Housing industry wants a big government bailout

Posted by: Prashant Gopal on November 24, 2008

Bailouts are in fashion. The financial industry got one. The automakers have their hands out. Now the National Association of Home Builders and the National Association of Realtors are pushing their own multi-billion-dollar stimulus proposals.

The proposals are designed to get buyers off the fence and rejuvenate the flagging home sale market. The more expensive proposal comes from the home builders who want a $250 billion Fix Housing First package, which calls for a home buyer tax credit of 10% of the purchase price (up to $22,000) and a heavy subsidy from the federal government that would bring 30-year mortgage rates down to 3% for homes bought in the first half of next year and 4% for purchases in the second half, according to The Wall Street Journal.

The Realtor plan sounds is somewhat modest by comparison. The group also wants taxpayers to subsidize mortgages to bring down rates by about 2% — at a cost to taxpayers of about $100 billion. And it wants the homeowner tax credit approved by congress this year to be changed so that the $7,500 credit can be given to all buyers, not just first-time buyers and that it no longer would have to be paid back. That part of the plan would cost another $40 billion, the group’s chief economist Lawrence Yun told me today, adding that he thought the builder plan was too expensive.

Finally, the Realtors want the higher limits for federally-backed jumbo loans of up to $729,000 to be permanently extended (They’re set to expire next year).

The lower mortgage rates should last about one calendar year, he said. “There should be some type of window where it closes,” Yun said. “The main purpose is to get fence sitters off and bring them into the marketplace.”

The real estate industry, which had a spectacular run earlier this decade, has reason to worry, especially as problems in the real estate sector spread to the larger economy. Buyers are more reluctant than ever to get into a falling housing market.

The National Association of Realtors said Nov. 24 that the median home price dropped 11.3% from October 2007, the largest annual drop since the group started tracking prices in 1968. Builders say that new-home buyers are backing out of contracts at an alarming rate. In October, the ratio of cancellations to sales was 42.6%. It was up from 34.8% in September, the month that Lehman Brothers failed.

What would be your advice to Obama? Are these stimulus proposals worth it?

Reader Comments

tom lanava

November 24, 2008 6:14 PM

Are you crazy. I thought subprime mortgage rates is what got us in trouble in the first place. Sounds like a liberal give away program to benefit builders and agents at taxpayer expense. This program may stimulate another round of failures and bailouts. Stop thinking you can buy a house on leverage.If you can't afford it, save until you can.

johninmontana

November 24, 2008 6:40 PM

Totally insane!

Cindy

November 24, 2008 7:37 PM

It's odd that everyone thinks the bailout is a "liberal" thing. The corporations holding their greedy hands out typically align themselves with "conservatives" and their "business-friendly" agenda. These same corporations donate millions annually to our elected officials, mostly to Republicans though it didn't take but a minute for them to start courting Obama once he won the election. Party stuff aside--I don't care for either one frankly--these corporations CREATED the housing bubble and in some cases with criminal activity such as mortgage fraud. They do not deserve a handout. Some of these companies should be allowed to fail, and some of their CEO's should be going to jail. It's obscene that they made money from deception, greed, and at times fraud, and now want tax payers to foot the bill now that they have ran their industry and the economy into the ground. NONE of these bad loans could've passed if the industry had not approved them. And builders were right there making bad loans too thru the likes of affiliated lenders and in-house mortgage companies. These industries were telling people real estate only goes up and now's a great time to buy, and pushing toxic loans. They have to bear the consequences of their actions, just as these traditionally "conservative" industries have told consumers they must do, when they blame it all on home buyers.

Mithu

November 24, 2008 8:21 PM

I don't understand why that was labeled a "liberal" benefit program? All these bailouts were lobbied for by business and approved by Republicans.

Rocky

November 24, 2008 8:22 PM

I agree with Tom.

PA American

November 24, 2008 8:54 PM

Disgusting! It seems that these bunch of losers and retards who are the participants of the current economic disaster want to perpetuate it in order to make themself rich again. How greedy!

rons

November 24, 2008 10:47 PM

America america, atleast now stop thinking that you can prosper by flipping homes and showering the rest of the world with your worthless dollars...
Ask these questions..
what is the value of a house? $xxxx
what is the value of $ ? whatever it can buy ...
who makes this whatever ? outside of houses its the chinese the japanese and the saudi's
Are they dumb? till now yes
Will they continue to be?Saudis yes, japanese maybe but chinese ??
As markets get created around the world rest of the world will start to demand goods and services for the dollars they have, if you print more now, you will work harder tommorow, its not bernanke or paulson or obama who is going to work, but your kids.
Ever heard of the term bonded labour? its when parents borrow huge amounts and finally end up sending their kids to work for the lender, often for food.

Harry Liesenfelt

November 25, 2008 5:10 AM

A stimulas is necessary and over due. Simply look at the building related businesses and cosider the impact of a long term stopage. Failure to act and prevent the Forclosure run is one of the elements which got us here. It was a far better idea to keep people in their homes.
The real crises reaching into unpaid property Taxes, lost jobs with no alternate imployment possibility and the colapse of the home bulding industry as well as associated industries is just around the corner. It seems that regulaters have lost the ability to look ahead and act proactivly.

BusyMom

November 25, 2008 12:32 PM

This isn't subprime. No one said that they will be giving loans to stated income or no job verification buyers and the interest rates proposed are adjustable. This isn't the same as what created the bubble, it is true stimulus.
Buyers will have to qualify with good credit and job verification. This just helps those people who have had their equity, savings and investments wiped out due to this economic crisis. This helps them regain some money for downpayment. This interest rate isn't adjustable so therefore would provide stability over the long term.

My only criticism is that the NAHB and NAR need to get together on the same plan. Offering competing plans only confuses our already disfunctional Congress. The NAHB plan is the way to go. This would help resale homes and new homes. It is a stable plan and would help clear out excess inventory all around. They also need to reinstate the seller assisted downpayments. They can put regulations on it so that it isn't abused but it costs taxpayers nothing and helps sellers that have equity to offer sell their homes and get them off the market. I just hope that no one waits until after Obama takes office. That is still 60 days away and people need help now.

pat donnelly

November 25, 2008 8:51 PM

Even though it smacks of another bailout, the housing mkt is in free fall and its reinforcing. We need to break the cycle by getting buyers off the fence. The sooner we can soak up the foreclosures with real buyers, the better. That benefits eveyone. we did the saqme tghing in 1975. tax credit and under mkt mtg rates. we need the same thing here. wouldnt worry about creating another bubble, this one burst. Ww are now swinging too much to the downside, just as we did too much to the upside. Lets kill this beast.

Snoz

November 26, 2008 12:10 PM

We thank UncleSam and the Federal Reserve (FR) for their generous early holiday gift of trillion dollars to banks, insurance company, and real estate investors who are stuck with toxic mortgages and other "investment grade" speculation papers. By bailing out these unfortunate souls, UncleSam and FR directly support the over-bid housing bubble prices. Because the green-back is not tie to a gold standard, the consequence of printing trillions of green-back will be hyperinflation for years to come. The biggest losers will be the patriotic old folks who worked all through their lives believing in the hard-work ethics and who saved their precious little penny. Like the inflated Deutsche Marks of the 1920s, their enormous savings of green-backs will buy only a loaf of bread. The bottom line is that UncleSam has collaborated with the wealthy corporate class and robbed the working stiffs to reimburse the equestrian class whose unbridle greed caused this financial meltdown. The idea that UncleSam was always a traitor to the patriotic working people is a repugnant concept. For years, UncleSam has waved flags, rattled off patriotic slogans and songs to conceal his hidden agenda: tax the middle class working stiff for the benefit of the rich and let the proletariat have the privilege of dying for his country. This form of social order was labeled as American capitalism or sold as patriotism. Little does the average American know that the US Constitution does not authorize the current form of American government. Under President Wilson's watch, UncleSam had abdicated his duty to safeguard the nation's money supply to the Federal Reserve whose membership consists of several private wealthy bankers. The Federal Reserve is a private banking firm, deceptively naming itself as if it is affiliated with the Federal government when in fact the Federal Reserve has nothing to do with the Federal government of the US Constitution. There is truth when some people say the Bankers are robbing you blind.

Kim

December 8, 2008 2:08 PM

For those that oppose the idea of creating a new stimulus to the housing sector, keep in mind this sector is what caused the economy problems in the first place and is the same sector that could pull us out of it. There are plenty of buyers wanting to buy but fearful they will lose their hard earned money if they do. Low interest rate loans while a temporary fix would allow many current renters to afford to buy. It would allow many homeowners ready to lose their homes today to refinance to a stable fixed rate loan rather than the adjustable one that got them in trouble. Each of these moves would help to eat up an overabundant supply. A balanced housing market is about a balance in supply and demand. Right now there is too much supply and fear is the largest factor creating lower demand. To make matters worse, the banks holding the bad mortgages have too much work for their manpower. This slows down throughput. We need a plan put in place to create a balance. For too many years we were out of balance in the other direction and it was only a matter of time before we crashed. Now we are too far out of balance in the wrong direction which will inevitably cause us probably one of the greatest depressions this nation has ever seen if we cannot recover to a balance zone again soon. The way I see it...this is not about the greed that once consumed the market, it is about the pure fear that does now.

Mark

December 14, 2008 2:18 PM

This is another bad idea that will cause more harm and create another bubble that this industry will want taxpayers to pay for.

We have got to stop subsidizing housing. Subsidizing it locks us into a pattern where we have to continully subsidize it to prop-up the previous subsidy. It's expensive and not necessary.

There are plenty of people that will buy houses...provided they are affordable.

Providing low interest rates is the wrong medicine and sets the stage for another bailout 3-5 years down the road. The reason is that people will be qualifying and buying homes based on these "subsidized" 3% interest rates. Homebuyers will will be able to buy twice the house that they would if they were paying the market interest rate.

But a couple of years later, once this subsidy is over with, who are they going to be sellng their home to?

When this subsidy is over with mortgage rates return to thier normal level, reducing the purchasing power of potential buyers. An expansion of purchasing power, followed by a return to normal purchasing power is a repeat of what occured during 2003-07. A return to normal purchasing power is why home price have been falling.

Another reason this won't work, is I doubt people are going to go for it.

During the boom years, the price of the house becasue irrelevent to many buyers. People were buying payments. The prevailing sentiment was, get as much house a lender will loan you cause housing prices are going to continue to go up.

Today, people have seen what negative leverage can do to you. Today, the price matters more than the payments. This is an important difference between the home buyer of 2003-05 and today's buyer.

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About

BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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