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:
- Shaun Donovan, Secretary of the U.S. Department of Housing and Urban Development
- Ms. Diane Randall, Executive Director Partnership for Strong Communities
Ronald Phipps, First Vice President National Association of Realtors
- 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."