New Home Sales Fall 3.6% in September, 2009, Due To Expiration Of Tax Credit

The U. S. Census Bureau announced today that sales of new one-family homes fell by 3.6% in September 2009 over the previous month to 402,000 units. Units sales in July were revised down to 417,000 from 429,000 units as originally reported.

Regionally, results were mixed, with the West down 1.0%, the South down 23.6%, the Midwest up 12.7%, and the Northeast up 68.0%.

The inventory of homes for sale expressed in months of supply remained at 7.5 months. This was 10.9 months a year ago and peaked at 12.4 months in January 2009. Many real estate professionals consider 6-to-7 months of supply a “Normal” market.

The drop in sales appears is almost completely at the lower end of the market. In looking at the raw, unadjusted figures, home sales fell about 16.2%. Home sales under $150,000 fell by 4,000 homes, or a 56% drop from August, but all other price points taken  together fell only 2,000 homes, about a 7% decline. 

After adding the seasonal adjustment factor of 12.6% back in to get a crude, seasonally-adjusted comparison, that means that on a seasonally adjusted basis, home sales under $150,000 fell about 43.4%, while all other price points taken together rose 5.6%.

So what happened?

You probably already know what happened: the First Time Home Buyer Tax Credit is expiring on November 30, 2009, and buyers have run out of time to buy a home and still close by the end of November.

And compatible with an abrupt drop in the number of lower-priced homes sold, the average home price in September shot up 10.2% to $282,600. We have been saying for some time now that one of the reasons why average home prices were falling was that more smaller homes were being sold to first timers. Now this proves the flip side of that argument.

President Obama Wants Tax Credit Extension

What will it take to get new home sales moving again? President Obama and the congress are reportedly close to a compromise bill to extend and expand the home buyer Tax Credit.

How effective the extension will be is open to question due to its short time  horizon and confusing set of terms, conditions, and restrictions. Most likely, it will help sell some existing homes, and some builders’ spec inventory homes, but few new starts due to its short deadlines.

To view: http://www.census

Isakson And Dodd Reach Compromise on $8,000 Tax Credit

According to a blog published by Atlanta Journal-Constitution writer, Jim Galloway, Senator Johnny Isakson (R-Georgia) is giving up on the idea of increasing the Home Buyer Tax Credit to $15,000.

In return, he and his co-sponsor, Senator Chris Dodd (D-Connecticut) have reached a compromise, whereby Dodd is supporting expanding the tax credit by dropping the first-time home buyer restriction and increasing income limits to $150,000 for an individual and $300,000 for a family. The extension is proposed to run through June 30, 2010.

A link to the blog appears below: http://blogs.ajc.com/political-insider-jim-galloway/2009/10/20/johnny-isakson-strikes-a-compromise-on-tax-credit-for-home-buyers/ 

We favor increasing the  tax credit to $15,000 because it will have more impact on the move up home buyer. As it is written, a home buyer can get a credit equal to 10% of the home price, up to a maximum of $8,000. This means that they could get an $8,000 tax credit on an $80,000 home, which is 10% of the purchase price. 

The tax credit would also be $8,000 on a $400,000 home. but on the larger home, the credit only amounts to 2% of the purchase price. Is this enough of an incentive to get someone to jump?

We also think that the costs of the programs are overstated because, as the National Association of Home Builders (NAHB) has pointed out, the multiplier effects are so large that extending the program actually brings in a lot more state and federal tax revenues, enough to pay for about 75% of the cost!

Also, we are very concerned with the June 30th termination date. That is only a 7-month extension. Since it typically takes 8-to-9 months from date of contract to date of completion to build a new, custom home, this means that the tax credit would almost completely exclude presale custom homes built for a specific customer, applying only to existing homes and completed builder spec homes almost by default.

While this does give some limited benefit to some limited group of people, it is far from a slam dunk for housing recovery, economic recovery, and job recovery. This is not only unfair to home buyers, but also to home builders.

In summary, we think the tax law should encourage building new presold custom homes because that is where all the job creation is.

Do you think the Tax Credit should be extended? Take our poll: https://regisskeehan.wordpress.com/2009/10/11/do-you-favor-extending-the-home-buyer-tax-credit/

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

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.