Real Estate & Mortgage Insights

Do Current Conditions Warrant More Government Intervention?

The 2008 calendar year posted some of the most dismal economic figures in decades. Led by troubles in the housing market, fiscal woes spread to the banking and lending industries and then to the stock market. Unemployment statistics made a steady climb and capital for new business and consumer purchases dried up during the year. The U.S. government quickly pumped money into the system through a series of stimulus and bailout packages, all of questionable value in helping the economy recover. Currently, the Senate is debating the newest proposed stimulus plan, already passed in the House. Here's a look at the state of the current housing market as well as the plan Congress is devising to encourage greater economic growth.

Housing Starts

The number of housing starts in the latest quarter fell by a 50-year record low percentage, with the total of all housing starts falling 33.3 percent for the year and the number of single-family housing starts dropping 40.5 percent during the same time. Most interesting is the news that the decline in housing starts from the January 2006 peak to the December 2008 low is the biggest drop in any of the housing downturns during the last half-century.

New Homes Sales

In December 2008, sales of new homes fell to their slowest monthly pace on record, with the seasonally adjusted annual rate of sales falling to 331,000 units for the month.

"What more proof do you need that the housing downturn is accelerating -- bringing the economy with it -- and that the government must take substantive action to get qualified buyers back in the market?" said Joe Robson, Chairman of the National Association of Home Builders (NAHB).

"We need a significant stimulus on the demand side, because otherwise, home sales will only continue downward," he added.

Existing Home Sales

The latest survey from the National Association of Realtors showed that pending home sales, based on contracts signed in December, were up, based on a 6.3 percent increase in the group's pending home sales index, providing some of the only upbeat news in the housing industry lately.

Still, the leaders of the NAR are calling for more government action. "Significant uncertainty still clouds the housing market despite improved affordability conditions," said Lawrence Yun, NAR chief economist. "For a sustainable housing market recovery and, hence, sustainable economic recovery, we need a significant housing stimulus and mortgage availability for qualified borrowers."

The Government Plan

So far the Congressional stimulus bill includes provisions to extend the $7,500 first-time home buyer tax credit and the some members of the Senate hope to increase that credit to $15,000 for all primary residence home purchases. And Republican senators are gaining plenty of support from the Democratic majority in order to add in a provision to temporarily bring down the interest rate on 30-year fixed rate loans down to 4 percent for buyers with good credit. That would bring down the rate by more than an entire percentage point, and according to the NAR that drop would mean an extra 500,000 home sales.

"This will help reduce inventory, which, in turn, will help to stabilize home values and begin an economic recovery," said NAR spokesperson Mary Trupo.

The Senate hopes to have concluded all revisions of the stimulus bill within the next week and bring it to a vote. Only time will tell whether the new infusion of taxpayer funds will make 2009 the year of economic recovery or recession.

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