Are Home Builders Extorting Congress?

Senate leaders agreed on a $15 billion bipartisan plan yesterday that does more to aid home builders than home owners.

The most expensive housing provision is a tax relief measure that would cost $6.1 billion over 10 years. Under current tax rules the “carry back” provision allows builders and other companies to apply current losses to taxes paid two years ago. Yesterday’s bill would extend the carry back provision to four years, allowing companies to offset the taxes they paid during their most profitable years.

After this provision was dropped from February’s economic stimulus package, the political action committee of the National Association of Home Builders stopped donating to Congressional candidates. (According to The Wall Street Journal, the Association denies its decision to drop donations is related to specific legislation.)

Builders claim that without the provision extension, they will have to continue selling land at a deep discount, which will further erode overall housing values and create more foreclosures. But builders and banks don’t like to talk about all the money they made during the boom years. These companies should have saved the profits they made during the good times instead of engaging in continuous stock buybacks along with big bonuses that continue to enrich their top executives to this day. The American people, already overburdened from high taxes and the ravages of inflation, should not be forced to provide financial aid to some of the very companies that enabled this crisis to occur in the first place.

The home builder stocks continue to rise on the basis that Congress and the Federal Reserve will take proactive steps to keep housing values propped up. I will begin looking for cheap out of the money long term Puts to purchase, a strategy that was successful the first time the builders stocks fell.

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