It was fourth and goal and time was running out in the conference committee between the House and Senate on the stimulus package. The quarterback stepped back to pass but…there was no one to catch the ball.
So died the housing industry’s primary objective in the economic stimulus legislation that President Obama is signing into law today. The $15,000 tax credit for first-time home buyers had been addedto the stimulus
package by an amendment adopted unanimously by the Senate a week ago. However, its sponsor, Senator Johnny Isakson (R-GA), voted against passage of the package as a whole. Under Senate rules, only members who vote in favor of a bill can be invited to participate in the vitally important conference committee with key House members, where difference between the House and Senate versions are worked out, a process of compromises where a handful of legislators control the fate of major issues.
The $15,000 credit, a doubling of the current credit, was only in the Senate, not the House version. When time came to find ways to trim the cost of the stimulus package, which had grown to more than $900 billion, there was no one present to defend the home buyers credit, estimated to cost $33 billion. It was lowered to $8,000, just $500 more than the current credit.
At stake was an opportunity to jump start the housing markets by creating an incentive large enough to move first-time buyers back into the market. First-time buyersare critically important to residential markets because
they create a demand for existing home owners to sell their homes and move up.
According to figures supplied to members of the conference
committee by the National Association of Realtors,the $15,000 credit was potentially worth a million additional home sales a year and $62 billion to the overall economy.
A similar study by the National Association of Home Builders found that the $15,000 credit would create 500,000 additional home sales and 255,000 jobs in its first year. NAHB estimates that the additional half million
home sales will generate $12.3 billion in wages and salaries, $9.7 billion in net business income, $6.6 billion in Federal taxes, and $2.1 billion in state and local taxes.
Housing did not leave the stimulus table completely empty-handed. The Fix Housing First Coalition mounted a tremendous last minute lobbying campaign and managed to raise the tax credit from $7,500 to $8,000. The final bill included other provisions important to housing.
Frist-time Homebuyer Tax Credit—In addition to increaseing
the current credit by $500, it extends its lifeto December 31, 2009. Unlike the current credit, it will not require repayment.
FHA, Fannie Mae and Freddie Mac Loan Limits-Last year Congress raised the loan limits for FHA, Freddie Mac, and Fannie Mae loans. These limits were equal to the greater of 125 percent of the 2008 local area median
home price or $271,050 for FHA and $417,000 for Fannie and Freddie, with an overall maximum cap of $729,750. Those limits died at the end of the year and the stimulus legislation reinstates them.
Rural Housing Service-The bill gives an additional $500 million to existing USDA Rural Housing programs, including the popular guaranteed loan and direct housing loan programs. The direct loan program will receive $270 million while $230 million will be allocated for unsubsidized guaranteed loans. This level of funding would provide for an additional 192,000 homeowners seeking financing under the USDA programs.
Neighborhood Stabilization-Most of the bill’s direct housing money goes to states and cities in the form of block grants to help local governments address the problems created when neighborhoods are decimated by foreclosures. The funds can be used to purchase, manage, repair and resell foreclosed and abandoned properties. In addition, the funds can also be used by states and localities to establish financing methods for the purchase and redevelopment of foreclosed properties.
After purchase the homes must be used to assist individuals and families with incomes at or below 120 percent of area median income. Twenty-five percent of funds must be used for households with incomes at or below 50 percent of area median income.
Unlike the housing industry, automakers were delighed with the bill. While the housing tax cut was getting sliced, General Motors got last minute language that will save it $10 billion in taxes. In another conference committee maneuver, buyers of light trucks, RVs and motorcycles will be able to deduct sales taxes, at a cost of $1.7 billion. It was a “substantial legislative victory for the RV industry,” said the Recreational Vehicle Industry
Fix RVs first?