State of Housing: Tax Credit Must Be Extended to Sustain Stability
With the $8,000 homebuyer tax creditrndue to expire in little more than a month, the Congress is looking into thernpossibility of extending it for another six months and perhaps even expandingrnthe program's reach.
On Tuesday the Senate BankingrnCommittee held a hearing on the State of the Nation's Housing Market. Committee Chairman Chris Dodd (D-CT) calledrnfor an extension of the homebuyer tax credit saying, “As part of the economicrnrecovery package, we created an $8,000 first time home buyers' tax credit,rnreplacing an unsuccessful and overly complex loan program with one that isrnalready having an impact. The homebuyer tax credit has already been used byrnnearly 2 million first time homebuyers. In addition to helping middlernclass families achieve the dream of homeownership, the tax credit has helped tornstabilize housing prices and the market at large.”
“The credit is set to expire in fivernweeks. But the work of stabilizing the housing market won't berndone. We still need to use every tool at our disposal to try and fix thisrnproblem,” Dodd argued. “So our first witness, Senator Johnny Isaksonrn(R-GA), and I have proposed extending the tax credit through the end of nextrnJune, as well as expanding it so that more middle class families can takernadvantage of what I believe has been an effective program.”
Testifying before the panel were:
- Senator Isakson
- Shaun Donovan, Secretary of the U.S. Department of Housing and Urban Development
- Ms. Diane Randall, Executive Director Partnership for Strong Communities
- Mr.rnRonald Phipps, First Vice President National Association of Realtorsrn(NAR)
- Mr. Emile J. Brinkmann, ChiefrnEconomist and Senior Vice President for Research and Economics, MortgagernBankers Association (MBA)
- Mr.rnDavid Crowe, Chief Economist, National Association of Home Buildersrn(NAHB)
In his testimony, Senator Isaksonrnreferred to his pre-senate career saying that in his 33 years as a Realtor® hernhad never seen market conditions as bad as they are at present. “I am frequently asked by my constituentsrnback home,” he said “'When do you think housing will recover?' My answer is, “'without some policy changesrnin Washington, five years or more.”
The Senator suggested two actionsrnthat would make a positive difference in the rate of recovery in the housingrnmarket. The first is the extension ofrnthe homebuyers' tax credit through June 30, 2010 while making it available tornall purchasers of a principal residence as long as their joint income isrn$300,000 or less. This, he said, wouldrnprovide the stabilization necessary for home values to begin recover and willrnthaw the current freeze in the move-up market.
Isakson said he would also like thernFDIC to revisit its “draconian interpretation of mark-to-market rules in termsrnof real estate development loans and other similar assets.” While many of these loans are bad and lossesrnshould be recognized, many could be worked out over time, benefitting both thernbank and the developer.
NAHB representative Crowe said thatrnhis organization estimates conservatively that the tax credit has beenrnresponsible for 200,000 additional home sales. rn(He did not specify if these were new homes.) Of these, 121,000 were purchased by first-timernbuyers for whom the credit made a home more affordable while 71,000 of thernsales were a ripple effect of repeat buyers who were able to sell theirrnexisting homes to buyers using the credit. rnHe also cited a steady improvement in the inventory of unsold new homesrnto what is now the lowest point since 1992 but said that despite the positivernsigns there are still impediments to significant housing recovery. Among what he called “headwinds” are the largerninventory of vacant homes and apartments; the foreclosures still coming on thernmarket; continuous downward price pressure from too much supply and tightrnmortgage underwriting coupled with low appraisals which make it difficult forrnbuyers to complete sales.
The NAR's Phillips said hisrnorganization felt that the credit was responsible for as many as 350,000 salesrnthis year, but still it is valid to ask whether there is pent-up demandrnremaining and if the tax credit would just go to people who would have bought arnhome anyway and thereby will simply pocket the $8,000 check. There is, he said, a compelling case forrntapping the financially healthy renter population.
In 2000, because the market boom,rnthere were 11.5 million renter households with the income to buy a medianrnpriced home. Today that pool is over 16rnmillion. He said that if just 5 percentrnof those renters can be nudged into buying because of the tax credit it will meanrn800,000 additional sales, a number sufficient to get the inventory down to thernlevel of home value stabilization.
Philips said that with the creditrnexpiring on December 1, its usefulness is diminishing daily. Unlessrnit is extended well ahead of that date buyers will have to find a house,rncomplete a contract, and satisfy all of the contingencies for financing and gornto closing by November 30, a task that becomes more difficult with everyrnpassing day. “Without Congressionalrnaction now the market may freeze again – possibly as soon as this month.”
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