It’s more than ironic – housing is taking the blame for the poor economy, but pent-up demand shows housing is poised to recover. Yet, the economy has to improve before housing can.
That’s why the $819 billion stimulus package passed by the House of Representatives is a huge disappointment for the housing lobby. Both the National Association of Home Builders and the National Association of REALTORS® mounted aggressive lobbying campaigns for expanded tax credits to buyers and subsidized mortgage rates.
“In the other Super Bowl, the partisan contest underway in Congress over how to spend billions to stimulate the economy, the housing industry is down at least three touchdowns,” says Steve Cook, founding partner and editor of Reecon Advisory Report. “It’s the fourth quarter and all hope now rests with the underdogs, the badly battered and under-powered Senate Republicans.”
What the housing industry got for their efforts was a weak response by the House – The American Recovery and Reinvestment Act, with $544 billion in spending and $275 billion in tax relief, with very little earmarked for struggling homeowners.
Currently, there is a first-time homebuyer tax credit of $7,500 that is set to end July 1, 2009. Consumers have been unenthusiastic as the tax credit must be repaid over a 15-year period.
The House package proposed only that first-time homebuyers be exempted from repaying the tax credit. The housing industry wanted the tax credit paid at closing – for all homebuyers. The NAR also wanted the expiration date for the tax credit to be extended to December 31, 2009.
Other provisions in the bill, says NAR will “help communities across the country,” but the bill failed to address the egregious foreclosure problem in which up to 45 percent of home sales are in some stage of distress.
Instead, the House bill makes permanent an increase in the loan limits for FHA and GSE loans for expensive states, from $625,500 to $729,750—a helpful but hardly stimulating provision, notes Cook. “The housing lobby succeeded in getting loan limits raised even in the very peak of the housing boom,” he points out.
Yes, the bill seemed intent on measures that didn’t work before, such as proposing a $500 tax credit for middle-to-low-income earners, a measure which did little to stimulate the economy when it was given to households last year.
“The legislation includes $30 billion in construction for the highway lobby, $37 billion for telecommunications, $20 billion for small business, billions more for health care and education—even $2 billion for national parks and a billion for the Census Bureau,” says Cook. “But housing, where the economic crisis began and a fifth of the nation’s gross domestic product is created, remains unfixed and almost ignored.”
Cook says hope rests with Senate Republicans. Senator Jonny Isakson (R-GA) plans to introduce an amendment that would increase the credit amount to 10 percent of the home price capped at 3.5 percent of FHA loan limits (geographically dependent) – ranging between approximately $10,000 and $22,000, says Cook.
“Senate Minority Leader Mitch McConnell (R-KY) favors subsidizing mortgage rates to keep them at four percent or lower—an idea first proposed by Realogy executives last fall,” he says.
McConnell told CNN’s American Morning last Wednesday that “it would deal with the leveraging problem that the whole country has, too much debt, both the government and individuals….. But we believe that a part of the stimulus package, this 4 percent mortgage proposal, would go directly at the housing problem which started the whole mess.”
Neither Isakson or McConnell will have their say if things go in the Senate as they did in the House last week where the Administration didn’t get—but didn’t need—a single Republican vote, says Cook. With a 17 seat majority in the Senate, the Democrats and the Administration will surely be calling the plays.
Blanche Evans is CEO of Evans Emedia, Inc. and publisher of The Evans Ezine. As an award-winning journalist, Blanche has been named one of the "25 Most Influential People In Real Estate" by REALTOR Magazine, and twice recognized as one of the industry's most "Notables."