Special Edition - Nation's Building News Online: August 20, 2007Print All Articles Text Version |
NAHB Works to Address Undue Tightening of Mortgage CreditResponding to recent deterioration in the nation’s financial markets, NAHB has scheduled meetings in Washington, D.C. and New York with key government officials and leaders in the investment community to pursue a course of action that will add liquidity to the mortgage markets, stabilize housing and reduce downside risks that could push a fundamentally healthy U.S. economy into recession. NAHB continues to forecast moderate but slowing growth for the U.S. economy, some increase in unemployment and further improvement on the inflation front, but “financial market conditions currently pose considerable downside risks” to that outlook, David Seiders, the association’s chief economist, cautioned last week. Financial markets turned turbulent in the latter days of July and the first half of this month as the result of fresh revelations of credit quality problems in U.S. residential mortgage and mortgage-backed securities markets, Seiders said in his Aug. 15 “Eye on the Economy” report. “The infection quickly spread to a wide range of markets and to other parts of the globe amidst a worldwide fight toward credit quality.” The availability of financing has tightened significantly this summer for mortgages to buyers with less than a prime credit history. While the conventional conforming prime market — comprised of mortgages limited to $417,000 and serviced by Fannie Mae and Freddie Mac — is holding up well, the jumbo loan market has now contracted significantly, with major implications for prospective home buyers in high-priced markets. The drive toward credit quality “froze up various securities markets around the world as risk became difficult (or impossible) to price, particularly on mortgage-backed securities without government backing, causing credit demands to shift toward depository institutions,” Seiders said. “Interbank loan rates shot up in the process, prompting the Federal Reserve and some foreign central banks (including the European Central Bank) to inject large amounts of reserves into banking systems in order to maintain established policy rate targets.” Restoring Order in the Financial Markets Disorder in the financial markets came to a head last week, prompting the Federal Reserve to step in and temporarily reduce its primary discount rate by 50 basis points, to 5.75%. NAHB applauded that action and also commended “the Fed’s move to allow the provision of term financing for as long as 30 days, renewable by the borrower, and to accept home mortgages and related assets as collateral for discount window loans to banks. Such changes reflect the Federal Reserve Board’s willingness to act quickly to help restore orderly conditions in financial markets, provide depositories with greater assurance about the cost and availability of funding, and help ease liquidity concerns that are affecting the mortgage market.” NAHB has strongly encouraged the Fed to continue to monitor market conditions closely “to determine whether further action is necessary,” including a cut in the target federal funds rate before the next scheduled meeting of the Federal Open Market Committee (FOMC) on Sept. 18. Seiders now says that he expects to see a quarter-point cut in the federal funds rate, which is now 5.25%, at the Sept. 18 FOMC meeting, “and an earlier cut is not out of the question.” This would represent a significant shift in Fed policy since the last FOMC meeting on Aug. 7. On Aug. 13, NAHB, along with the Mortgage Bankers Association and the National Association of Realtors®, wrote to James Lockhart, director of the Office of Federal Housing Enterprise Oversight, asking him to temporarily increase the caps on the investment portfolios of Fannie Mae and Freddie Mac to help inject needed liquidity and stability into the mortgage market. To gain a better understanding of the problems that have beset the mortgage markets and steps that will help restore them, NAHB recently conducted a teleconference with Lew Ranieri, co-chair of the NAHB Mortgage Roundtable and father of the current method for financing mortgages through the world-wide capital market. NAHB's efforts to alleviate the mortgage credit crunch are continuing in the weeks ahead with the following agenda:
An immediate challenge for the housing industry is reversing the tightening of credit standards for prime jumbo mortgages, which have been performing well. The correction of many of the excesses of the housing boom in subprime lending — such as qualifying borrowers with undocumented incomes — will contribute to the long-term health of housing, but the current clampdown on jumbo mortgages is an overreaction that could unfairly prevent credit-worthy borrowers from being able to buy homes. Lenders of mortgages over $417,000 are now in general looking for borrowers with near-perfect credit who are able to make 20% downpayments. Borrowers who succeed in qualifying for these loans are also being charged a premium in points and higher interest rates. Tighter mortgage lending standards have had a pronounced impact on housing, and Seiders said that he now expects homes sales to “trail downward” through the balance of this year, with better times coming into view during the second half of 2008. Along with its efforts to restore the health of mortgage lending, NAHB is in the process of gathering information geared to helping its members overcome some of the difficult challenges of selling homes in today’s marketplace. SPECIAL EDITIONNo regular edition of Nation's Building News was scheduled for Aug. 20. However, following major developments in the financial markets last week, this abbreviated special edition is being published to keep NBN readers up-to-date on efforts now underway at NAHB to address the growing credit crunch in the nation's mortgage markets. NAHB Corrects ‘Doom and Gloom’ Reporting on Housing MarketNAHB has been stepping up new media appearances and interviews in recent weeks in order to explain the complex dimensions of the current housing downturn and credit crunch and correct some of the sensationalistic reporting that has made market conditions sound worse than they actually are in an effort to boost ratings or sell newspapers. Appearing on CNBC’s “Wall Street Journal Report” on July 29, Jerry Howard, the association’s executive vice president and CEO, reminded viewers of the advantages in today’s buyer’s market for families that are looking for a place to live or are interested in making a long-term investment. There is a lot to choose from in the current market, he said, and mortgage interest rates remain at favorable levels. “People should not be scared away” from the housing market, Howard said. While the unraveling of the secondary mortgage market has prolonged the current market correction, NAHB Chief Economist David Seiders expects that a long-term recovery will begin to emerge during the second half of next year. “Sales and housing starts should start to come together in 2008 and move into 2009 with pretty good momentum,” Seiders was quoted in USA Today on Aug. 9. Credit Crunch Teleconference Howard and Seiders will present a national teleconference on Tuesday, Aug. 28 at 2:00 p.m. EDT to discuss issues such as the possible duration of the credit crunch, its impact on home building and sales and what the Federal Reserve, Wall Street and Congress can do to address the problem and avoid a full-blown crisis. Journalists will have the opportunity to ask questions at the conclusion of the call, but it is open to anyone interested in listening. To participate, dial 800-860-2442 and ask for the “NAHB Credit Crunch Call.” Presentations and reference materials will be available at www.nahb.org/teleconference 10 minutes before the teleconference begins. A story on the teleconference will appear in the Sept. 3 issue of Nation’s Building News. Howard and Seiders will continue to give a top priority to informing the media of the housing situation in the period ahead. Following is a summary of the specific media outlets in which they have appeared during the last six weeks: Television
Radio
Newspapers and Business Publications
Trade Media and Publications
Local Coverage
New Online NAHB Resources for Members Coming Next MonthNAHB is compiling new materials to help builders cope with the realities of the changing market in an online toolkit that is scheduled to be available to members next month. The new materials, an upgrade of the "Back to Basics: NAHB’s Toolkit for a Changing Environment" launched a year ago, include resources and tips on topics ranging from market research and financing to sales and marketing, business management, the Internet and more. The toolkit is designed to help members:
The comprehensive toolkit information will be available to members on the NAHB Web site. To access the toolkit, NAHB members must have a login to www.nahb.org. To create a login, go to www.nahb.org/login or click on the log-in button on the main menu bar. For assistance, call the NAHB Member Service Center at 800-368-5242. The "Back to Basics" toolkit remains available online and includes material that can assist members now. GSE Portfolio Increase Urged to Ease Credit CrunchAs part of its efforts to restore the health of the nation’s mortgage markets, NAHB, along with the Mortgage Bankers Association and the National Association of Realtors®, has called on the Office of Federal Housing Enterprise Oversight (OFHEO) to temporarily increase the caps on the investment portfolios of housing government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. “The nation’s mortgage markets are facing a liquidity crisis of a force and magnitude not seen in decades,” the organizations wrote to OFHEO Director James Lockhart on Aug. 13. “The chill will have far-reaching effects throughout the housing market if stability is not restored. A temporary increase in the allowable size of the GSEs’ loan portfolios for the purpose of easing this credit crunch would help stem the crisis.” In an Aug. 10 statement, Lockhart indicated that he was not authorizing any significant change in portfolio caps for the GSEs, which were put in place in 2006 because of safety and soundness issues. Lockhart was responding to a request by Daniel Mudd, president and chief executive officer of Fannie Mae, for a 10% increase in the holdings of Fannie Mae’s mortgage-related portfolio. “We believe this action, in conjunction with actions taken by the Federal Reserve Board and others, would help to alleviate the ongoing credit crunch in the markets and bring an additional measure of stability,” said Mudd. While the request was turned down, Lockhart said that OFHEO was exploring ways for the GSEs “to enhance their support for affordable housing, both multifamily and single-family” and that it would “keep under active consideration requests for an increase in the portfolio caps.” In their letter to OFHEO, NAHB and the other industry groups noted that “the portfolio caps should be appropriately targeted to assure that GSEs use the increased capacity to help meet the most urgent credit needs, including the private label MBS market and mortgages for creditworthy families who would otherwise find it difficult or impossible to obtain a mortgage loan.” The groups said that “quick and reasonable action is needed to provide liquidity and stability to the mortgages markets and to serve the financing needs of America’s current and aspiring home owners.” Sen. Dodd, Treasury Sec. Paulson Meet With Fed Chair BernankeFollowing the Federal Reserve's actions last week to stabilize the financial markets, leaders in Washington early this week have been advocating a variety of approaches to head off any further erosion of confidence on Wall Street — with a debate brewing over providing more liquidity for residential mortgages by lifting the portfolio caps on housing government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. NAHB strongly supports raising those caps, applauded the Fed’s move to reduce the primary discount rate by 50 basis points and is advocating a cut in the target federal funds rate if that move should become necessary before the next scheduled meeting of the Federal Open Market Committee on Sept. 18. Emerging from an Aug. 21 meeting with Federal Reserve Chairman Ben Bernanke and U.S. Treasury Secretary Henry Paulson, Senate Finance Committee Chairman Christopher Dodd said that raising the GSE caps would have “a positive effect of dampening down interest rate hikes within the conforming loans that Fannie and Freddie may deal with here.” Unfortunately, Dodd said, the Administration appears disinclined to raise portfolio limits, even though it has the power to do so. In an interview with CNBC prior to the meeting, Paulson suggested that “stresses and strains” in the credit markets will eventually work themselves out. With the Fed addressing their liquidity needs, he said, the markets can focus on recalibrating the risks of various investments and repricing them. Recent turmoil in the capital markets “will take a toll on economic growth,” Paulson conceded, “but the underlying economy remains healthy and will continue to grow, create jobs and raise the standard of living.” To watch a CNBC video of a press conference with Dodd discussing his meeting with Bernanke, click here. To watch the CNBC interview with Paulson, click here. These links were available at the time this issue of Nation’s Building News was published, but can be discontinued at any time. Market Overreacting to Subprime Loan Losses, Ben Stein SaysPutting recent turmoil in the stock and bond markets into perspective, writer, economist and entertainer Ben Stein indicated in the Aug. 12 New York Times and in an Aug. 19 appearance on CBS Sunday Morning that the economy remains strong and that recent events in the financial markets both at home and abroad have been driven by irrational fears. Wherever the bottom of the current shakeout in subprime lending may be, “I do know that the market reactions are wildly out of proportion to the real problems that have been revealed,” Stein wrote in the editorial pages of the Times. Stein calculates that losses in the subprime market, based on a 5% foreclosure rate, amount to about $33 billion to $34 billion. Even if foreclosures doubled to $67 billion, “a large sum by absolute standards,” Stein says that it is relatively small measured against the $10.4 trillion size of the nation’s mortgage market, the $70 trillion total wealth of the United States and the $15 to $20 trillion value of stocks listed in the U.S. “Much more to the point,” he writes, “the fears and terrors about subprime mortgages have helped knock off 6.7% of the stock market’s value in recent weeks. This amounts to about $1.1 trillion, or more than 30 times the losses so far in the subprime market. In other words, these subprime losses are wildly out of all proportion to the likely damage to the economy from the subprime problems.” He adds that even though the Dow Jones industrial average has suffered over fears about the subprime market, most of the Dow 30 are unaffected by subprime mortgages in any meaningful way, no Dow company is short of liquidity and consumer spending has remained strong. On CBS, Stein said that the financial markets are not “granite slabs” and it’s normal for them to move around and it’s not the end of the world if they do decline for awhile. Stein also reminded viewers that borrowers of subprime mortgages are more likely to default than prime borrowers, but they have not been defaulting in huge numbers, they comprise a tiny portion of the nation’s credit markets and the losses have been small when stacked up against the total wealth of the nation. Stein — who was a speech writer for Richard Nixon and Gerald Ford; was the host of the Comedy Central quiz show, “Win Ben Stein’s Money;” and who makes regular appearances on the Fox News Channel to talk about finance — said that today’s financial turmoil will eventually pass, and his advice is to remain calm and exercise patience. To see a video of Ben Stein on CBS, click here. This link was available when this issue of Nation's Building News was published, but can be discontinued at any time. Credit Tightening Weighs on Builder Confidence in AugustHighly visible problems in the housing finance system are contributing to a wait-and-see attitude among prospective home buyers and reducing builder confidence in the single-family housing market, according to the latest NAHB/Wells Fargo Housing Market Index (HMI), which was released on Aug. 15. The index for August declined two points to 22, its lowest level since January 1991. “Builders realize that issues related to mortgage credit cost and availability have become more acute, filtering some prospective buyers out of the market and prompting others to delay their decision to purchase a new home,” said NAHB President Brian Catalde. “Builders are responding by trimming prices and stepping up non-price incentives to bolster sales and limit cancellations, although we’re dealing in a difficult market environment.” “There is no question that problems in the subprime mortgage sector have spilled over to other components of housing finance, including the Alt-A and jumbo markets, delaying a revival of the single-family housing market,” added NAHB Chief Economist David Seiders. “However, the government-related parts of the mortgage market still are functioning well and the underlying economic fundamentals promise to remain solid for some time — providing support to the longer-run housing outlook. We now expect to see home sales return to an upward path by early next year and we expect housing starts to begin a gradual recovery process by mid-2008. From there, the market will have plenty of room to grow in 2009 and beyond.” Derived from a monthly survey that NAHB has been conducting for more than 20 years, the HMI gauges builder perceptions of current single-family home sales, sales expectations for the next six months and the traffic of prospective buyers. Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view sales conditions as good than poor. All three component indexes declined in August. The index gauging current single-family home sales fell a single point, to 23; sales expectations declined two points to 32; and prospective buyer traffic was down three points, to 16. Builder confidence this month wilted in three of the four regions of the country. It was down five points, to 14, in the Midwest; off one point in the West, at 23; and down two points in the Northeast, to 30. Confidence registered 25 in the South, unchanged from the prior month. Housing Starts Continue on Downward Path in JulyProviding further evidence that the downward correction in the housing market continues, Commerce Department data released on Aug. 15 showed that home builders started work on new housing units in July at the slowest pace since January 1997, with a 6.1% decline to a seasonally adjusted annual rate of 1.38 million units. “Builders are doing exactly what they should be doing at this point to work down their inventories and help the market get back on track — producing fewer new homes, pulling fewer permits for future projects and stepping up buyer incentives to move unsold inventory,” said NAHB President Brian Catalde. “The numbers in today’s report are right in line with NAHB’s latest housing forecast and with the eroding builder confidence highlighted by our recent surveys,” noted NAHB Chief Economist David Seiders. “Declining starts and permits clearly reflect deepening problems in the mortgage market that erupted earlier this year in the subprime sector and now have spilled over into other components of housing finance — including the Alt-A and jumbo markets. These problems are deepening the housing downswing, delaying the subsequent recovery and adding significant uncertainty to our forecast.” Single-family housing starts dipped 7.3% in July to a seasonally adjusted annual rate of 1.07 million units, the slowest pace since December of 1996, while multifamily starts fell 1.6% to a 311,000-unit pace. Meanwhile, building permits, which can be an indicator of future building activity, declined 2.8% to a seasonally adjusted annual rate of 1.37 million units — the lowest since September of 1996. Single-family permits slowed 1.6% to a rate of just over one million units, and multifamily permits were down 6.1% to 370,000 units. On a regional basis, housing starts declined 1.3% in the Northeast, 3.7% in the West and 11% in the South. Starts rose 2.6% in the Midwest, due entirely to multifamily gains. On a year-to-date basis, starts were down substantially in all regions of the country. “While there is no immediate rebound in sight, NAHB is currently expecting new-home sales to stabilize by the end of this year and housing starts to stabilize by the middle of 2008,” said Seiders. “We expect overall economic conditions, including solid job and income growth, to continue to be supportive of housing. Furthermore, we expect interest rates in government-related components of the mortgage market to remain favorable on a historical basis and we’re assuming that other parts of the housing finance system will regain footing before long. Downside risks definitely surround the latter assumption.” For more details, in-depth market analysis, forecasts and housing statistics, visit www.housingeconomics.com online. a publication from the NAHB Economics Group. Useful Links to Monitor Economic and Housing TrendsThe following are links to useful information from government agencies and NAHB that will enable you to monitor the housing market. To access the latest information available, simply click the links.
Attend the Fall Construction Forecast Conference in October Plan to attend NAHB's Construction Forecast Conference on Oct. 24 at the National Housing Center in Washington, D.C. The conference brings together the nation's premier housing economists and finance experts for an in-depth examination of the economic outlook for the housing industry. Register by Sept. 7 and save $50 off the regular registration fee. For more information, visit www.nahb.org/cfc.
Want to Know the Housing Forecast for the Top 100 Metros? Find out in HousingEconomic.com’s 2007-2008 Metro Forecast (free preview). Get the metro forecast with in-depth analysis, overviews and downloadable Excel tables. To learn more, visit www.HousingEconomics.com.
NAHB Kit Gives Builders Back-to-Basics Tips in Cooling Market With the current cooling of the nation’s housing market expected to persist into next year, NAHB has developed a comprehensive online toolkit geared to providing association members with information that will help them prosper in today’s changing business environment. To access the “Back to Basics” toolkit, you must be an NAHB member and have a login to www.nahb.org. To create a login, go to www.nahb.org/login or click on the log-in button on the main menu bar. For assistance, call the NAHB Member Service Center at 800-368-5242. Reform Would Make FHA a Subprime Market AlternativeThe nation’s home builders are closely watching congressional efforts to implement reform of the Federal Housing Administration's single-family mortgage insurance programs to provide a viable alternative to the subprime market for working families who want to buy homes. In recent years, the FHA has been unable to respond fully to borrowers’ needs because of statutory and regulatory constraints, and the ongoing turmoil in the subprime market has greatly increased the urgency for enactment of FHA revitalization legislation. “Improving the FHA program would be highly effective and an appropriate means for Congress to address problems in the subprime mortgage market,” said NAHB President Brian Catalde. Under the leadership of Reps. Barney Frank (D-Mass.) and Maxine Waters (D-Calif.), H.R. 1852, the “Expanding American Homeownership Act of 2007,” was voted out of the Financial Services Committee on May 3 for consideration by the House of Representatives. This bill contains provisions supported by NAHB to improve and streamline the FHA so it can more effectively serve single-family home buyers and be more responsive to market needs. On the Senate side, many of NAHB’s key FHA modernization priorities are included in draft legislation that was introduced by the Senate Banking Committee prior to its August recess. Committee chairman Chris Dodd (D-Conn.) is expected to mark up the bill when Congress returns in September. If granted proper authority by Congress, Catalde said that FHA’s single-family mortgage insurance programs could include fixed-rate, adjustable-rate and hybrid adjustable-rate mortgage loans to borrowers with limited cash reserves or slightly tarnished credit on far better terms than the subprime loans that are so frequently in today’s news. FHA’s share of the market fell from 18% in 1990 to less than 4% in 2006. FHA’s descent steepened in the latter stages of that period as competing subprime loan programs lured many borrowers into less advantageous mortgages. To give the FHA the tools it needs to fulfill its mission more effectively, NAHB has urged Congress to take the following actions:
For more information, e-mail Scott Meyer at NAHB, or call him at 800-368-5242 x8144. ‘Seasoned’ Builders Help Give Perspective on Downturn
With many builders experiencing an industry downturn for the first time, HBAs across the county — like the 1,100-member Tidewater Builders Association in Chesapeake, Va. — have provided educational sessions to give their members vital expertise from those who have been through the housing cycle. The Tidewater Builders, for instance, has had “seasoned” housing industry professionals who have weathered multiple downturns as guest speakers at three well-attended breakfasts, said John Ainslie, president of the association and a principal with Ainslie-Widener, a builder-developer. The HBA tapped a custom builder and a volume builder, both former HBA presidents, to discuss how to handle subs, suppliers and home owners during the downturn. At another breakfast, four local attorneys told the builders “how to get their houses in order” and prepare themselves for all eventualities, according to Channing Pfeiffer, the association's CEO. At a third breakfast, four bankers told builders that banks “were very nervous” and did not want to hear about possibilities. They only wanted to know about what definitely could be achieved. Ainslie and Pfeiffer said they began the breakfasts, which have been attended by 60 to 80 builders, depending upon the topic, a year ago. “We wanted to make sure that the builders were well prepared,” Ainslie said. “Many of the builders have come into the industry since 1991 and have not gone through a downturn. We wanted to give them relevant information. Many of the new builders got used to the booming market.” The Greater Atlanta Home Builders Association has several programs to keep its members informed of market changes. The HBA’s Builder/Developer/Lender Council conducts monthly roundtable discussions among builders, lenders and developers, and once a quarter, Dr. Roger Tutterow, of Mercer University, presents a consumer confidence survey, according David Ellis, the association’s executive vice president. In addition, Terry Morris, of GMAC Home Services, and Phillip Rassel, of Metrostudy, provide the members with a regular market report and update. The HBA also e-mails its members a comparison of local versus national housing statistics every quarter and conducts regular cash flow management workshops to help its members manage their businesses. Like the Tidewater and Atlanta associations, HBAs around the county have tapped “seasoned” builders, bankers and other local experts for similar programs to give their builders a local perspective on the downturn and tips on how to weather it. These programs have been well attended. NAHB Board in Seattle for Fall Meeting Sept. 8OFFICIAL MEETING NOTICE OF
The following schedule of events is a partial listing provided as a notice for the upcoming NAHB Fall Board of Directors Meeting to be held in Seattle on Sept. 8, 2007 and other associated NAHB meetings to be held on Sept. 4-8. Meetings will be held at the Westin Seattle and the Sheraton Seattle. The fall board program will identify the exact time and place of each scheduled meeting. Wednesday, Sept. 5
Subcommittee, Task Force, Working Group Meetings
Thursday, Sept. 6
Friday, Sept. 7
Committee, Subcommittee and Council Meetings
Saturday, Sept. 8
For more information, e-mail Cyndi McKinley Brown at NAHB, or call her at 800-368-5242 x8346. |