Floyd Norris is a financial writer for The New York Times; one of the very small group of journalists who have distinguished themselves by picking up the threads of the housing market meltdown and explaining how it happened.
Like so many journalists working for newspapers deriving significant revenue from real estate advertisement, Norris and The New York Times were way behind the curve as the asset bubble in housing inflated and exploded, but since picking up the the thread of the story, Norris hasn't stopped. Norris also writes a blog for The New York Times, and it is worth reading his post yesterday on Toll Brothers and the madness of a desperate industry. (His blog post is reprinted, below.)
The context of Norris' comments on Toll Brothers--a national homebuilder like Lennar-- is the call by the company's founder for new tax policy to subsidize home purchases.
That is right: there is not enough moral hazard, apparently, to breaking contracts and re-writing home loans; now we have to overtly do what the homebuilders were successful doing behind the scenes: using public policy related to zoning and growth to subsidize private profits.
One of the reasons I hold the Republican Party and its leadership responsible is that they lied about "values" in order to promote personal gain; this was the play book that propelled Jeb Bush to the governor's mansion in 1998, a decade ago, a supply chain for political hegemony starting on Wall Street and rippling down the entire supply chain of the building industry, from the inventions of math wizards who created derivatives no one can understand to the lobbyist at County Hall who promoted a zoning change that allowed more platted subdivisions in farmland. It is still going on.
Today, every form of debt is under severe pressure. But all roads leading to our crisis go to and from the housing industry and its advocates; especially production home builders. And it is still going on.
We have written at length about Krome Gold and Parkland; two big projects outside the Urban Development Boundary that are moving, quickly, to the county commission where the unreformable majority will violate sound planning principles and approve projects in order to satisfy cash flow problems of big campaign contributors. Note Norris' comment about Toll Brothers; how they are writing down more than a hundred million because "speculation in land backfired". That is the real story of Krome Gold.
Click on 'read more'.
Toll’s Plea: Subsidize House Prices
Just a year ago, Robert I. Toll, the chief executive of Toll Brothers, had figured out why people were canceling contracts to buy homes. It was our fault.
As I wrote then:
Asked why so many buyers were canceling contracts, he said few had trouble getting mortgages, but that more had run into their own financial problems or could not sell their old house. And, he added, 17 percent of the cancellations came from investors or “people who just wanted to walk.”
“Translation, they’ve read one too many Times articles, and decided now is not the time to buy a home.”
A few months later, Toll, which bills itself as “the nation’s leading builder of luxury homes,” reported that Mr. Toll’s niece, the daughter of a founding brother, was among those canceling purchases.
Today, Toll reported its fourth-quarter revenues. They are down again, with cancellations ticking up. A bit belatedly, Mr. Toll realizes his fleeing customers were right: There really is an economic problem.
He has a solution:
“We urge Congress to stimulate demand by reducing mortgage rates and fees and by providing incentives such as a buyer tax credit for the purchase of all types of homes. We believe these initiatives would offer the greatest benefit for the taxpayer’s dollar.”
The way he sees it, stabilizing home prices is the only way to keep all the other efforts from failing.
“Congress has allocated hundreds of billions of dollars to reset mortgages, help people who are in foreclosure, and protect those who have been the victims of rapacious lending practices. We believe all of these goals are very worthy. However, we believe that, if home prices are not stabilized, these efforts will be for naught, more mortgages will go under, and the taxpayers’ money will have been wasted.”
Others might say that tax breaks and unreasonably low interest rates helped to get us into this mess. Making new buyers overpay runs the risk of a repeat of what happened after the Japanese bubble burst, when artificially high prices simply prolonged the pain.
Helping homeowners without producing unintended results will not be easy, as my colleague David Leonhart wrote recently. This sounds like little more than a plea to bail out the home builders.
As you might suspect, Mr. Toll was not worried about home prices when they were soaring to unreasonable levels. In fact, he was speculating that the rise would continue. Here’s what he had to say three years ago:
“According to two recent major studies, demand for new homes is projected to expand in the next 10 years; yet increasingly complex approval processes are constraining the supply of buildable lots. With affluent households — those earning $100,000 or more — growing six times faster than the population in general, we believe demand for luxury homes will accelerate. We now own or control approximately 60,000 home sites, a five-to-six-year supply based on our current pace of growth. We believe this positions us to prosper in the coming years from the growing imbalance between demand and supply.”
It turns out that there was a “growing imbalance between demand and supply” approaching. He got just one thing wrong: It was the supply that was too big.
Toll’s conference calls are usually entertaining. Today’s is at 2 p.m. Eastern time, and one topic will no doubt be the write-offs — of at least $120 million — expected because that speculation in land backfired. You can access the call here.
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