One of the amazing things about the monthly tugs of war between expectations for the housing market and the reality on the ground is not the inevitable disparity between the two but the surprise the disparity seems to provoke among market watchers. The Commerce Department announcement on Tuesday that housing starts for April fell to 523,000 – down 10.6% from those in March, whose original reading had been revised to 585,000 from 549,000 – contributed to a significant slip in U.S. stock futures.
What were investors expecting? Their disappointment was framed in part by surveys of economists who expected April starts to hit about 575,000 – still lower than the revised figure for March, but only by 1.7%. (Had starts for March not been revised up by 36,000, the difference between March and April would be about 4.7%.) Residential construction permits in April declined 4% to an annual rate of 551,000, with single-family permits slipping 1.8% to an annual rate of 385,000. And homebuilder confidence, gauged by the National Association of Home Builders/Wells Fargo Housing Market Index – whose reading for May was released Monday – has been flatlining at 16 for the last six of seven months.
Business-news sources do at least offer perspective on the numbers, since housing starts and permits are only two of many moving parts in the housing machinery, and nowadays are viewed as trailing indicators in the overall economy. The most closely watched cog is employment, which, as we’ve noted, has been turning in a positive direction, albeit very slowly.
Revising regulations for AD&C lenders
NAHB is naturally trying to push for changes it believes will help grease the way for small and medium-size homebuilding companies once the new-home market starts to climb out of its cave. A recent claim to victory was the introduction on May 5 of the Home Construction Lending Regulatory Improvement Act of 2011, H.R. 1755, which has the support of 18 Republicans and 10 Democrats in the House of Representatives. The target is what the association calls “the severe credit crunch for acquisition, development, and construction (AD&C) financing.”
That endlessly repeated NAHB refrain is echoed once again in a statement by the bill’s two main sponsors in the House, California Republican Gary Miller and North Carolina Democrat Brad Miller: “One of the major reasons for this lack of credit is the overly restrictive actions by banking regulators which have hindered federal and state chartered banks and thrifts’ ability to make and maintain loans to qualified small homebuilders that have viable projects.”
The three principal components of the measure would:
– Require regulators to allow any qualified financial lender whose real estate portfolio exceeds 100% of its total capital to continue making AD&C loans to homebuilders with viable projects that are likely to be completed.
– Require appraisers, lenders and examiners to use the “as completed” value when assessing loan collateral on projects that have reasonable prospects of reaching completion. The bill would also ban the use of foreclosure and other distressed sales as comparables in setting collateral values for determining loan amounts for new projects.
– Direct regulators to abstain from forcing lenders to curtail or call AD&C loans in cases where the borrower is making payments in accordance with the original loan documents.
The bill would also permit financial institutions to work with struggling borrowers for a period of 24 months to realize the maximum current market value for their loans.
As H.R. 1755 is newly introduced into the legislative pipeline, it has a long way to go before it sees possible enactment, but NAHB is banking on its bipartisan support in the House and pushing for the introduction of a companion measure in the Senate to help bring the regulatory revisions to life. The association also has produced a “BuilderLink Alert” page with links to the text of the bill, an analysis of its key provisions, talking points, and sources for House of Representatives contact information.
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As it tries to muster support for legislation designed to make it easier for builders to obtain AD&C financing, NAHB has produced a "BuilderLink Alert" page with links to relevant information and resources.
