Associations Hope for Tax Credits

With the second half of 2008 quickly approaching, following a less than stellar start for the new housing industry, many are searching for jump-start solutions. The National Association of Home Builders (NAHB) believes a tax credit for home purchases may be part of the solution. The National Association of Realtors (NAR) reports it expects improvements in the second half of 2008, if conventional loan limits are increased. Both organizations maintain that improvements could be had, if the right incentives are put in place.

“The biggest bang for the buck most likely would be provided by a temporary home buyer tax credit,” says NAHB’s chief economist David Seiders. Seiders recently addressed the Senate Finance Committee with these matters. “Tax credits for the purchase of a home are a means of eliminating excess inventory, relieving some of the pressure on falling housing prices and ending the waiting-on-the-sideline strategy some potential buyers have adopted in response to overly negative media stories concerning the future of the housing market.”

Seiders maintains that the recently enacted Economic Stimulus Act of 2008 could fall short of achieving its intended results, because it does not address the problems posed by the housing contraction. He also suggests that these problems press beyond just housing and are at the root of today’s economic and financial market problems. He also says we haven’t seen the bottom yet.

“The U.S. housing market now is in the contraction phase of the most pronounced housing cycle since the Great Depression,” he says. “Single-family housing starts are already down by 60 percent from their peak at the beginning of 2006 and the bottom is not yet in sight. Congress can, and should, do more.”

Lawrence Yun, NAR chief economist, says his association expects sales activity to remain soft through the first half of the year, despite a generational low in mortgage interest rates, but the year could be salvaged if conventional loan amount limits are raised. He also agrees that buyers are lurking on the sidelines, waiting for the right incentives or market signals.

“Household formation was only half of what it should have been last year given the demographics of a growing population and sustained job growth, so there clearly is a pent-up demand from buyers who are on the sidelines,” Yun says. “Existing-home sales have moved narrowly since last September, but when the full impact of higher loan limits for conventional mortgages begins to impact the market there is likely to be a notable rise in home sales and prices. If higher limits are enacted very quickly, we’ll see a faster and more meaningful recovery by expanding safe, affordable financing in high-cost areas, that, in turn, would help to stimulate overall economic activity.”

Yun says builders aren’t done compensating for their inflated inventories.

“Builders will further lower new home construction throughout this year and into 2009 to bring inventory under control,” he says.

Housing starts, including multifamily units, are estimated to fall 20.1 percent to 1.08 million this year, and decline another 1.3 percent to 1.07 million in 2009.

Need more info and analysis about the issues?
CLICK HERE to subscribe to Shelter™ magazine.