A Letter To Senator Johnny Isakson

Senator Johnny Isakson, Georgia

One of my personal heroes in the national economic recovery and the associated housing recovery is Georgia Senator Johnny Isakson.

His early proposal for a $15,000 Home Buyer Tax Credit last February as a part of the original economic stimulus plan was right on target. In fact, I believe that, had Senator Isakson’s proposal become law, the housing recovery would be a lot further along than it currently is.

The half measure that eventually passed, the $8,000 First-Time Home Buyer Tax Credit,  restricted only to first-time home Buyers, helped a little. But only a small sliver of the market.

And now, Senator Isakson is pressing again for a variation of his original proposal: a $15,000 Home Buyer Tax Credit that applies to almost everyone. (You can read the fine print on his website: http://isakson.senate.gov/)

However, his new proposal has one major flaw: He only proposes extending the program to June 30, 2010. The problem with this is that it typically takes 8-to-9 months from the date of contract to the date of completion to build a new single-family home. That means that almost nobody who wants to build a new home will qualify for the extended program. All the benefits will go to buyers of existing homes and builder spec homes.

And yet, new housing starts are one of the biggest drivers of new jobs. So anyway, I wrote my hero a letter explaining this problem. and here it is:

Dear Senator Isakson,

While I am not a resident of your state, I am a big fan of yours.

I am a small, custom homebuilder in Greensboro, NC. Your original $15,000 Tax Credit proposal for all home buyers last February was right on target, even brilliant!

If it had been enacted instead of the compromise, $8,000 first-time home buyer program, the housing industry would be a lot further along the road to recovery than it is today.

The reason for my writing is to alert you to a potential major flaw in your current proposal to extend the credit to June 30, 2010. (Please note that I bear you no disrespect. Quite the opposite – I want to help you avoid a potential major mistake by speaking candidly.)

Here is the flaw: Extending the program to June 30, 2010 as you suggest does not allow enough time for a prospective home buyer to buy a new home to be built. It typically takes 8-9 months from date of contract to date of completion to build a new home.

That means that if the tax credit were only extended to June, then virtually no new pre-sold or custom homes would qualify. And the tax credit would end up only applying to existing homes and completed builder spec inventory.

Many of the families currently stuck in move-up housing that you addressed in your recent statement on the Senate floor would be likely participants in new, upscale or custom homes. It would hurt those families to be excluded from the benefit of the tax credit, and, it would limit the impact on new housing starts, which is a major driver of new jobs.

I urge you to please reconsider the proposed extension date to allow one year to November or December 2010 in order to give people time to buy and build a new home. Such an extension would give them until April 2010 to buy their home and still get it completed in time.

Thank you again for speaking out on this important subject.

Respectfully yours,

Regis T. Skeehan
Managing Member
Piedmont Personal Builders, LLC

NAHB/ Wells Fargo Housing Market Index Falls To 18

The National Association of Home Builders (NAHB) released the NAHB/ Wells Fargo Housing Market Index for October, 2009 today. The index fell 1 point  to 18. (A score over 50 indicates that more than half of the builders surveyed view sales conditions as being good rather than poor. The lowest rating ever, and 8, was reached in January of this year.)

“It comes as no surprise that after trending upward from an historic low in

Joe Robson NAHB Chairman

January, the HMI’s positive momentum now appears to have stalled,” said Joe Robson, chairman of the NAHB and a home builder from Tulsa, Okla. “Our economists have repeatedly warned that the approaching expiration of the $8,000 home buyer tax credit on Nov. 30, combined with the massive hurdles that builders face in obtaining construction financing and appropriate appraisals on new homes, could derail the fragile recovery in housing just as it is starting to take shape.”

“Congressional action to expand the tax credit and extend it for one year would provide a critically needed boost to the employment market and economy, generating nearly 350,000 jobs, $28.2 billion in wages, salaries and business income and $11.6 billion in additional tax revenues. That’s an opportunity we can’t afford to pass up at this difficult time.”

 “This is the first time since November of 2008 that all three component indexes of the HMI have declined,” noted  class=”hiddenSpellError” pre=”noted “>NAHB Chief Economist David Crowe. “Clearly, builders are experiencing the effects of the expiring tax credit on their sales activity, since it would be virtually impossible at this point to complete a new home sale in time to take advantage of that buyer incentive before Nov. 30.”

 On the flip side of the coin, Crowe noted that immediate congressional action to extend the tax credit and expand its eligibility beyond first-time buyers could substantially boost sales activity. “In a special questions section of our HMI survey, 85 percent of respondents said that expansion of the tax credit would have a positive impact on their sales,” he said. “That would amount to a very effective stimulus to housing demand and a needed boost to the overall economy.”

Gerald M. Howard, NAHB Chairman

Gerald M. Howard, NAHB President and CEO appeared on Bloomberg TV today and answered questions about the decline in the HMI. According to Howard, “The chances for a double-dip recession increase if the Home Buyer Tax Credit is not extended and expanded to cover all home buyers.”

Previous observers have pointed out that a housing recovery preceded the end of all previous recessions. Since this recession was caused by a collapse in housing, the economy is unlikely to recover without a recovery in housing.

Isakson-Dodd Proposal Extends Home Buyer Tax Credit, Includes All Buyers With Only One Tiny Flaw

Senator Johnny Isakson

In a statement delivered on the Senate floor on Tuesday, October 13, 2009, United States Senator Johnny Isakson (R-Georgia) elaborated on his proposal, jointly sponsored with Senator Chris Dodd (D-Connecticut), to extend and expand the soon-to-expire Home Buyer Tax Credit. See full remarks: http://isakson.senate.gov/floor/2009/101309hbtc.htm

The Senator proposes extending the tax credit through June 30, 2010, eliminating the first-time buyer restriction, and increasing the income limits to $150,000 for an individual and $300,000 for a family, all before the current law expires on November 30, 2009.

He specifically addresses his concerns on the impact of housing demand on foreclosures: “Houses continue to decline in their value because the market demand is down. The foreclosures we see today are not subprime loans; they were the loans that were foreclosed on a year or a year and a half ago. When we read the addresses of these 1,157, which I won’t do, they are the addresses of mainstream America and the mortgages that are being foreclosed on are what are called conventional loans that were made to people who had jobs, had income sufficient to make the payments, and had downpayments of 5, 10, or 20 percent.”

He linked housing demand and the foreclosure rate: “The first-time home buyer tax credit is about to expire. What does that have to do with this foreclosure problem we have and the problem of declining values of houses and shrinking equities for the American people? It has everything to do with it. We have a great demonstration project in the first-time home buyer tax credit that shows this Congress the way to continue and get a recovery in our housing market. In the time the first-time home buyer tax credit has been in effect, it is estimated that 350,000 home sales were made. That is 357,000 sales that would not have taken place.”

And he specifically addressed the termination date of the current law: “So I would submit that when we look at the sunset date of November 30 on the first-time home buyer tax credit, we should extend it–not forever but through midyear next year, to the end of June 2010. There is a reason for that recommendation. The worst 3 months of the year in any housing market anywhere in the United States are December, January, and February because it is winter and because it is the holidays. So there is not much of a market to begin with in those 3 months. If this tax credit dies in November and then it dies the day before the declining market takes place, by the time the spring market comes back in March and April, it is too late and we will have a protracted period of even poorer sales than we have had recently. But if we pass and extend the credit through June 30 of next year, we continue to buoy the housing market around the country.”

He continued, tying the current recession to the collapse of the housing market: “It is very important that we stimulate and continue the existing stimulation of the housing market. The recession that began in December of 2007 began with a collapse of housing, first because of the subprime mortgage failures, but it continues to today, a continuing collapse, and the failures aren’t subprime, high-risk credits, they are mainstream America. There is a point in time when we owe it to our country, we owe it to our economy, we owe it to mainstream America, where we know we have a proven program that works, to extend it and buoy the marketplace.”

He ended his statement with a plea: “So I come to the floor today to ask everybody in the Senate to think about what is happening. Six weeks from now, the tax credit sunsets. When it fails, the market again will have downward depression on values, on sales, and most importantly on consumer confidence. Let’s try to slow down the rate of foreclosure. Let’s help Middle America, which right now faces difficult times. Let’s take them out of the newspaper and let’s take them back into a buoyant economy that has jobs, has growth, and has promise for the future.”

In summary, he added: “I submit that an extension of the first-time home buyer credit by removing the means test, raising the income limitation, and extending it to midyear is good for America, makes good sense for this Senate, and I hope we will find the time before the current bill sunsets to pass it and do it for America.”

We agree almost completely with the Senator, except for one, tiny but important flaw. The only criticism we would have is that the law should be extended for one year, to November 30th, 2010, instead of just to June 30th.

Senator Chris Dodd

The reason for this is that otherwise, the new law would only apply to existing homes and standing builder spec home inventory.

Anyone wanting to build a new home under the plan would be excluded because in most parts of the country, except for the

 smallest homes, it typically takes 8-to-9 months from the date of signing a purchase agreement to complete the new home.

It doesn’t make sense to exclude this important sector of buyers, many of whom would participate in the move-up, custom home sector.

Home Loan Purchase Applications Fall 5.0% In Week Ending October 9, 2009

The Mortgage Bankers Association (MBA) today released its survey for the week ending October 9, 2009. The average 30-year mortgage during the week was 5.02%, which was up 0.13% from the 4.89% reported one week earlier. These rates are still near historical lows.

Seasonally adjusted refinance applications fell 0.1%, and purchase applications fell 5.0% from the prior week according to the survey. The four-week moving averages were up 1.6% for purchase applications and 8.0% for refinancing applications.

The decline in weekly results compares to the 13.2% increase in loan applications for home purchases the prior week. We have expected to see the beginning of the end of the burst of first-time home buyer sales due to the tax credit. Every time we see a decline in applications, we think this might be it. However, there is a lot of “Noise” in the weekly data. The 4-week moving average is probably a more reliable, although less timely, reflection of loan demand due to home sales.

Of course, we don’t want to sound like a broken record on the topic, but we still favor extending the tax credit and expanding the program to cover all homebuyers regardless of income and whether they previously owned a home. (The tax credit is one piece of the stimulus program that actually worked, even with its limited focus on a small segment of the market.) However, even if legislation extending and expanding the program passed today, it would take several months for buyers to get organized and make a home purchase. Without extension of the tax credit, progress on home sales will probably stall.

Almost everybody agrees that the economy won’t fully recover until the housing crisis is over. Home sales and prices are already starting to rise according to recent reports. But the recovery in housing-related employment, which is a big piece of total employment, has not yet arrived. Looks like we are heading for 10%+ unemployment for sure. Fixing housing is a quick way to reverse this trend.

Many industry organizations such as the National Association Of Realtors and the National association Of Homebuilders are pushing the idea of “Fix Housing First!”

If you  haven’t contacted the government and your elected officials yet, we’ve provided links in our recent post “Fix Housing first” on this site to make it easy for you: https://regisskeehan.wordpress.com/2009/10/05/how-to-fix-housing-first/

 Why not remind your elected public officials that the government helped generate the conditions that created the housing crisis, and you expect them to help fix it?

Do You Favor Extending The Home Buyer Tax Credit? (Poll)

Want to Make A Quick $8,000 To $15,000 Tax Free?

If you are considering buying a home, we have got a way you can make a quick $8,000 to $15,000 tax free. (Really! This is not a scam!)

Just follow these simple steps:

1. Write to the Obama Administration and your elected officials in Congress. (See links on this site to make this task easy for you: /2009/10/05/how-to-fix-housing-first/ .

2. Tell them you support extending the Homebuyer tax credit for an additional year. However, tell them that you favor expanding the credit to cover all buyers of homes, not just first-time home buyers. And, further, let them know that you support increasing the maximum credit to $15,000 to incentivize move-up buyers too. That way, they can free up the entire housing market and create thousands of new jobs for your fellow Americans.

Remind them that the economy cannot recover without a housing industry recovery. Everybody already knows that, but it is always good to remind them anyway. (They are busy and they sometimes forget.)

3. Go out and buy a new home. If you already own a home, this program will help you sell your existing residence.

4. Cash your tax refund check. (We recommend smiling while you execute this step. Many home buyers also like to do a little dance step at this point, but this is completely optional.)

5. Celebrate!

White House Positive On Home Tax Credit

Good news!

According to a National Association Of Home Builders press release, a recent White House statement on the home buyer tax credit
is encouraging to home builders and prospective home buyers who believe the valuable incentive should be extended beyond its November 30, 2009 expiration date.

On October 5, 2009, according to the release, White House Press Secretary Robert Gibbs acknowledged that “there has been quite a bit of success” with the $8,000 tax credit, and added that President Obama is considering extending it to help strengthen the economy and create jobs.

The NAHB commended the White House for this statement, and reinforced its desire to work with the Administration to extend the tax credit’s effective date for another year. In an NAHB press release issued on October 6, 2009, they noted the association’s estimate that approximately 200,000 additional home sales are attributable to the tax credit so far, and that it has resulted in a net increase of 187,000 jobs.

Extending the tax credit through November 30 of next year and making it available to all 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 the NAHB.

Almost everybody agrees that the economy won’t recover until the housing market heals. We have long believed that the Home Buyer Tax Credit is one of the most effective ways to stimulate the economy by fixing the housing market and increasing employment.

We were disappointed that congress only included a half measure of housing assistance in the original Recovery Act by restricting the tax credit to first-time home buyers. (They didn’t restrict “Cash For Clunkers” to first-car buyers, did they?) Hopefully, they will correct their mistake by extending the credit, expanding it to cover all home buyers, and increasing the maximum credit to $15,000 to entice move-up buyers.

But home buying decisions don’t turn on a dime. It takes a while for buyers to gear up again. Accordingly, Congress should enact the extension quickly to avoid losing momentum when the tax credit expires.

Now that would really kick the recovery into high gear.

And, finally, I hate to sound like a broken record, but have you told the President and your elected officials yet that you support the idea of extending and expanding the credit?

See our post titled /2009/10/05/how-to-fix-housing-first/ . It has quick links to help you voice your opinion.

Home Loan Purchase Applications Up 13.2% From Prior Week; 4-Week Moving Average Up 0.2%

The Mortgage Bankers Association (MBA) today released its survey for the week ending October 2, 2009. The average 30-year mortgage during the week was 4.89%, which was down 0.05% from the 4.94% reported one week earlier. These rates are astoundingly low; and at some point they should begin to have a beneficial effect on home sales.

Seasonally adjusted refinance applications rose 18.2%, and purchase applications increased 13.2% from the prior week according to the survey. The four-week moving average was up 0.2% for purchase applications and 6.7% for refinancing applications.

The improvement in weekly results is in sharp contrast to the 6.2% decline in loan applications for home purchases the prior week. We had speculated last week that new and existing (Pending) home sales may have fallen in September, thinking that we were seeing the beginning of the end of the burst of first-time home buyer sales due to the tax credit.

Now, we’re not sure what to think. Perhaps the 6.2% prior week decline was just “Noise” in the data.

According to the grapevine, the tax credit has had little or no effect yet on move-up housing. Although we hear that homes in the high $200s and low $300s are starting to see some improvement in demand. But it will take many months before the demand can creep up the price scale. And with the tax credit ending soon, most observers think there will be a decline in sales and closings in December similar to the fall in auto sales after “Cash For Clunkers.”

We still favor extending the tax credit and expanding the program to cover all homebuyers regardless of income and whether they previously owned a home. (The tax credit is one piece of the stimulus program that actually worked, even with its limited focus on a small segment of the market.) However, even if legislation extending and expanding the program passed today, it would take several months for buyers to get cranked up. A fall off in December is looking increasingly likely.

Almost everybody agrees that the economy won’t fully recover until the housing crisis is over. Prices on homes are already starting to rise according to recent reports, increasing household wealth and confidence. But the recovery in housing-related employment, which is a big piece of total employment, has not yet arrived.

Many industry organizations such as the National Association Of Realtors and the National association Of Homebuilders are pushing the idea of “Fix Housing First!”

If you  haven’t contacted the government and your elected officials yet, we’ve provided links in our recent post “Fix Housing first” on this site to make it easy for you: https://regisskeehan.wordpress.com/2009/10/05/how-to-fix-housing-first/

 Why not let your voice be heard?