Sales of existing homes plunged in July to their lowest level in at least a decade, prompting some calls for a restoration of the federal housing tax credit or a different federal stimulus for housing. But many housing experts and ULI housing council leaders want the federal government to stop tinkering with the housing market.
In a nutshell, they believe the government’s attempts to artificially boost the housing market have run their course.
“My opinion is that the government does a poor job of proactively adjusting the economy,” says Steven LaTerra, senior director of Land Advisors Capital in Arizona and one chair of ULI’s Residential Neighborhood Development Council. “Their temporary measures are quickly absorbed and rarely sustainable.”
Noelle Tarabulski, president of the Builder Consulting Group in Denver and an assistant chair of ULI’s Residential Neighborhood Development Council, agrees. “Do we want Congress to do anything? No,” she says. “We want them to stay out of our business and let the free market do its thing.”
The July sales figures were worse than many analysts had expected. Existing-home sales in July dropped 27 percent from June levels and 25 percent from July 2009. The 3.83 million total sales of existing homes were the lowest since the National Association of Realtors (NAR) began tracking the figure in 1999, and single-family home sales were the lowest since May 1995.
July marked the third straight month that monthly sales figures had declined following the April 30 expiration of the popular federal tax credit, which offered $8,000 for first-time buyers and $6,500 for other homebuyers. While the federal government has taken a variety of steps to prop up the housing market—including government-backed loans and mortgage modification programs—many industry leaders and economists blame the summer sales doldrums on the end of the tax credit.
“The tax credit artificially stimulated demand, accelerating many purchases that would have otherwise happened in late spring or summer,” says Jason Duckworth, president of Arcadia Land Co. in Haverford, Pennsylvania, and a vice chair of ULI’s Residential Neighborhood Development Council. Adds Lawrence Yun, NAR chief economist, “Consumers rationally jumped into the market before the deadline for the homebuyer tax credit expired. Since May, after the deadline, contract signings have been notably lower, and a pause period for home sales is likely to last through September.”
Plenty of other reasons exist for the recent housing sales slump—stagnating job growth in the economy, slumping consumer confidence and a natural home sales slowdown during summer months. Still, there is no disputing how much the tax credit has meant to the housing market since it was enacted in 2008. Home values and prices stabilized in many areas of the country despite continued job losses, and new home inventory rates rebounded from their bottom.
Some political and Obama administration officials are calling for more federal intervention. Florida governor Charlie Crist, who is running for the U.S. Senate as an independent, says he would support a revival of the housing tax credit. Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development, told CNN in late August that the administration is looking to launch two new programs for struggling homeowners—a Federal Housing Administration refinancing program and an emergency loan for homeowners who have lost their job.
The reaction from many in the housing industry and among ULI housing leaders has been, “Don’t do it; let the market be.”
“I don’t believe the federal government should be involved in housing except to help working families who cannot afford market rate rental housing suitable for their families in reasonable proximity to where they work. We should also provide housing assistance to the elderly and the homeless,” said Ronald Terwilliger, chairman emeritus of Dallas-based Trammell Crow Residential, former chairman of ULI, and current chairman of ULI’s J. Ronald Terwilliger Center for Workforce Housing.
Stan Humphries, chief economist for online real estate firm Zillow, told Bloomberg News in late August that it is time to move on. “I think the time for more federal stimulus has largely come and gone,” he said. “We are going to have to let markets begin to heal themselves, and many markets have started to do that.” But he and others cautioned that this process could take longer. “It is not a pretty process by any stretch of the imagination,” he said.