Uptick of home purchases proves encouraging

THE OLYMPIAN | • Published November 02, 2009

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There is little doubt that the $8,000 federal tax credit for first-time homebuyers has help spark the nation's economic recovery.

Home sales in September jumped 9.4 percent nationally and resales were up nearly 24 percent from the bottom of the market in January. Analysts say the rebound is a sure sign that the economic recession is behind us.

The success of the tax credit program, which does not officially expire until the end of the month, has prompted calls in Congress to renew the $8,000 tax credit for another 12 months. An extension to all homebuyers — not just first-time buyers — through June of 2010 would cost an estimated $16.7 billion.

That’s a staggering amount of money, but given the impact the program has had on the housing industry — a major economic driver — the proposed extension merits serious consideration in the nation’s capital.

Even though the existing stimulus program does not expire until Nov. 30, first-time buyers who don’t have a loan application in the works are likely too late to take advantage of the existing opportunity. Many Americans made the deadline and have qualified for the tax credit.

Home purchases nationally in September showed the largest increase in 26 years. While the rebound is encouraging, it’s important to note that total sales still are down 23 percent from their peak four years ago.

Nationwide sales rose to a seasonally adjusted annual rate of 5.57 million in September. It was the strongest month in two years and beat economists’ forecast of 5.35 million. In another positive sign, the inventory of unsold homes on the market fell almost 8 percent to 3.6 million. That’s less than an eight-month supply at the current sales pace, and the lowest level since March 2007.

Still, economists caution that the pain from the worst housing bust since the Great Depression probably isn’t over yet.

Most economists believe that prices, which recently stabilized, will resume their descent. The median sales price nationally in September was $174,900, down almost 9 percent from $191,200 a year earlier, and slightly lower than August’s median of $177,300.

The main reasons prices are weak: Unemployment and foreclosures still are rising. With the 9.8 percent jobless rate expected to rise as high as 10.5 percent next year, foreclosures will continue to set records. Thus the talk of extending the tax credit program.

Today’s stimulus package tax credit allows first-time homebuyers to reduce their federal income taxes by 10 percent of the price of a home, up to a maximum of $8,000. The credit is expected to cost $12 billion to $15 billion .

Sens. Johnny Isakson, R-Ga., and Christopher Dodd, D-Conn., want to keep the momentum going and are pushing a $16.7 billion extension through June and expanding the program to all homebuyers. They seek to tie their measure to a bill extending federal assistance to the millions in danger of exhausting unemployment insurance benefits. But theirs wasn’t the only plan floated in the U.S. Senate last week.

Senate Majority Leader Harry Reid, D-Nev., and Senate Finance Committee Chairman Max Baucus, D-Mont., would extend the $8,000 tax credit for first-time buyers through March 31, then phase out the program by dropping the credit by $2,000 for each of the subsequent three quarters of 2010. That’s more frugal than the bipartisan plan that boosts the income cap for eligibility and opens the program to all buyers.

Ted Gayer, an economist at nonprofit public policy group the Brookings Institution, estimates that 2 million or more people would take advantage of a tax credit if it was extended for a full year. The National Association of Home Builders estimates the tax credit would generate an additional 383,000 home sales which would create 347,000 jobs, generate $16.1 billion in wages and $12.1 billion in business income.

It is difficult, given the fragility of the national economy, to ignore those positive financial prospects. If the recession ended in the summer as some economic advisors believe, then a further rebound of the housing industry could put the nation on firm footing toward economic recovery.

Yet to be heard from are Democrats in the House of Representatives. House Speaker Nancy Pelosi said the House will wait to see what finally emerges from the Senate. Her spokesperson said the House generally supports the notion of a homebuyer credit extension.

The devil, of course, is in the details and what President Barack Obama will accept having said that he opposes a second full stimulus package.

Every homebuyer extension proposal carries a hefty price tag. Given the impact on the federal deficit which is already at record levels, the final solution must have bipartisan support and a strong consensus among national leaders that the package absolutely is necessary to the nation’s economic rebound.