 36 months after the purchase. Say you took the $8,000 credit on your 2009 federal tax filing, but then decided to sell the house or turn it into a rental investment. You owe the government $8,000 the day you make that move. (www.washingtonpost.com)
Washington Post (1/21/11); Kenneth R. Harney