October 19th, 2010
01:06 PM ET

Contractor: We could build homes if banks 'loosen up'

Contractor Paul Kinney, owner of Race Point Inc., on the site of a $3.5 million new home, says the Building Permit/Housing Starts report is misleading. Banks are not funding the permits. Most projects, like the one he's building now, are funded by foreign money.

The U.S Census Bureau and Department of Housing and Urban Development released its monthly report on housing permits and new construction and it shows the upward trend in this economic indicator continues.

The report shows single-family home building permits in September were 405,000 up 0.5 percent above over August. Single-family housing starts in September were 452,000; this is 4.4 percent over.

CNN's Jim Roope reports however that the contractors who turn building permits into buildings say these numbers are not necessarily reality because banks are still hesitant to fund permitted projects. Contractors say new homes may be getting the green light by cities, but not the greenbacks by the banks to start construction or in some cases complete construction.

Paul Kinney, owner of Race Point Incorporated, a top 500 builder of new homes, says he can get 30 permits by the middle of next week, but the banks aren’t lending money so the report is misleading.

“Remember a couple of weeks ago when they came out and said guess what the recession was over? That rumble you heard was the construction industry laughing their ‘friggin’ brains out,” said Kinney.

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soundoff (127 Responses)
  1. Stacey

    So instead of the banks being a little more careful about handing out loans since the recession you'd rather they give out money to everyone who asks and in another year or two we'll have another Great depression? Come on! Do you really want to start up with the same practices that got us into this mess in the first place? What are you smoking?

    October 19, 2010 at 1:22 pm | Report abuse |
    • Will

      Apparently reading comprehension isn't one of your strong suits. There are a lot of worthy buyers out there, who can't get a loan, despite being gainfully employed and having no credit problems. I won't even talk about the problems businesses – viable, successful businesses – are having getting loans right now.

      If you don't think that the banks are being stingy right now, you're nuts.

      October 19, 2010 at 1:36 pm | Report abuse |
    • Sonny

      There are lots of foreclosures, thus lots of inventory. Why we are talking about construction and not reduce those inventory first? Another real estate bubble will kill us.

      October 19, 2010 at 1:58 pm | Report abuse |
    • Kimo

      The banks are not being a little more careful who they lend to they have gone to the other extreme and are not lending to people who are fully capable of repaying the loan.

      October 19, 2010 at 2:10 pm | Report abuse |
    • Cindy Cutts

      I think a little common sense is what people are talking about, you can't go from one extreme to another and expect this economy to improve. It is ridiculous to think anyone wants it to go back to giving anyone breathing a loan but the lending process is a joke right now. I being a Realtor and my husband being a contractor have lost just about everything we have and we have worked our entire lives for. No one ever gave me anything, I have worked since the age of 13 I will be 50 in November and to see where our economy is it makes me sick!!!

      October 19, 2010 at 2:12 pm | Report abuse |
    • Kim

      Not the same practices, but they do need to losen up. We are a home builder, we have a customer with perfect credit, he and his wife are both high ranking professionals in their fields making a combined $400k + a year. Their bank won't give them a $900K loan to build the house we have spent 6 months designing for them because IF they were to run into a financial problem in their future (all based on an IF), the bank can't find an appropriate comp home in the area to verify the appraisal of the home. These are not the people that caused this mess, living way out of their means, but they are paying the price along with us the builder and all of our trades who will miss out on this job because the banks won't let go of the money. Don't open things up wide like they were, but we do have to be logical about it.

      October 19, 2010 at 2:24 pm | Report abuse |
    • Texas Builder

      I can't get a sticks and bricks only (material & labor only, no money for me or "supervision") loan fior a spec house – and I have scores in the high 700's and money to live on without taking a penny until house is sold. That means banks do not want to loan even at 70% LTV ratio. The rest is my "profit" and sales commissions – which is at risk if the house does not sell. The banks in general don't trust any appraisal whatsoever.

      While the policies of the past which loaned not only the hard costs, but also some of "profit" and "supervision" to anyone who breathed and for appraisals written on napkins were too loose, the conditions now have swung all the way to so tight as to prevent any activity whatsoever.

      October 19, 2010 at 2:25 pm | Report abuse |
    • concerned

      I can't sell my current house because of all the foreclosures around me and how did all of those people get their loans that are now foreclosed ? From the banks AND BUILDERS. They need to put a hold on ALL new homes being built. The builders are MOST at fault, followed by the banks. I know my builder was going to do anything they could to get me qualified including ARM loans so in 5 years the builder didn't care if I could make that higher payment – well, now look at things and it appears THEY STILL DON'T CARE AND JUST WANNA CRY AND PLAY VICTIM for something THEY CREATED.

      October 19, 2010 at 3:09 pm | Report abuse |
    • mike

      sorry Stacey, but that's not what cause Great Depression 2.0. That was only a side effect that came to the suface because of the primary cause – Bank de-regulation. this allowed investment banks ( a term that means gambling on a previouly unheard of scale) to participate in a variety of shady activities that no reasonable person would ever call banking. When these activities went south, the cash drain brought to light a number of other practices that were completeky unsound. In short, the banks aren't really banks at all they're casinos where only the super-rich can play.

      October 19, 2010 at 3:23 pm | Report abuse |
    • Keith / TAMPA

      Stacey, this mess we are in was caused by main street all the politicians have you believing it is Wall Street. there is no reason the banks can't do prudent lending like the 80's. I am now at a major lender where they had to buy back close to 1 billion in mortgages, because of all the fraud that was in them. Borrower's saying they work here and have friends cover them, producing fake pay stubs, bank stats and the another big item are multiple people tied to one SS# these are the reasons we are in this mess. Wall Street buys the loans based on the gurantee from the originator that thye were check for fraud and that the loans adhere to the guidelines. So when you have prudent and diligent underwriting you get quality loans...

      October 19, 2010 at 3:31 pm | Report abuse |
    • Mike

      No, I don't want to see the same excesses, and some checks and balances are important. But look at the differences...5 years ago, my son got a $92,000 home mortgage with a 20% down payment when he was a grad student with a $21,000 stipend. (Countrywide. Name ring a bell?) Last year, Mom couldn't get a loan even though she could pay in cash...her social security and interest/dividends didn't let her qualify for a $200,000 loan even with a 7 figure portfolio.She was moving into a retirement community, and loan would give her more financial flexibility. As she is in her 90s, that seemed like a good thing, and her chances of outliving her money are minuscule...her net worth has risen over the last 20 years since Dad died. REgardless, I got a loan on my house (which has been free and clear for over a decade) and lent the money to mom. I make 6 figures, and have an 8-figure portfolio. I am a CPA, have been in my current job for over 20 years, and even if I lost my job getting another position would be easy. The loan was for about 60% of the appraised value of my house. I have NO other debt. Never a late payment on my record in the 40 years I've been a self-supporting adult. The hoops I had to jump through to get a relatively small loan were mind-boggling and took an incredible chunk of time. The current practices have gone so far overboard that good borrowers are having trouble financing houses, and that is not good for the economy.

      October 19, 2010 at 3:42 pm | Report abuse |
    • FatSean

      I don't care. Rather have existing inventory sold than let it sit vacant anyway.

      October 19, 2010 at 4:53 pm | Report abuse |
    • Mark

      My company mfg's products for residential & commercial building industry and based on all the information we see in forecasts & actual sales, i would have to side with the banks on this one. Depending on the region of this country there is still a lot of residential & commercial inventory out there. We've just had another round of lay-offs and it is disheartening. what is needed in this country is a reduction of this inventory before start-ups can resume at pre-market-collapse volumes...and, based on most economists it may not be until 2013 until we get back to somewhat decent volumes.

      October 19, 2010 at 4:59 pm | Report abuse |
    • mrk

      No, but htey have gone from one extreme to the other. Where I live the banks will not loan any money for new developments. Not a single bank. And it doesn't matter how good your track record is, how good your credit is, ort how much you plan on putting down, they wont loan. As for trying to build an affordable spec home? you would get laughed out of any bank if you even suggest it. I don't want the bank to loan freely, but wisely. the housing market does employ a lot of people, and im not asking to build million dollar homes, but homes that are considered very affordable in my area.

      October 19, 2010 at 5:14 pm | Report abuse |
    • taxbite

      On the other hand, if I were a bank, why would I lend at historically low interest rates, locked in for the next 15 – 30 years? If I were a banker, I would be picky, 'blame the economy', require lots of collateral, even on people that are a good risk, wait it out a couple more years before start lending, hoping interest rates will go up and I can lock lenders in at a higher rate - more profit.

      Banks are surviving well on Fees - no risk there.

      Just a thought.

      October 26, 2010 at 10:11 am | Report abuse |
  2. D

    Thats not the entire reason we are in this mess. Its because the banks were placing bets on things that really dont exist and spending money they didnt have on huge risks. Then they got our money from the government so that they could lend it out to jump start the economy but have held most of it. So basically they went to the casino and lost all their money and got more from the casino to try and win again only to leaver the casino and put it under their mattress.

    October 19, 2010 at 1:37 pm | Report abuse |
  3. Kyle

    I agree Stacy. But the problem is that banks are doing well by not lending (and when they do, charging extremely high interest rates), do more trades, and borrowing money against the FED at near 0%. And by the way, all of it done with taxpayer money. If the banks lighten up a little, they might be seeing more of a recovery. But because they are not, this will be a short-term gain, but a longer term failure.

    October 19, 2010 at 1:38 pm | Report abuse |
    • BThompson

      Agreed. See my comments below.

      October 19, 2010 at 1:48 pm | Report abuse |
    • Seymour

      That is only partially true. The megabanks (Wells Fargo, BofA, etc) are the only ones that can afford to do that. The FDIC and the regulators are what are tying the hands of small and medium sized banks who would be lending on construction. Small to midsize banks have to bulk up their loan loss reserves if they make construction loans because they are deemed too risky by the regulators. Small and midsized banks simply can't afford to do that, or to put it another way, they can't charge enough for a spec construction loan to make any money doing them. The whole "borrow money at 0%" is nonsense for smaller banks. Most banks have more money on hand to lend, i.e, more deposits than loans, and don't need to borrow money to meet their lending demands. And we haven't even touched the new appraisal and evaluation requirements from the regulators that are sucking banks dry.

      October 19, 2010 at 3:34 pm | Report abuse |
  4. BThompson

    This has also hit commercial construction. I work for a company that makes building products that are predominately used in commercial projects (hotel/motel, multi-family, assisted living, nursing homes, offices, among many others). Our customers are still asking us to quote, but many projects sit, waiting for financing. The banks are asking a tremendous amount of money down, even from those investors who have plenty of capital. There has to be a balance between lending requirements and making a profit. The banks seem to be holding on to their cash and using it elsewhere for their own gain, never mind lending to small business (the same folks whose tax dollars went to bail many of them out). Small business cannot function without financing. If they can't function, they won't hire.

    October 19, 2010 at 1:47 pm | Report abuse |
    • meldy

      don't feel sorry for ya.
      builders, contractors and banks have been raping people for years

      October 19, 2010 at 1:50 pm | Report abuse |
    • bryan

      meldy is obviously a democrat who lives off welfare of one type or another

      October 19, 2010 at 2:08 pm | Report abuse |
  5. meldy

    Um, the housing market is flooded with repos.
    I don't feel sorry for these people, the housing market has been over inflated for a long time.
    He's building a $3.5 million new home?
    C'mon

    October 19, 2010 at 1:48 pm | Report abuse |
    • samsteve

      ...and while all of you "aren't feeling sorry" I hope you know this is another way our economy will just flounder. Unless our economy is stimulated by building, spending, shipping American made goods, or producing American products were all just sitting around (and losing). Another day that we stand around, point fingers and grumble is another lost opportunity for an individual, a family, a business, and ultimately our country. Maybe some of you out there can still afford to grumble and blame, but China is snickering at us whilst we bicker amongst ourselves. We used to be better than that, what happened to us?

      October 19, 2010 at 2:26 pm | Report abuse |
    • Mike

      Just because the majority of us don't need a $3.5M home doesn't mean there isn't a market for extremely high-end real estate. And I rather doubt the market is flooded with multi-million dollar properties in foreclosure.

      October 19, 2010 at 2:29 pm | Report abuse |
    • Paul Kinney

      Hey Medly,
      I'm building a $3.5 mil home on contract not spec. for an owner from China, our margin is less than3% we are directly or indirectly employing hundreds of people if I have one subcontractor that goes bankrupt on me I too can go bankrupt.
      You don't get it!

      October 19, 2010 at 8:29 pm | Report abuse |
  6. pedro

    We need to see the job market loosen up before the housing market will. We are already seeing huge pickups in temporary/contractor hiring, and the regular job market is poised to do the same right after the election (surprise surprise – Corporate America will give us a carrot for voting more Republican). Only after that will freeing up the housing market make any sense.

    October 19, 2010 at 1:50 pm | Report abuse |
    • redisgreat

      The only problem with all your thinking is if the Dems manage to hold on. What will the next two years be like then?

      October 19, 2010 at 2:56 pm | Report abuse |
  7. Rob

    you should buy a foreclosed home instead. it's already built and a lot cheaper, rather than flood the market with more homes.

    October 19, 2010 at 1:53 pm | Report abuse |
    • meldy

      finally a voice of reason

      October 19, 2010 at 1:54 pm | Report abuse |
    • Mike

      Again, how many $3.5M homes are in foreclosure? People who have the means to afford a home of this type aren't looking for someone else's problem They want a custom home designed and built to their specifications. So your "voice of reason" doesn't apply here.

      October 19, 2010 at 2:31 pm | Report abuse |
    • redisgreat

      Actually a new house can be a lot cheaper than the 'bloat' houses that got foreclosed on. The banks do NOT want to lower prices to get rid of property, sadly.

      October 19, 2010 at 2:57 pm | Report abuse |
  8. Dave

    Banks won't loosen up because it does not benefit the Republican party. They are in collusion with the obstructionism, intentionally dragging down the economy for political gain. I believe Bernie Sanders when he spoke to Bob Schieffer about the Republican party's role in doing this: "But what has happened is the Republicans have said no, no, no. They have waged more filibusters than any time in the history of this country. They have been the party of no and obstructionism," Sanders continued.

    "At some point, what the president has got to understand they do not want America to succeed. They're in to politics," he said.

    "I think gaining power is their major initiative.""

    October 19, 2010 at 1:54 pm | Report abuse |
    • meldy

      really?
      And what did Obama do?
      Didn't finish one term as a US Senator and believed he was qualified to be the president?
      don't bring politics into this. It's simple economics.
      2 many foreclosures/repos=no new building

      October 19, 2010 at 1:56 pm | Report abuse |
    • redisgreat

      Ummm, being governor of Texas did not make GW fit to be President either. Dude most of them have to wrok at it to make a good President. There really is nothing that prepares you for that job.

      Back to the topic at hand, foreclosures are not the solution to ALL the housing problems. There are way too many that indeed needed to be foreclosed on but some that could have been helped by the banks were not and that is a shame.

      October 19, 2010 at 3:00 pm | Report abuse |
    • Keith / TAMPA

      Dave, with all do respect you are clearly not educated on the facts and can only quote a politician, which i aprt of the problem with the american electrorate. First Dems solution is Spend and it appears you support that theory so what you think hapens to you when you spend money you do not have..2 +2 =4 not 5. If you want something you work for it...ALL the politicians talk about cutting spending and lowering taxes and what do we have out of control spending and higher taxes. Don't be so quick to spout a talking point with out being able to back it up.....

      October 19, 2010 at 3:42 pm | Report abuse |
    • Barbara

      Amen, Dave.

      October 19, 2010 at 5:40 pm | Report abuse |
    • Barbara

      So, Keith/TAMPA, if you believe the Republican party won't raise taxes and/or spend more money to fix our financial mess, what do you believe their solution would be? Carry on with the decisions of the Bush administration? Perhaps the people that became so extremely wealthy at the expense of the middle class during the Bush administration will fork over the money to get us out of the mess the Obama administration was left with.

      October 19, 2010 at 5:48 pm | Report abuse |
  9. Iverson

    Banks will lend money to finance construction, but it all comes down to appraised value of the home. The bank will not finance construciton for more than it is worth. I see this every week, clients want to build a house with total costs of $2mm to build, but it will only appraise for $1.5mm at the most. If we give them 80% (which is high for the industry) of appraised value, they need to personally put in $800k, which most people do not want to do. Lesson is buy a house instead of building. Appraisals will never turn around until we start doing that.

    October 19, 2010 at 1:55 pm | Report abuse |
    • Seymour

      Amen Iverson. Skin in the game talks.....100% loan to cost walks. But that is what this country needs to be successful in the long term. People need to have skin in the game.

      October 19, 2010 at 3:38 pm | Report abuse |
  10. Rus

    I actually happen to work for one of the largest nationwide construction lenders, and after the crash, we got out of the construction business. Construction lending, even to good borrowers, is some of the riskiest lending around, because so many things can go wrong, and even good credit borrowers can make major mistakes in the construction process. I don't know how many times a loan had massive costs increased because when digging the foundation, you run into huge boulders that massively increase your excavation costs. The number of borrowers who change plans during the construction process (we've approved loans, and during the process the borrowers change massive things, like entire floors on a house), drastically changing the value. Not to mention the number of delays with contractors, the amount of hoops to jump through with local permits, chances the borrower could lose their job during the construction process and not be able to finish the home, get divorced and not qualify, etc...

    When these things happen, there's no guarantee there will be permanent financing at the end of the process, which makes it nearly impossible in this environment to do these type of loans. All of the new regulations on investors, make selling these loans riskier, and less investment banking companies want to buy the permanent loans as well.

    There's a reason why banks aren't doing construction lending at all, the risk, and the reward for taking that risk isn't out there. Once it is again, I'm sure many firms, like mine, will get back into the construction lending business.

    October 19, 2010 at 1:56 pm | Report abuse |
    • Seymour

      I agree Rus....the risk/reward just isn't there. People got used to cheap money and those days are gone, at least for the foreseeable future so now everyone says "banks aren't lending". THey are lending, just not like they used to.

      October 19, 2010 at 3:42 pm | Report abuse |
  11. bryan

    why build when there are so many empty homes and commerical buildings....I sure builders CAN build but thats not really the point is it?

    October 19, 2010 at 1:56 pm | Report abuse |
    • meldy

      builders only see dollar signs.
      I live in a touristy area of NC, the builders are struggling yet the market is flooded with empty homes

      October 19, 2010 at 2:01 pm | Report abuse |
    • bryan

      I dont fault the huilders...its thier job to build houses.

      Its the banks job to see if its a viable project

      October 19, 2010 at 2:05 pm | Report abuse |
    • redisgreat

      Agreed. Builders only make money when they build things. I too live in NC and have watched a development down the rod from me die. About 1/3 of it is built and the rest of it is just sitting idle. There is land and there are builders but no one seems to be able to get money to build. Even the commercial part of the project is dead for now. We need the commercial development in our area!! The commercial project would supply jobs for some of the residents that currently live around the project. Banks need to get moving on freeing up cash. What the heck are they waiting for? Republicans to take over and then what? They can sure waste as much money as Democrats.

      October 19, 2010 at 3:04 pm | Report abuse |
  12. Kate

    We're in the process of buying a house, and we didn't even consider trying to build – there's SO much affordable housing stock on the market right now, and we've been quoted just under 4% up to about 4.5% on a mortgage by various banks.

    October 19, 2010 at 2:07 pm | Report abuse |
  13. Konstantin

    Banks are not lending because people are not buying finished homes. Builders need to start lowering their prices and people will start buying. Despite of so-called glut of homes from foreclosures etc most of them are old run down homes. People do want to live in a new home, its just that home prices are completely unjustified.

    October 19, 2010 at 2:09 pm | Report abuse |
    • redisgreat

      You have a good point. I have looked at quite a few of the new homes being built in my area, my wife and I are curious sorts so it can be fun to go on the Parade of Homes. What we find most often is crap. Crap building and crap pricing. It amazes me to see a $350,000 house that is poorly built and poorly detailed. My house cost me $150,000 and is better built than most of the houses being built today. It is sad really. We looked at a $1,000,000 house that was on 'display' as a spec house for part of a new development. God it was crap. No attention to detail at all. When I see floors and moulding that don't match up and gaps in tiles and doors that don't seem to fit right I wonder who built the crap and wonder is there anyone dumb enough to buy that. Then I wonder why would they built a piece of crap and then try to sell it for so much when no one can get the money. Builders need to come back to earth too.

      October 19, 2010 at 3:10 pm | Report abuse |
    • Keith / TAMPA

      you are incorrect you need jobs to purchase home, which there are none.....you can get some great deals on homes new and exisiting if you have a job or cash

      October 19, 2010 at 3:45 pm | Report abuse |
  14. stephanie

    My father is a Home Inspector and my brother a builder – they have both been telling me for almost a year now how the banks were holding things up. This has been particularly tru for my dad who works with seemingly qualified buyers who get caught up in bank slow downs.

    October 19, 2010 at 2:09 pm | Report abuse |
  15. keith

    banks are holding up ALOT of stuff, not just home construction. They are playing devils advocate with money and still not helping the US consumer. There are quite a number of us that they have punished that they should not have punished. Capital One told me that it didn't matter if I was a perfect customer or not, I was still going to have my interest rate jacked up due to 'economic reasons', all this after they were given a massive part of the bailout and turned around bought another bank with that money....they didn't use that money as they should have and helped their consumers...too many banks are doing what THEY want to do with the money, not what they SHOULD do.....

    October 19, 2010 at 2:12 pm | Report abuse |
    • redisgreat

      Well sadly in a capitalist society the banks are only concerned with making money and keeping their shareholders happy. That is it. If you hate that system you can move somewhere else. If not then, well........

      October 19, 2010 at 3:13 pm | Report abuse |
    • Seymour

      Keith...go see a local, small community bank in your area. They are completely different from banks like Capital One and might be able to help.

      October 19, 2010 at 3:57 pm | Report abuse |
    • Barbara

      keith and Seymour, that is exactly what I did with my car loan when I lost my job. Sun Trust said, heck no we won't re-write your loan unless you are in bankruptcy. I moved back to my roots, went to a small town bank and they were more than willing to re-write my loan.

      October 19, 2010 at 6:05 pm | Report abuse |
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