The Housing and Economic Recovery Act of 2008: A Good Thing

NAHB economists believe more than 2 million home buyers will use the $7,500 tax credit included in the Housing and Economic Recovery Act of 2008, recently signed into law by President Bush. “That's our projection for people claiming the credit on tax returns in either 2008 or 2009,” says NAHB economist Rob Deitz. “We're just looking at our forecast for home sales and assuming 40 percent of those sales will be to first-time buyers. And that's not taking into account sales induced by the tax credit — those that would not have occurred without it.”

Now remember, most of those 2 million home sales will be in the existing home market, but the law will still have a big impact on home builders by stabilizing prices and breaking the log-jam that's caused inventories of unsold homes to spiral up all across the country.

“The key thing this will do is get inventory levels down,” Deitz says. “While getting a sale in the existing home market is not 'first best' for our industry, it's one more house off the inventory rolls. And then there's the multiplier effect that eventually on new home sales in the move-up market.

“First-time buyers don't have homes to sell. That's why they're targeted. We need them to bust out of this thing.”

Deitz also points out that the tax credit will have an impact on worldwide financial markets. “It helps by providing certainty for the revenues attributable to mortgage-backed securities,” he says, “and certainty and stability in financial markets will help both lending to builders and to home buyers. It's all connected.”

Not bad for a measure that's really only an interest-free loan rather than a traditional tax credit, because the $7,500 must be repaid to the federal government over 15 years, beginning in 2010. Still, it gets money into the hands of first-time buyers when they need it most: the year they sign on the dotted line. Housing industry management consultant Chuck Shinn takes a somewhat jaundiced view of that repayment requirement. “Don't hold your breath waiting for those repayments,” he says. “I think the tax credit will be repaid about as often as student loans to college kids.”

If the tax credit gets us out of this mess, no one will care.