Commentary on Stimulating the Housing Market - We Need More Properly Structured Incentives!

D*mmit.  I hate it when someone writes a piece on a topic I wanted to address, AND does it better than I could have.  That exact circumstance occurred in today's Commentary section of the Richmond Times-Dispatch, in a piece titled "More Must Be Done to Revive Homebuilding" by Russ Parker, the past president of Parker & Orleans Homebuilders and the past president of the Home Builders Association of Richmond.

Now, personally, I think the title of the piece would more accurately have been "More Must Be Done to Revive HOME BUYING," both because that seems to me the focus of his suggestions and also the real crux of the issue with the economic meltdown.  I personally don't think we should be encouraging any more new home construction until such time as a good chunk of the existing inventory is under contract and/or sold.  [Sorry, Mr. Parker.  It might make you feel better to know that my Dad, a general contractor, will probably want to K-I-L-L me for that opinion!].  But I do absolutely agree with his two incentive suggestions:

1. A $15,000 tax credit for the purchase of a home this year, regardless of income level or previous home ownership; and
2. Fixing the interest rate at 4% for any home purchase.

Both of these incentives would be time-limited and capped at a total dollar amount, to incent buying NOW.

You can read Mr. Parker's piece for yourself, he succinctly sets out the reasons the current home buying and anti-foreclosure incentives aren't enough.  First, the first-time $8,000 home buyer tax credit is stimulating a segment of the home sales market that's already seen good increases in activity.  Second, it will take some time for that "flow through" from the first-time home buyer sales to work its way through other market segments of higher priced properties.  And third, saving homeowners in danger of foreclosure, while perhaps a morally correct thing to do, doesn't do anything to stimulate sales.

But read Mr. Parker's piece for yourself.  He said it better than I can.  D*mmit.

Comments

[Jonathan Mallard]

MLS:

There's no 'aha' moment intended. The crux of the link (yes, I intended this link) is in response to these two paragraphs in Mr. Parker's essay:

"We are seeing people who have sold their homes and stepped to the sidelines -- living with relatives, for instance, instead of buying a home -- as they wait for housing prices to move lower.

In summary, the tax credit does not hit the larger target market and there are concerns that it will not have the intended timely impact that the market so desperately needs."

Posner states:

Whether the banks will lend much more if they have more cash is uncertain, because in a depression (... we're in a depression, not a mere recession), demand for loans falls. People want to save, not borrow."

[Melissa Loughridge Savenko]

Jonathan:

Forgive me, but you seem to feel like there is some "aha!" moment in your comments. Yes, in some respects, I have a vested interst in a tax credit program that would incent anyone to buy a new home. Theoretically, I, as a real estate agent, might get more listings and more sales than I otherwise would in the absence of such a program. HOWEVER, it has always been my intent on this blog to comment on broader social issues from the dual perspective as a professional only lately come to real estate, and as an individual with my own opinions. I believe equalizing the supply and demand of existing housing stock would be good for the broader based economy.

Also, perhaps the link to the Posner blog you attached wasn't the one you intended. I don't see the relevance of your link, which dealt with the CMBS problem and the finance side of the "mortgage meltdown," to my blog post, which was intended to focus on the boots-on-the-ground approach of getting more houses sold sooner. No TARP funds and market buy-backs of "toxic" assets from banks - just good ole tax-based incentives in the hands of the American people, with the intent to equalize the supply and demand of houses out there in the real world, not just in slices on bank balance sheets.

I happen to be a big fan of Posner and the Chicago school, myself. But there are people in stable jobs [education, healthcare, age-related services, to name a few] that are out there buying houses TODAY. I'd like to see fewer corporate bailouts and more incentives designed to encourage the types of INDIVIDUAL behavior that would be good for the broad-based economy.

As always, thanks for taking the time to comment. MLS

[Jonathan Mallard]

To state the obvious, I think that both you and Mr. Parker have a vested interest in the housing market. I think that Judge Posner has it right, and would add that without more folks comfortable with their jobs, the housing industry will continue to struggle.

http://www.becker-posner-blog.com/archives/2009/03/the_governments.html

[John]

While saving homeowners facing foreclosure doesn't stimulate sales, strictly speaking, it *does" have the effect of removing those distressed foreclosure sales from the market, thereby helping to stabilize - and, ideally, raise - the price (and value) of existing homes.