With the $8,000 homebuyer tax credit
due to expire in little more than a month, the Congress is looking into the
possibility of extending it for another six months and perhaps even expanding
the program's reach.
On Tuesday the Senate Banking
Committee held a hearing on the State of the Nation's Housing Market. Committee Chairman Chris Dodd (D-CT) called
for an extension of the homebuyer tax credit saying, "As part of the economic
recovery package, we created an $8,000 first time home buyers' tax credit,
replacing an unsuccessful and overly complex loan program with one that is
already having an impact. The homebuyer tax credit has already been used by
nearly 2 million first time homebuyers. In addition to helping middle
class families achieve the dream of homeownership, the tax credit has helped to
stabilize housing prices and the market at large."
"The credit is set to expire in five
weeks. But the work of stabilizing the housing market won't be
done. We still need to use every tool at our disposal to try and fix this
problem," Dodd argued. "So our first witness, Senator Johnny Isakson
(R-GA), and I have proposed extending the tax credit through the end of next
June, as well as expanding it so that more middle class families can take
advantage 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.
Ronald Phipps, First Vice President National Association of Realtors
(NAR)
- Mr. Emile J. Brinkmann, Chief
Economist and Senior Vice President for Research and Economics, Mortgage
Bankers Association (MBA)
- Mr.
David Crowe, Chief Economist, National Association of Home Builders
(NAHB)
In his testimony, Senator Isakson
referred to his pre-senate career saying that in his 33 years as a Realtor® he
had never seen market conditions as bad as they are at present. "I am frequently asked by my constituents
back home," he said "'When do you think housing will recover?' My answer is, "'without some policy changes
in Washington, five years or more."
The Senator suggested two actions
that would make a positive difference in the rate of recovery in the housing
market. The first is the extension of
the homebuyers' tax credit through June 30, 2010 while making it available to
all purchasers of a principal residence as long as their joint income is
$300,000 or less. This, he said, would
provide the stabilization necessary for home values to begin recover and will
thaw the current freeze in the move-up market.
Isakson said he would also like the
FDIC to revisit its "draconian interpretation of mark-to-market rules in terms
of real estate development loans and other similar assets." While many of these loans are bad and losses
should be recognized, many could be worked out over time, benefitting both the
bank and the developer.
NAHB representative Crowe said that
his organization estimates conservatively that the tax credit has been
responsible for 200,000 additional home sales.
(He did not specify if these were new homes.) Of these, 121,000 were purchased by first-time
buyers for whom the credit made a home more affordable while 71,000 of the
sales were a ripple effect of repeat buyers who were able to sell their
existing homes to buyers using the credit.
He also cited a steady improvement in the inventory of unsold new homes
to what is now the lowest point since 1992 but said that despite the positive
signs there are still impediments to significant housing recovery. Among what he called "headwinds" are the large
inventory of vacant homes and apartments; the foreclosures still coming on the
market; continuous downward price pressure from too much supply and tight
mortgage underwriting coupled with low appraisals which make it difficult for
buyers to complete sales.
The NAR's Phillips said his
organization felt that the credit was responsible for as many as 350,000 sales
this year, but still it is valid to ask whether there is pent-up demand
remaining and if the tax credit would just go to people who would have bought a
home anyway and thereby will simply pocket the $8,000 check. There is, he said, a compelling case for
tapping the financially healthy renter population.
In 2000, because the market boom,
there were 11.5 million renter households with the income to buy a median
priced home. Today that pool is over 16
million. He said that if just 5 percent
of those renters can be nudged into buying because of the tax credit it will mean
800,000 additional sales, a number sufficient to get the inventory down to the
level of home value stabilization.
Philips said that with the credit
expiring on December 1, its usefulness is diminishing daily. Unless
it is extended well ahead of that date buyers will have to find a house,
complete a contract, and satisfy all of the contingencies for financing and go
to closing by November 30, a task that becomes more difficult with every
passing day. "Without Congressional
action now the market may freeze again - possibly as soon as this month."