White House Eyes Extending Home Buyer Tax Credit
Amidst growing concerns in the Administration and Congress over worrisome prospects for reducing the nation’s lengthening unemployment lines and further strengthening the economy as it moves tentatively toward recovery, Washington turned a sharper focus last week on extending the current $8,000 tax credit for first-time buyers beyond its Nov. 30 expiration date and expanding it to a wider circle of principal home buyers.
Following some encouraging remarks from White House Press Secretary Robert Gibbs, NAHB on Oct. 6 said that home builders were ready to work with the White House and Congress to extend the credit and help bolster the lackluster economy.
“The tax credit has clearly had a positive effect on housing demand and in the job market,” said NAHB Chairman Joe Robson. “We stand ready to work with President Obama and the Congress to extend and enhance the tax credit to help reduce foreclosures and excess housing inventories, to stabilize home values and to push housing and the economy on a glide path to recovery.”
NAHB estimates conservatively that the current tax credit has been responsible for some 200,000 additional home sales since early this year, resulting in a net increase of 187,000 jobs. Extending the tax incentive through Nov. 30, 2010 and making it available to all income-qualified purchasers of a principal residence would result in an additional 383,000 home sales and generate 347,000 new jobs in the coming year, according to NAHB economists.
At an Oct. 5 press briefing, Gibbs said that “there has been quite a bit of success” with the home buyer tax credit, and he added that the President is considering extending it to strengthen the economy and create jobs.
“Housing is the best opportunity to put this country back to work,” said Robson. “Prompt congressional action on the tax credit is a crucial first step to shoring up the fragile housing recovery and leading the economy to higher ground.”
A Meeting in the Oval Office
The New York Times reported on Oct. 7 that extending the credit was briefly mentioned in a meeting that day in the Oval Office between President Obama and Democratic congressional leaders Rep. Nancy Pelosi, (Calif.), speaker of the House, and Sen. Harry Reid (Nev.), the Senate majority leader. Congressional aides indicated that a tax credit extension is being viewed as an option for stimulating the economy and job creation and extending it beyond first-time buyers is being considered.
In a statement following the White House meeting, Reid said that, “we need to continue working toward ensuring that more families can stay in their current homes and continue efforts to strengthen the housing market by extending the tax credit.”
The New York Times story also cited warnings from Mark Zandi, chief economist at Moody’s Economy.com, that allowing the tax credit to expire would slow the sales of new homes not facing foreclosure just as sales of foreclosed homes are expected to pick up, which would put downward pressure on home prices.
“The economic recovery will not evolve into a self-sustaining economic expansion and risks unraveling back into recession until house prices stop falling,” Zandi said in an interview.
Tax Credit Gains Momentum
In a sign that the tax credit is gaining momentum, the House on Oct. 8 passed H.R. 3590, the “Service Members Home Ownership Tax Act of 2009,” by a margin of 416 to 0.
Introduced by House Ways and Means Committee Chairman Charles Rangel (D-N.Y.), the bill would extend the current home buyer tax credit for an additional one year for qualifying members of the military service. The legislation would also waive the recapture requirement for service members who are forced to sell their home within three years because of a change in duty station.
(To read H.R. 3590, click here and enter the bill number in the box at the upper center of the page.)
Facing the Headwinds
In an Oct. 7 appearance before members of the House Small Business Committee, NAHB Chairman Robson said that despite signs of stabilizing existing and new home sales in recent months, the industry faces a number of “headwinds” that are continuing to buffet any significant housing recovery.
While stressing the importance of using the home buyer tax credit to put the nation back to work, he also said there is an urgent need to resolve appraisal problems that have been slowing home sales and to get banking regulators to restore the full flow of credit needed by both home buyers and home builders.
“Not only are we continuing to feel the impact of foreclosures and short sales in the market, but we’re facing a severe credit crunch for acquisition, development and construction (AD&C) lending,” said Robson.
“Meanwhile,” he said, “the use of foreclosed and short-sale properties as comps is resulting in inappropriately low appraisals that are effectively sinking one quarter of all new-home sales right now. Add to this the fact that demand and home sales are already showing signs of slowing with the pending Nov. 30 expiration of the first-time home buyer tax credit.”
In a recent survey of more than 500 builders by NAHB, 25% reported that they were losing sales because appraisals were coming in below the contract sales price.
Some appraisers, Robson said, have been using distressed properties — many of which have been neglected and are in poor physical condition — as comparables in assessing the value of brand new homes without accounting for major differences in condition and quality.
“Any prospective buyer would recognize the differences in the value between a well-kept home and a distressed property that is damaged or not properly maintained. The same should be true of an appraiser,” said Robson.
He said Congress can help resolve this issue by urging the Federal Housing Administration and Fannie Mae and Freddie Mac to adopt and enforce guidance that instructs appraisers on the proper procedures for the use of distressed and/or foreclosed properties as comparables.
Lawmakers, he said, can further help put the housing industry back on its feet by exerting their influence on regulators and the banking industry to restore lending for viable home building projects and to take meaningful steps to avoid unnecessary foreclosures on outstanding loans.
“This would provide relief for a major sector of the economy that has suffered because of regulatory overkill and the inability of banks to provide the necessary funding and flexibility that would otherwise keep loans performing as scheduled,” he said.
To further promote energy efficiency in new-home construction, Robson called on Congress to make permanent and enhance the new energy-efficient home tax credit, which is due to expire at the end of this year. Section 45L of the Internal Revenue Code provides a $2,000 tax credit to a home builder who constructs a qualified new energy-efficient home that is certified to achieve a 50% reduction in energy usage.
“As the only incentive in the tax code for energy efficiency in single-family home construction, this program will help to ensure that new homes built today and going forward are highly energy-efficient,” said Robson. “We strongly urge the Congress to make the 45L credit permanent and increase the credit amount to $5,000 to pay for a bigger percentage of the higher building costs that are incurred when making a home 50% more energy-efficient.
Revive Housing, Restore America
Through its “Revive Housing, Restore America” campaign, NAHB is continuing to urge lawmakers to address housing priorities.
To participate in this ongoing grassroots effort, builder constituents should visit www.nahb.org/ReviveHousingNow. This one-stop site contains information on calling and e-mailing members of Congress, as well as talking points, banners for Web pages, print ads, op-ed letters that can be sent to local newspapers, and more.
To generate public interest in the campaign, NAHB’s consumer-focused Web site at www.ReviveHousingNow.com asks potential buyers to contact their lawmakers and urge them to extend the home buyer tax credit.