At the heart of the political standoff was the economy. For the past three years and change, Congress has been spending the nation out of economic Armageddon, funneling billions into corporate coffers and consumer pockets alike to keep the economy from taking a header into the dirt. Some felt that stimulus spending worked, that the economy would be in much worse shape without that healthy dose of government intervention. Free-marketeers generally disagreed.
But by early November, it was clear that the American appetite for such fiscal frittering had shrunk. Saving became the new spending for members of both parties. Whether left, right, or in the middle, post election, Congress will focus on the nation's balance sheet.
For the housing industry, this signaled a sunset for decidedly pro-housing incentive policies à la the federal home buyer tax credit, which for some might have come as a welcome relief. However, in no way did the election mean an end to government tinkering in the area. Topping the congressional agenda is a trifecta of issues—the foreclosure crisis, government-sponsored enterprise (GSE) reform, and tax restructuring. Depending on which way the political wind is blowing, congressional resolutions threaten to manacle housing's nascent recovery.
GRIDLOCKED AND LOADED At press time, just prior to the election, some pundits had the House going Republican, others had both the House and Senate going Republican, others had the Democrats hanging on to the Senate, and still others foresaw a late Democratic surge that would keep both houses under their control. But the more likely scenario, according to public policy consultants like Tom Block, who spent 21 years as head of government relations for J.P. Morgan, was that the Republicans would take the House but would come up a few seats short of controlling the Senate.
Sounds like a recipe for total gridlock, but Block says the situation will likely fall slightly short of that. He's calling for an “expanded stalemate,” where Democrats and Republicans will indeed dig in their heels over a number of issues but will also be looking for areas for compromise. A newly empowered Republican Congress would want to lay some tracks for the 2012 election by demonstrating that it can drive legislation forward, Block says.
For all its ailments, housing isn't likely to be on the new Congress' fix-it list, regardless of the late September speculation that another housing tax credit could be on the table. (It was not.) In fact, the way Block sees it, housing is set to enter a period of so-called “benign neglect,” a term the late New York senator Daniel Patrick Moynihan first coined in a memo to President Nixon in 1970.
“They [Congress] tried the housing tax credit, with some success,” says Block. “But the bottom line is, time needs to absorb the inventory. The government's done about as much as they can do.”
For many home builder executives, a government exit is exactly what the industry needs. During a recent conference call with investors, D.R. Horton CEO Don Tomnitz said, “Frankly, I don't want the tax credits to be re-enacted or re-created or extended. We want to get back to a normalized market. It's a lot easier to run a business based upon designing your business with the current demand than having any kind of stimulus or incentives to create abnormal demand.”
FOREGONE FORECLOSURES While the odds of a housing incentive part three seem slim to none, industry consultant John Burns says there is always the possibility that market conditions could change that perception. “Any sort of vote or bill to bail out housing isn't going to happen,” he says, “… unless it's clear that home prices start plummeting again.”