Recovery By Extension

ar125254684165608This is an audience participation post in which you are invited and encouraged to weigh-in with your opinions on one of our region’s most pressing economic issues.  But first, read on.

Counting today, there are just 30 days to go before the first time homebuyer tax credit expires.  For all intents and purposes, if you haven’t gone to contract on a home by now you probably won’t complete your purchase in time to qualify for the credit.

That’s bad news for many qualified buyers who have been in the market for months only to be frustrated at every turn by a system that refuses to budge.  Perhaps they’ve been denied financing due to an incompetent appraisal by an out-of-town appraiser.  Perhaps the appraisal was accurate, credit scores were good, but the lenders simply refuse to lend.  Or perhaps they’ve been on the buyer side of a short-sale where the seller and the lender have been locked in limbo for six months or more.   For these reasons—and because the tax credit has had such a positive impact on our market—we join Congress in its support for extending the deadline at least another six months.  There’s agreement on both sides of the aisle—and among leading economists—that a recovering housing market is the prime catalyst that will lead the rest of the economy out of the wilderness.

The tax credit has been so effective in stimulating sales and stabilizing home prices that continuing it seems like a no-brainer in light of a housing market that still exhibits contradictory signs of recovery.  Secondly, a significant new wave of foreclosures is in the pipeline that could easily undo much of the progress that has been made toward reducing inventory and firming-up prices.  One of the key benefits of the tax credit is that it ignited a firestorm of sales that has helped shore-up home prices in spite of the unprecedented number of foreclosures and short sales.

Consequently, ending the tax credit much before mid-2010 is too drastic a step for a market that has yet to stand firmly on one leg, much less wobble forth on two.  Moreover, an extension would further leapfrog Southwest Florida to the forefront of the state’s recovering housing market.  For this, kudos are due sellers who have priced right and buyers who have stepped-up in kind.

The idea of extending the tax incentive to all home buyers—and quite possibly expanding its qualifying parameters—has not only won a broad level of support among leading economists but also is generating rare bi-partisan support in Congress; with over two dozen bills seeking to keep it up and running in one form or another.

As a result, several U.S. Senators—including Banking Committee Chairman, Christopher Dodd, (Dem-Ct.) and Senator Johnny Isakson, (Rep-Ga.)—are moving to extend the credit through July 1 and apply its benefits to all home purchasers rather than just first-time homebuyers.  In addition, Isakson recommends extending and expanding the credit and increasing its household eligibility limit to $300,000.  Not only will this bring newly-qualified buyers into the market, but will also stimulate its “move-up” sector—or those people who would jump at the opportunity to upgrade on their present home while saving up to $8,000.   Let’s face it; everyone loves to save money wherever they possibly can; so regardless of a home’s purchase price, $8,000 saved is $8,000 saved.

Mark Zandi, the chief economist for MoodysEconomy.com is among the leading economists who support the extension.  “Based on simulations of the MoodysEconomy.com macro model,” he writes, “the expanded tax credit, if extended through the end of 2010, would increase 2010 sales by almost 600,000 units.  This in turn would generate $33 billion in additional real GDP, lifting growth in 2010 by almost 25 basis points.”  In addition benefits would flow to a range of industries hit especially hard by the housing crisis; including furniture, appliance and building supply retailers, property maintenance and repair businesses, real estate firms, insurance companies and mortgage lenders.

Zandi’s rationale continues.  Foreclosures, he says, are expected to rise even further next year because of rising unemployment and re-setting ARM’s, which will create an additional drag on home prices.  Extending and expanding the credit will help offset that decline; and by June 2010 there’s a chance the job market will have stabilized.

As you might expect, the National Association of Home Builders and the National Association of Realtors are also jointly urging Congress to extend and expand the tax credit.  By doing so, they noted in an ad in the Wall Street Journal, Congress can create 350,000 new jobs, inject more than $28 billion into the U.S. economy and generate $12 billion in additional tax revenue.

Will Phase II of the tax credit work as well as Phase I did?  In a study conducted by Harris Interactive, a number of prospective first time homebuyers were asked whether an extension of the $8,000 tax credit would influence their decision to buy a home next year.  18 percent called the credit the “primary influence” in their decision to buy, 25 percent said it would be a “significant influence,” and 27 percent said the credit would have “some” influence on the decision and timing of their purchase.

This is where your opinion is valued and requested.  Inasmuch as this issue is of vital importance to a region and state hit hard by the housing crisis, please add your voice to the conversation.  Whether you are for or against extending the credit, we invite you to share your thoughts with us; but more importantly encourage you to share them with your elected representatives in Washington.  Direct email links to our Senators, Congressmen and Governor are provided at the blog site.

Email links to your representatives in Washington:

Senator Bill Nelson at:  www.billnelson.senate.gov/contact/email.cfm

Senator George LeMieux at:  www.lemieux.senate.gov/public/?p=EmailSenatorLeMieux

Governor Charlie Crist at:  www.flgov.com/contact_form

Congressman Vern Buchanan at:  http://www.buchanan.house.gov/contact.shtml

(Represents Florida’s 13th Congressional District)

Congressman Connie Mack at: https://mack.house.gov/?p=Email

(Represents Florida’s 14th Congressional District)

** photo courtesy of http://fdoleac.activerain.com

  • User Gravatar Milan Adrian
    November 1st, 2009

    The $8,000.00 tax credit merely takes money from one person and gives it to another as dictated by Congress. It does nothing to create wealth. This is not the operation of a free market–it is socialism. It benefits real estate at the expense of something else.

  • User Gravatar Justin
    May 20th, 2010


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