US Banker | November, 2009
The fragile housing market is very close to getting another shot in arm this week. The U.S. Senate approved the extension and expansion of the Homebuyers Tax Credit last night, and the House is expected to do the same later this week. Sen. Chris Dodd (D-Conn. and Johnny Isakson (R-Ga.) last week hammered out a compromise that allows existing homeowners who have lived in a home for more than five years to participate; the existing program only covers first-time buyers. The credit will run from December 1, 2009 to April 30, 2010, but those with contracts as of the expiration date will still qualify as long as they close their deals within 60 days. According to Dodd’s office, the extended credit will be available to more than 70 percent of existing homeowners.
The agreement was announced during a week of mixed news. New home sales declined to a seasonally adjusted annual rate of 402,000 units in September, off 3.6 percent from August and 7.8 percent from September 2008. The S&P/Case-Shiller 10-City and 20—City Home Prices Indices continued to decline in August on a year-over-year basis (down 10.6 percent and 11.3 percent, respectively), but at a reduced rate. Meanwhile, the Fiserv/Case-Shiller Home Price Index forecasts an 11 percent decline in prices for the 12-month period ending June 30, 2010 (prices fell 14 percent in the 12 months ended June 30).
David Stiff, chief economist at Fiserv, believes prices will begin to recover in the late summer of 2010. “The market hasn’t worked through all the foreclosures, and the job market is still going to be horrible through the middle of next year,” he says. Stiff expects excess housing supply to persist well into next year.
“The tax credit provides a little bit of a bridge until the job market improves,” he notes. But the support will not translate into very much additional buying. “It’s shifting demand around, moving forward sales that would have been made one or two years later,” says Stiff.
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