In today’s housing market, builders will take almost any assistance they can get, including a new HUD policy that allows FHA borrowers to use their $8,000 federal housing tax credit at the closing table.
The policy, confirmed last week by HUD Secretary Shaun Donovan and the FHA, represents a boost to the housing market, where both first-time home buyers and FHA lending have become dominant factors. “With the spring home buying season in full bloom, Secretary Donovan’s move to enable buyers to access the tax credit at the time of closing could not have come at a better time,” NAHB Chairman Joe Robson, a home builder from Tulsa, Okla., said in a statement last week.
But builders in the field, while grateful for the expansion, were relatively muted about its potential impact in conversations with BUILDER this week. “It’s one more thing that will get buyers motivated” to look or purchase, said Brent Anderson, vice president of investor relations for public builder Meritage Homes, where first-time home buyers currently represent 30% of its business.
“I guess if it really is finalized, then it’s a good thing,” said Bill Luther, president of Gemcraft Homes in Forest Hill, Md., which closed 501 homes last year. “But we’re still having a tough time finding buyers with any money at all.”
(Under the rules, buyers cannot use the tax credit for any part of the 3.5% downpayment required with an FHA loan, unless they are working with a state housing finance agency program, which typically involves financial counseling, asks for more documentation, and requires buyers to remain in the home for a minimum period of time.)
And at some level, the philosophy of the tax credit monetization worries some builders. “Anything that helps a buyer get into a house is a good thing, but I’m not in favor of letting people into houses that shouldn’t be in houses,” said Karl Haslinger, CEO of Essex Homes in Lexington, S.C.
Others, like Luther, still have questions about the policy, whose future was uncertain for several weeks before Donovan’s speech to the NAHB. “From our standpoint, we’re still skeptical, because the government hasn’t defined the mechanism for financing” the short-term bridge loans for the tax credit, he said. “Until we get more details on how this is going to work, this just seems like another change (like the initial $7,500 temporary tax credit in 2008). It’s like a fire drill, with five different people and everyone running in different directions.”
He hopes they resolve the details soon. “These contracts have to be written and settled by Nov. 30 [to be eligible for the credit],” Luther notes. “If you back it up, that’s not too many months [available to start and build a new home that will qualify]. We’ve got 60 days to define the program and make it work on new units to be built. If this takes 60 days, this will only be available on specs.”
Luther shrugged off the fact that the buyers will be able to use their tax credit for closing costs. “Builders already are doing closing costs as incentive,” he noted.
Haslinger questioned how just how much impact the revised policy will actually have on sales, given recent upticks in the market. “I don’t think it will cause huge gains in our sales—just an incremental increase,” said the builder, whose company sold 44 homes in March and 40 in April. “That’s as a good a month as we’ve ever had,” said Haslinger, whose company closed 340 homes in 2008.
He and Luther alike wonder what the fall will bring, as the deadline for using the tax credit on a house approaches. “One of our big fears is when the tax credit goes away, housing goes back into a recession,” says Haslinger.
Alison Rice is senior editor, online, at BUILDER magazine.
Learn more about markets featured in this article: Anderson, IN.