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.