Monday Morning Briefing Letter - 12/03/2007 (Plain Text Version)

By Brian Catalde, NAHB President and
Jerry Howard, NAHB Executive VP and CEO

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The pitfalls of federal tax policy

aren't helping troubled home owners who are in danger of losing their homes to foreclosure, according to a newly published NAHB study.

In "Federal Tax Policy's Challenge to Mortgage Restructuring," NAHB economist Robert Dietz helps make the case for important tax reform legislation that was recently passed by the House of Representatives. Explaining that the IRS currently "treats all debt amounts that are reduced, forgiven or eliminated as part of a mortgage restructuring or foreclosure as taxable income," Dietz notes that "this phantom income taxation creates a disincentive" for loan workouts that are designed to ensure continued payment and avoid foreclosure.

In one example of how the tax could hit distressed borrowers, Dietz cites a case in which a lender decides to forgive $20,000 of an existing mortgage balance of $200,000 in order to help a delinquent home owner catch up on payments and avoid foreclosure. The IRS would view this as a $20,000 increase in the home owner's taxable income, and at a marginal tax rate of 28%, federal tax liability is increased by $5,600. In many cases, the home owner would owe additional state income taxes as well.

A second example is given in which a lender decides to foreclose on a home with a fair market value of less than the outstanding mortgage principal of $200,000 and foregoes its legal right to pursue other assets of the home owner to collect the difference. In this case, the IRS would consider the difference between the selling price of the home and the existing mortgage balance as forgiven debt. So if the home is sold for $190,000 and the lender forgives the remaining $10,000 of debt, the home now has a tax liability of $2,800 or more. Such tax rules "create an unfair and odd set of consequences for struggling home owners," says Dietz, and Congress should modify the nation's tax code to avoid creating a disincentive for loan workouts such as those cited above. Read more on this important study at NAHB's HousingEconomics.com. Contact: Rob Dietz, x8285.

NAHB Member Benefit: NAHB is pushing hard for essential tax reform that can help resolve the mortgage credit crunch and get housing markets back into balance. Such measures as the Mortgage Foregiveness Debt Relief Act of 2007 can help keep owners from losing their homes, avoid adding to an already overstocked inventory of homes on the market, and safeguard property values in surrounding neighborhoods.

New York will NOT impose a statewide mandate for fire sprinklers

in one- and two-family homes in the immediate future, now that the New York State Residential Code Technical Subcommittee has rejected a proposal that would have recommended to the full New York State Uniform Fire and Building Code Council that the requirement be added to the 2009 state residential code.

NAHB has long opposed mandates for residential fire sprinkler systems in one- and two-family homes for many of the same reasons that the New York technical subcommittee rejected the measure on Oct. 25. One concern was that homes in rural areas without municipal water connections might require extra pumps, a generator and water storage tank for the sprinklers to work effectively. Another concern had to do with potentially onerous maintenance requirements. Meanwhile, installation costs for fire sprinklers can be as high as $5 to $7 per square foot. As NAHB Construction Codes and Standards Committee Chairman Eric Borsting explained, "Our members will install residential fire sprinklers when customers ask for them, but there are still so many questions that need to be resolved before fire sprinklers are mandated in every new home constructed." Borsting added that NAHB will continue working with all of the necessary parties to address these issues and seek alternatives, while encouraging all home owners to install and maintain their smoke alarm systems as an effective safety mechanism. Read more in this week's NBN Online.

NAHB Member Benefit: NAHB staff assisted the New York State Builders Association in developing reasonable and compelling technical arguments in this matter for the purpose of educating subcommittee members, who ultimately had the wisdom to continue to allow fire sprinklers as an option for those home owners who want them. [return to top]

Builder confidence remained unchanged in November

from the previous month's historic low reading on the NAHB/Wells Fargo Housing Market Index (HMI) as problems in the mortgage market, a large inventory overhang and concerns about negative media coverage continued. The November HMI held even with October's revised 19 reading, which was its lowest point since the series began in January 1985. Builders particularly cited concerns that negative media reports are dissuading buyers and fueling unrealistic expectations regarding home price discounts. Specifically, builders are worried that some healthy markets are being unfairly impacted by negative media coverage that implies there is only one real estate market – when in reality, all housing markets are dictated by local conditions. According to NAHB Chief Economist David Seiders, an upswing in building activity is probably in the cards by the second half of 2008. Read more about the HMI in our press release, or view the HMI tables online at www.nahb.org/hmi. For help interpreting the HMI data, contact Gopal Ahluwalia (x8480) or Ashok Chaluvadi (x8482); for help dealing with media inquiries, contact Paul Lopez (x8409).

NAHB Member Benefit: NAHB's economic surveys and analysis help our members achieve a better understanding of current market trends and where they are headed, while our media outreach in this regard helps to firmly establish NAHB as the credible source of information on the housing industry nationwide. This credibility with the media ensures that accurate data on the housing market is transmitted to potential home buyers and the public at large, thereby discounting sensationalized accounts of market conditions that may affect your client's decision to purchase a new home. [return to top]

Giving the latest home-price data some historical context,

NAHB pointed out on Nov. 27 that the same report that shows a 4.9% year-over-year decline in home prices for the 20 largest U.S. housing markets also shows that those same markets have produced home-price gains of more than 95% since January of 2000. The most recent monthly S&P/Case-Shiller home price index, which has been cited in many media reports, indicates that five of the top 20 markets surveyed showed positive home price appreciation rates over the past year, while seven posted declines of less than 5% and eight posted losses of 5-10%. Putting these numbers into perspective, it's important to analyze them over the long-term. The fact of the matter is that, with the exception of Detroit, which has suffered significant job lossses in manufacturing in recent years, markets that posted the largest average decline in home prices during the past year – including Las Vegas, Los Angeles, Miami, Phoenix, San Diego, Tampa and Washington, D.C. – have appreciated in value by more than 100% since the beginning of 2000. Read more in our press release, or contact Gwyn Donohue (x8447) for help in accessing special talking points that NAHB has developed to help HBAs address negative media coverage of the report.

NAHB Member Benefit: NAHB conducts regular and extensive media outreach when housing figures are released each month to educate reporters about the historical context in which numbers should be viewed, discourage sensationalized accounts and ensure that home builders' views are represented. NAHB also assists our members in dealing with media inquiries regarding the latest housing data. [return to top]

Housing starts rose 3% in October

to a seasonally adjusted annual rate of 1.23 million units, due entirely to a big uptick in the multifamily sector. Single-family housing starts declined 7.3% for the month to a rate of 884,000 units, the lowest monthly production rate since October 1991 and about 25% below October 2006. The numbers indicate that builders continue to do what's necessary to reduce inventories in the single-family sector. Multifamily housing starts, which tend to show signficant month-to-month volatility, posted a 44.4% percent increase in October to a seasonally adjusted annual rate of 345,000 units, having posted a 36% decline in the previous month. Read our press release or see the government's report online for details. [return to top]

New-home sales edged upward in October,

following a dramatic downward revision to September's preliminary estimate. Sales were up 1.7% to a seasonally adjusted annual rate of 728,000 units – finally some fodder for a few positive headlines. NAHB Chief Economist David Seiders noted that NAHB's current forecast is for new-home sales "to begin a gradual recovery in the early part of 2008." Meanwhile, the inventory of new homes for sale in October was down 2.3% to 516,000 units as builders continued to work down their inventories. The equivalent months' supply at the October sales pace edged down to 8.5 months from 9 months in September. Completed homes for sale accounted for about 37% of the inventory, while units still under construction represented almost 49% and units for sale that were permitted but not yet started represented 14%. The median length of time that completed homes were on the market was up slightly to 5.9 months in October from 5.8 months in September. See NAHB's press release or view the government's report online. [return to top]

A new I-9 form for employee eligibility verification

was released by U.S. Citizenship and Immigration Services on Nov. 7. This revised and updated form is required to verify the identity and work authorization for every newly hired employee. As part of the revision, five documents have been removed as acceptable proof of identity under the I-9's "List A" due to their lack of features that help deter counterfeiting, tampering and fraud. Those five documents no longer accepted include a Certificate of U.S. Citizenship, Certificate of Naturalization, Alien Registration Receipt Card, Unexpired Reentry Permit and Unexpired Refugee Travel Document. One addition was made to the category of acceptable documents under List A, and that is the latest version of the Employment Authorization Document (Form I-766). Other List A documents, including a U.S. Passport, Permanent Resident Card, unexpired Employment Authorization Document and two others, are still acceptable to verify identity and work authorization. No changes were made to the documents permitted under List B or List C in the new Form I-9. While the new I-9 will not become effective until a notice is published in the Federal Register, a Nov. 7 government press statement advises employers to "start using the revised form immediately." Those employers who continue to use the outdated edition of the I-9 form after the new edition is published will be subject to fines and penalties. The new form, as well as the revised "Handbook for Employers, Instructions for Completing Form I-9," is available at http://www.uscis.gov/. Read more in NBN Online, or contact David Crump (x8491).

NAHB Member Benefit: NAHB strives to keep our members informed about arising issues and legislation that will affect your business, and to provide legal and other expertise to help you remain in compliance with the latest regulations. In addition, NAHB continues to actively pursue comprehensive immigration reform legislation in Congress that would provide a fair and legal means of ensuring an adequate supply of workers for our industry while keeping our country safe. [return to top]

Legislative Update:

The Mortgage Reform and Anti-Predatory Lending Act of 2007 was approved by the House of Representatives on Nov. 15 as a response to ongoing turmoil in the nation's subprime mortgage markets. The bill seeks to curb abusive mortgage lending practices, require lenders to make sure borrowers have a reasonable ability to pay back a loan, bring mortgage brokers under a nationwide licensing registry, expand some limits on high-cost mortgages and establish some legal liability standards for mortgage securitizers. Companion legislation should soon be introduced in the Senate. Read more in NBN Online, or contact Scott Meyer, x8144.

The Homeowners' Defense Act of 2007 was overwhelmingly approved by the House of Representatives on Nov. 8. This bill would help reduce the high cost of home owners' insurance in states prone to natural disasters. It would establish a National Catastrophe Risk Consortium that would allow the federal government to make loans to qualified state insurance funds if they run short of money or in the event of a major disaster. As this bill headed toward a vote in the House, NAHB worked closely with the lead sponsors to insert new building code and land use language that addressed our specific concerns. Read more in NBN Online, or contact Scott Meyer, x8144.

The Federal Housing Administration Modernization Act of 2007 was recently stalled in the Senate. This NAHB-supported bill is meant to help address the mortgage credit crunch, and would likely have resulted in legislation being enacted into law before year-end, since the House has already approved its version of FHA modernization. At this point, any final congressional passage will likely be delayed until early next year. Read more in NBN Online, or contact Scott Meyer, x8144. [return to top]

Indianapolis is STILL the nation's most affordable big housing market

according to the NAHB/Wells Fargo Housing Opportunity Index for the third quarter of 2007, released Nov. 27. In that metro area, 87.5% of homes sold in the third quarter were affordable to families earning the area's median household income of $63,800. This was the ninth consecutive time that Indianapolis has retained the most affordable moniker. Also maintaining its long-held standing at the bottom of the affordability chart this time around was Los Angeles-Long Beach-Glendale, Calif., where just 3.7% of new and existing homes sold during the third quarter were affordable to those earning the area's median family income of $61,700.

On a nationwide basis, housing affordability was up from the same time last year, but down slightly from this year's second quarter due to higher mortgage rates. The HOI indicates that 42% of all new and existing homes that were sold during the third quarter were affordable to families earning the national median income of $59,000. That compares to just 40.4% of homes sold that were affordable to median income-earners in last year's third quarter, and 43.1% of homes that were affordable in 2007's second quarter. Read more about the HOI in our press release, or view the HOI tables online at www.nahb.org/hoi. For help interpreting the HOI data, contact Gopal Ahluwalia (x8480) or Rose Quint (x8527). For help dealing with media inquiries, contact Paul Lopez, x8409.

NAHB Member Benefit: NAHB's quarterly Housing Opportunity Index is a practical gauge of housing affordability that provides valuable perspective to builders and home buyers alike. Prior to the time that the HOI is released, NAHB contacts most HBA Executive Officers in an effort to help prepare them for the media attention that may be generated by the numbers being released in their market. This is one more way that NAHB works in tandem with its over 800 affiliated HBAs to get the right information about housing market conditions out to the local and national media. [return to top]

Tune in for a members-only audio seminar on Dec. 12

that will focus on sales and marketing strategies in today's challenging housing market. Co-hosted by NAHB's National Sales and Marketing Council and Biztools, the one-hour, free seminar will focus on some of the important topics within NAHB's online Back to Basics Toolkit, including but not limited to:

-Understanding buyer needs, wants, abilities and fears
-Offering innovative incentives to buyers and employees
-Assessing your sales team
-Ways to reduce inventory and cut costs
-Mortgage credit options for buyers
-Financing tips
-Maximizing vendor, lender and supplier relationships

NAHB-affiliated HBAs and individual members are encouraged to sign up for the "Ramp Up Your Sales & Marketing in a Changing Market" seminar today at www.nahb.org/ac.

NAHB Member Benefit: NAHB provides free members-only educational opportunities that are focused on helping you build your business and safely navigate an increasingly challenging housing market. [return to top] [return to top]

Winners of the 2007 Livable Communities Award

were announced on Nov. 28 by competition co-sponsors NAHB and AARP. The award honors builders, developers, and remodelers who create attractive, well-designed homes and communities that are safe, comfortable and accessible for people of all ages and abilities. The winners and their projects are:

1. John Wesley Miller Companies : Armory Park del Sol in Tucson, AZ

2. Wendt Builders Inc. : Olde Town Grayson, Lot 13B in Grayson, GA

3. Madison Area Community Land Trust : Troy Gardens in Madison, WI

4. The Integral Group : CollegeTown at West End in Atlanta, GA

5. Quality, Design & Construction Inc. : Ann's Ridge Road Dream in Raleigh, NC

All of these winners will be honored at a dinner in Washington, D.C. on Dec. 11, and will also be featured in AARP - The Magazine, the nation's most widely circulated magazine. For more information, photos and video clips on the winning projects, visit www.aarp.org/livablecommunitiesaward. Contact: Blake Smith, x8583.

NAHB Member Benefit: NAHB is drawing attention to the "best of the best" of the building industry by partnering with AARP to spotlight the most attractive and well-crafted projects nationwide while helping refute negative builder stereotypes and providing models for future development across the industry. [return to top]

NAHB bids farewell to Hal Ober,

a longtime builder in the Las Vegas area, member of the NAHB Board of Directors and former president of the Southern Nevada HBA. Hal is credited with helping bring the International Builders' Show to Las Vegas for the first time, in part by bringing then-Nevada Governor Richard Bryan to see the show when it was in Houston. He also built thousands of homes in the southern Nevada area and developed nearly 30 communities, including the Desert Shores master-planned community in the northwest Las Vegas Valley. Hal was also a key supporter of programs to meet children's needs and improve education and the environment. He and his wife even have an elementary school named after them – the D'Vorre & Hal Ober Elementary School ( "Home of the Ober-Achievers") – as a result of their efforts and involvement in their county's schools. One of their sons, Scott, is the school's principal. Hal passed away on Nov. 7 at the age of 81. He will be sorely missed by his wife, five children and 14 grandchildren, and also by the entire NAHB federation. Read more about Hal in NBN Online. [return to top]