In January, the new residential construction numbers continued on trend, with permits, starts, and completions all falling. Permits declined by 4.8 percent from December’s level, a whopping 50.5 percent drop from January 2008. Housing starts fell 16.8 percent from December to 466,000. Year-over-year, starts have fallen 56.2 percent from January 2008’s level. Housing completions had an even more dismal decline, down 24.2 percent from December and 41.7 percent from January 2008.
The U.S. government has finally begun taking action to arrest this downward trend, however. First, the American Recovery and Reinvestment Act of 2009 provides an $8,000 tax credit for first-time homebuyers. Intended to encourage those who would like to buy a house but have been reluctant to pull the trigger, the credit is available for anyone who has not owned a house for the past three years and who is purchasing a primary residence. Unlike the first-time homebuyer credit in the 2008 stimulus bill, as long as the home continues to be the homebuyer’s primary residence for at least three years, the credit does not need to be paid back.
The government has also unveiled its plan to staunch the tide of foreclosures. Meant to help some nine million homeowners facing foreclosure, the plan would allow homeowners who owe more on their houses than they are currently worth (the result of rapidly falling home prices) to refinance. A second initiative would assist those at risk of foreclosure by offering incentives to lenders who amend loan terms and make them more affordable. The third provision will attempt to push mortgage rates lower by adding additional financial support (and therefore shoring up confidence in) Fannie Mae and Freddie Mac. The plan, the details of which will be announced on March 4 when it takes effect, will include loan modification guidelines and a provision that will allow bankruptcy judges to modify loans as well.
Many of these measures have ignited controversy. Some believe it will help those who may lose their homes due to job losses and declining market values. Some who have planned well and worked hard to pay their mortgages believe that it is unfair for the government to bail out other taxpayers who have borrowed more money than they could afford to pay back, all at the expense of future generations. Still others have expressed concern over the ramifications of bankruptcy judges being allowed to rewrite mortgages, a move that could certainly erode the tenets of contract law.
Despite the controversy, however, these initiatives have the potential to keep millions of existing homes off the market, which will decrease the inventory of homes and quicken a reversal in the new residential construction trend.
Suz-Anne Kinney
Forest2Market: July 14, 2023
