US construction sector urges Bush to include property market measures in plan

Investors and analysts in the US are divided over whether the proposed government bailout of the financial industry can stem the downturn suffered by developers and builders.

As President Bush struggles to get his $700 billion bailout plan approved, some analysts point out that in its present form it doesn't immediately address some of the construction and property industries biggest problems.

A stabilization of the property market is needed to help solve the credit crunch and merely concentrating on bailing out large financial institutions will only lead to a further fall in property prices, it is claimed.

The essence of the US property crisis is the fact that first-time buyers can't come up with down payments and the downward pressure foreclosure sales are putting on house and land values are continuing to bring prices down.

'It doesn't really do anything for demand, which is so badly needed to try to absorb all of this housing inventory,' said Ivy Zelman, chief executive of Zelman & Associates, who downgraded three builders in the last few days.

But Paul Puryear, a home-building analyst at Raymond James & Associates, believes the bailout is likely to put a floor on home prices by injecting liquidity into the mortgage market and restoring consumer confidence.

'You've got the entire US government focused on fixing housing. It's not a good time to bet against that effort,' he said.

Large construction companies are urging Bush to take the property sector into account. Lennar, the second largest home builder in the US, reported a 53% fall for the third quarter of 2008 this week. Figures like these do not boost confidence that the government bailout would help the housing market turn a corner.

'The current stopgap measures to aid hard-hit financial companies will be repeatedly frustrated by falling home prices and the securities that back them,' said Stuart Miller, the company's chief executive. 'Any meaningful solution to the credit crisis will necessitate a simultaneous stabilization of the housing market,' he added.

Large firms like Lennar want the US government to do more to stimulate a property market recovery in addition to the bailout of the financial industry and the first housing stimulus passed in July. Congress implemented a $7,500 tax credit for first-time buyers, but it needs to be paid back, essentially making it an interest-free loan that Miller says will do little to spur demand.