Maybe a Way to Jumpstart Housing

It's been a while since we've heard any good news about our economy's housing sector. So it's no surprise that the November new home sales report suffered some pretty dramatic sales drops.

At the slowest pace in 12 years, the Commerce Department reported that new home sales plunged 9% month over month, and 34.4% year over year, to a seasonally adjusted annual rate of 647,000 units. The results fell short of expectations for a 1.8% drop, or 715,000 units.

I can only wonder what the prognosticators were mixing into their forecasts. Virtually all housing metrics have been weak lately, to say the very least, including swiftly plummeting house prices. In addition, big builders like Pulte (NYSE: PHM  ) , Lennar (NYSE: LEN  ) , Ryland (NYSE: RYL  ) , and Hovnanian (NYSE: HOV  ) have been competing for several quarters to chop land and inventory values fast enough to trump one another in the use of red ink at reporting time.

Beyond that, many lenders -- who were essentially operating drive-through windows for the no-sweat granting of mortgages -- have long since given up the ghost. Even mortgage lending leader Countrywide (NYSE: CFC  ) is a shadow of its former self, an assessment that'll probably get me in trouble with shadows everywhere. Those lenders who are still operating have now switched to demanding that potential borrowers relinquish their first born in exchange for an "approved" stamp on their loan applications.

From the buyers' perspective, houses no longer have the lure of attractive investments. Why tie into a new home, only to discover that its price has cratered by 10% or 15% almost before you first mow the lawn?

In my opinion, the housing market's healing almost has to begin at the upper end, and then filter down to the world of first-time buyers. As such, I can't understand why the ceiling for conforming loans that can be bought by Fannie Mae (NYSE: FNM  ) and Freddie Mac (NYSE: FRE  ) has been stalled at $417,000 for a single-family home for three years. A hike in that ceiling -- to perhaps just above $500,000 -- likely would help to initiate that healing at the upper end, as interest rates on conforming loans are more attractive to homebuyers compared to jumbo loans.

In the meantime, or at least until the builders begin to impress us, beginning pulling back out the black ink to print their bottom line, I hope my Foolish friends will not be tempted to deploy their investment pesos in this downtrodden sector.

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