From Zach Fox:
Recent legislation that increased the net operating loss carryback provision to five years from two years added billions of dollars to homebuilders’ earnings reports during their most recent quarters, turning losses into profits for several builders. And according to some industry observers, the provision was so lucrative that it might have kept a pair of weaker builders out of bankruptcy court.
In all, homebuilders recorded $2.30 billion in income tax benefits during their most recent quarters, according to SNL Financial. That figure does not represent the net operating loss carryback benefits alone; rather, it shows all income taxes and benefits combined. It includes some builders that actually paid taxes, such as NVR Inc., which reported a loss during just one quarter in the last three years — meaning the company did not have many losses to carry back.
The tax benefit was so large that it might have been the only reason two builders did not go under, Vicki Bryan, a senior high-yield analyst at Gimme Credit, told SNL.
“This is so important that it might have saved the weakest ones, Hovanian and Beazer. They looked like they were headed to bankruptcy,” she said.
A pair of housing experts in California, home to some of the largest housing crashes in the nation, said the net operating loss carryback extension and expansion will do nothing to mend the housing market.
“Of course not. They’re not building any homes; there’s still too many of them kicking around,” Christopher Thornberg, a principal at Beacon Economics in Los Angeles, told SNL. “Permits, starts are still flat; they’re still at a bottom. It’s a bailout. It’s a bailout for builders. It’s a bailout for Robert Toll. They’re bailing out Robert Toll. Repeat after me, they are bailing out Robert Toll. What’s wrong with this picture?”
When asked whether there were any positives to come out of the net operating loss carryback extension and expansion, Thornberg said, “No, no, no, no, no, no, no. No. Nothing. There’s nothing to build; there’s an oversupply. If anything, they’re making it worse because they’re encouraging construction when we need to burn off our existing supply first.”
Though it might not seem possible, San Diego-based real estate consultant Ramsey Su was even harsher. “It’s a total freebie. It’s one of the worst policies. It’s a total payoff. There was hardly any discussion and it was snuck into that other bill. It just got passed because everybody got paid off,” Su told SNL. “It’s probably the worst act of corruption, but how are you going to show that? If you go near someone, they’re going to say, ‘We have to stimulate construction jobs.'”
For the full article with charts, click here.
When laws aren’t enforced corruption flourishes.
If gov wasn’t so busy providing bailouts. Business would be able to make $$$ liquidating less economically viable businesses.
Remember, Bela lugosi Nancy Pelosi says she is presiding over the most honorable and transparent house ever… How does Sacramento measure up?
Do I get a second on this?
Gall Bladder operation anyone? Maybe a mandatory colon exam for every politician. . . (weekly for 10 years – all televised).
Revolution in November.
The problem I have with all of this is that we are creating a clear system where fraud is the quickest and best way to make money. The more people who see no negative consequences to fraud and malfeasance, they more people who will wonder why should *they* bother playing by the rules.
I’m wondering that myself these days. I’m thinking I should have just bought a house I couldn’t afford, stopped paying my mortgage, collected a year of free rent, gotten a modification, failed the modification, stopped paying again, get a principal reduction.
I’d be living a much nicer lifestyle than I do now in a much larger house. I’m finding fewer and fewer reasons why it is to my benefit follow the “rules.”
If they do follow through on this principal reduction threat there will be millions of people like me who have a significant change in moral fiber. There comes a point when you realize you live in a society of thieves and it makes more sense to join em’ because you sure can’t beat em’.
There will be far reaching societal consequences to these bailouts and if/when principal reductions come. You already see the start of it with strategic defaulters. The rule structure is breaking down.
Art, I could not agree with you more. I have that very same conversation with myself daily. I’ve spent the better part of a year licking my wounds, rebuilding my finances, and renting all because I “played by the rules”. I bought a modest home in ’05 well within my means, put 25% down, got killed in the downturn, came out of pocket to pay off my loan when I sold, and am now watching with ever-increasing anger as liars, frauds, and people who used their house as an ATM get bailed out. I’m not sure what it takes these days to get Americans to take action but I’m thinking principal reduction might be the final straw.
Oversupply?????
What? I thought we never built enough houses in California.
Did the party line change while I was out of the office?
Chuck
Very, very well said, Art.
As someone who’s always followed the rules, I’m beginning to feel like a chump.
Tax breaks for losers. Failing upward. So much for conservative, self-made, government-hating men.