Builders: Action Needed – Federal Intervention on the Residential Construction Loan

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By Thomas M. Farasy
President, Maryland State Builders Association

It’s true that things have started looking up for the nation’s home builders.

After one of the deepest recessions in generations, jobs are slowly returning. This is key to restoring the confidence of prospective home buyers who have been rightly concerned about pursuing a major financial commitment during a time of grave economic uncertainty. Giving further impetus to a healthier marketplace, housing remains remarkably affordable, prices are reasonable and mortgage rates have been hovering at historic lows.

This may sound like a recipe for the full-scale housing recovery that is needed to sustain the economic gains we have seen in recent months. With inventories of new homes just about depleted in many parts of the country — in fact, the inventory of new homes is at a 42-year low — builders now should be gearing up to produce new homes to meet sizable pent-up demand from the last couple of years and rising demand generated from an expanding economy.

Unfortunately, there is one major problem: banks have largely cut home builders off from the credit they need to finance new projects or complete those still underway. Until this situation is resolved, housing will have a tough time gaining traction.

The most encouraging news on this issue recently came from Capitol Hill, with legislation introduced in the House that would alleviate the credit crisis by creating a new residential construction loan guarantee program within the Department of Treasury to encourage and support lending to builders with viable projects.

We desperately need to restore the flow of credit for home building, and that is what H.R. 5409, the Residential Construction Lending Act, would accomplish.

Until home building is truly up and running, it would be a mistake to assume that the U.S. economy has established a sure footing on the road to recovery. Without access to credit, builders remain in a precarious position, jeopardizing the progress that has been made so far in returning to economic health.

Thomas M. Farasy is President of the Maryland State Builders Association.

Read previous Center Maryland op-eds by Thomas M. Farasy:

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