Reigniting home purchases is the best stimulus

In Michigan and elsewhere throughout the United States, our dysfunctional housing marketplace must be stabilized to see any significant reversal of our economic woes. Only a dramatic reduction in the number of unsold homes across our country will have enough impact to do so.

By Bob Filka, Detroit Free Press — Feb 11, 2009

Senator Johnny Isakson (D-GA) and a bi-partisan group of Senators have moved forward to include a home purchase tax credit in the stimulus package that moves in the right direction. It would provide a tax credit in the amount of $15,000 or 10% percent of the purchase price (whichever is less) for homebuyers. The credit would be available to all purchases of any home from date of enactment for one full year. Buyers would be able to claim the credit against their 2008 tax returns. Buyers would have to occupy the homes they purchase for two years as their principle residences and purchases of homes by investors would be ineligible.

Two additional steps the Senate should take, to speed demand even further, would be to allow this credit to be monetized at closing for down payments. They should also move to establish a below market interest rate program to combine with the credit. We must also provide voluntary alternatives to foreclosure for lenders and borrowers and increase the capacity and flexibility of federally insured refinance programs.

These stimulus actions will increase demand for housing, help stabilize home values, reduce foreclosures, restore and save tens of thousands of jobs and turn the housing market and economy back in the right direction.

The bottom line is that the housing marketplace is in a self-perpetuating spiral far worse than most thought possible.

Potential buyers are sitting on the fence and putting off purchase decisions because they fear the value of the home they want to purchase might drop dramatically after they buy it. Thus, prices and equity values continue to decline with no end it sight. It is a classic chicken and egg marketplace dilemma that is pulling down the entire economy. Congress must act immediately and far more aggressively t to reverse this cycle.

Bob Filka is CEO of the Michigan Association of Home Builders