Notes from Jim Haughey

Oct 25 2006 7:08AM | Permalink | Email this | Comments (0) |
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The 2007 construction outlook is not at risk of being changed by the November 7th election results. 2008? Yes, there is a risk of a small impact on the construction outlook. But remember that most politicians are lawyers who measure success not by results but by how long it takes to get a result. The government moves at tortoise speed.

Most observers expect a few additional seats in both houses of Congress for the Democrats. Only a few incumbents who keep their pants on and their hands out of the cookie jar are at risk of losing. The construction outlook will not be impacted at all if the Democrats fail to take control of at least one house of the Congress. But there is a sizable possibility that the Democrats will gain control of both house of Congress

What would our would be new masters do if they get the chance? The civil, institutional and commercial markets are taking care of themselves so the focus would be on housing because it is now the weakest sector. Conveniently, it is also the sector where legislative changes can have the most immediate impact and voters will take the most notice. The big housing lobby will be a willing ally for any plan to subsidize home buying.

Before the housing market fully recovered several years ago, the Democrats proposed a host of schemes to have the taxpayers subsidize down-payments or monthly house payments. A few small schemes were enacted. But that was peanuts compared to what the mortgage brokers and mortgage holders did to subsidize housing. For some borrowers, they nearly eliminated down-payments, ignored amortization for the first few years of the mortgage and subsidized interest rates as much as 80% for a year or two. Congress got none of the credit for this bold idea. The mortgage industry knew that it wasn’t their money they were putting at risk. They assumed that Congress would bail them out if previously unacceptable credit risks defaulted on their mortgages. We will not know what that bill is for a few years.

The moral is that timid gets you nothing. Nobody notices. It does not help you get reelected. So expect a Democratic Congress to aggressively subsidize home-buying and find a taxpayer financed way to help people keep their homes when their mortgage rates reset as much as 4-5 percentage points higher.

If the elections results map is more blue than red on the night of November 8th, I’ll raise the housing starts forecast for the end of 2008 and also the one for 2009 that I have still have only in my head. Don’t worry about the bill for a new round of housing subsidies. It won’t come due until well into the next decade.