Housing has been a hot topic on Capitol Hill this week, as two House of Representatives subcommittees heard testimony from the housing industry and experts about the soon-to-expire $8,000 housing tax credit.
Both the NAHB and the National Association of Realtors (NAR) strongly advocated, as expected, for extending the credit into 2010 to support the housing market and the economic recovery. “Without Congressional action now, the market may freeze again--possibly as soon as this month,” Boyd Campbell, a Maryland real estate agent, warned during Thursday’s House Subcommittee on Housing and Community Opportunity hearing.
Just a day earlier, Joseph L. Canfora, an NAR regional vice president for New York, New Jersey, and Pennsylvania, sounded a similar note during Wednesday’s House Committee on Small Business hearing. “The threats of more foreclosed property coming to market, combined with the mortgage-rate resets and growing unemployment are simply too great to take a wait-and-see approach,” he said. “The best available tool for sustaining the gains that have been made will soon expire as of December 1, 2009.”
The White House is reportedly weighing asking Congress to extend the program. Bloomberg News also reported Thursday that House Speaker Nancy Pelosi (D-Calif.) is also considering extending and perhaps expanding the credit.
Some economists and pundits have advocated simply letting the tax credit expire, arguing that it has spurred relatively little additional demand relative to the program’s $15 billion cost.
Others disagree. “According to recent surveys of real estate agents by Campbell Surveys, about 1.6 million of the 3.9 million homes sold through mid-September went to first-time home buyers. If one extrapolates these numbers, first-time home buyers will total about two million in 2009. About 400,000 of these, according to the survey's methodology, will be incremental buyers-that is, buyers who would not have bought a home this year without the tax credit,” Patrick Newport, U.S. economist at IHS Global Insight, testified Thursday at the Housing and Community Opportunity subcommittee hearing. “The impact of the tax credit, thus, is not trivial.”
Newport would get no argument there from Pamela Volm, the president of Annapolis Contracting in Maryland, who said the credit has been like “oxygen” to her employees and customers. In her testimony Wednesday before the small business committee, she shared how her company, which employed 37 people at its peak, has been affected by the housing downturn since 2006.
“Our jobs dried up in the residential market. We dropped to 20 employees. The framing crews we had employed went from 12-to-16-man crews were now 4-5 [people]. Clients cancelled jobs, condensed their subcontractor base, banks pulled funding, and the small--but successful--firm we had built over the past 6 years faced the critical question of whether we could even survive,” she said. “We were forced to lay off 17 of our employees, and by the time 2008 came to a close, many small businesses like mine were fearful that they would not make it through 2009. While we started this year fearing for our livelihoods, in March, the first-time home buyer tax credit gave oxygen to our ailing residential marketplace. It’s by no means a full recovery for our company, but it is a sign that things are starting to turn around. I feel, my employees feel, and even our customers feel a certain momentum driving us back to a more stable economic footing.”
Volm’s story touches on a key fear about the tax credit—that its expiration will injure a still-weak housing market and slow the country’s return to economic health. In his testimony, Newport predicted that home sales and house prices will decline when the tax credit ends. “The main effect of the tax credit is to shift demand from 2010 into 2009,” he explained. “Therefore, once the tax credit expires, demand will take a hit-home sales will drop-and house prices will resume their downward course, depressed by the weight of rising foreclosures and rising unemployment rates. Our view is that home prices will drop another 5% from current levels, hitting bottom in 2010.”
In terms of sales, Newport said, “the pace has accelerated since bottoming out in the first quarter of this year, and we expect it to reach about a six-million-unit annualized pace in the fourth quarter of 2009. The drop seen in 2010 is the result of the tax credit expiring. We expect sales to tail off to about 5.5 million units in 2010.”
Many in the industry are concerned that buyers currently in the market will not be able to take advantage of the credit before it ends. “In reality, the credit will be out of reach for most people in our market well before its expiration date,” Canfora noted. “The reason: between now and November 30, a purchaser must find a home, enter into a contract, satisfy any conditions of that contract, secure financing and get to closing. In most markets, that process is taking 45 to 60 days, even for the most straightforward deals. October has already arrived, so not much time is left.”
As housing groups assert the need to extend the credit by one year, to Dec. 1, 2010, they also are lobbying for its expansion to all buyers, not just first-time home purchasers. “We estimate that these enhancements would increase home purchases by 383,000 in the next year; increase housing starts by 82,000; create more than 347,000 jobs; generate $16.1 billion in wages and salaries; $12.1 billion in business income and tax income of $8.4 billion for the federal government; and $3.2 billion for state and local governments,” said Joe Robson, NAHB’s president and a builder in Broken Arrow, Okla., speaking Wednesday before the House small business committee.
The NAR also supports such a move, according to Canfora. “In a friendlier world, we could not only extend the credit but also expand its application through some combination of increasing the amount of the credit, increasing the income limits and/or making the credit available for all purchases of a principal residence,” Canfora said. “We recognize that today’s fiscal environment would make all those changes difficult. We do not doubt, however, that the more robust the credit and the greater its duration, the greater the chance that the housing market can perform its traditional role of helping the economy move out of a recession.”
Alison Rice is senior editor, online, at BUILDER magazine.
For more information on Johnny Isakson (R-Ga.), who has introduced a bill extending the tax credit, click here to read BIG BUILDER's October cover story.
