I went on Fox Business a few weeks ago to speak about 2 ways I believed would help increase demand in housing. Although my idea will not solve every problem demand will help set a floor on housing and begin to effect all those that are dependent on housing. The idea was to eliminate capital gains on any home purchased within the next 12 months and to also offer an investment tax credit of 10 percent of any down payment up to a 20 percent down payment. This would not require a person to have the home be their primary residence and would not limit the number of purchases or length of ownership.
This article just came out in the Wall Street Journal today. I have only posted parts of that article.
NOVEMBER 24, 2008
Wall Street Journal
By NICK TIMIRAOS
The builders' lobby is ramping up its sales pitch for a $250 billion stimulus package called "Fix Housing First," arguing that financial markets won't recover until home prices stop falling. They are calling for a generous tax credit for home purchases and a federal subsidy that would lower a homeowner's mortgage rate.
Congress resisted a similar effort to pass a larger tax credit earlier this year, instead creating a $7,500 credit for new-home purchases that had to be paid back over 15 years, effectively extending an interest-free loan.
The homebuilders' proposal would offer home buyers a tax credit equal to 10% of the home's value, capping it at $22,000, nearly three times the $7,500 credit Congress offered to new buyers earlier this year. Builders say the earlier credit didn't work because it wasn't big enough and had to be repaid.
Builders also want subsidies for interest rates on 30-year fixed-rate mortgages for government-backed "conforming" loans, which currently are around 6.2%, to bring rates down to 3% for loans made in the first half of 2009 and 4% for those in the second half of the year.
A rate reduction of about 1% on a 30-year mortgage typically costs the lender -- in this case the government -- around 4% of the principal. So a 2% buy-down on a $200,000 mortgage would cost $16,000. The NAHB estimates the subsidy portion of its proposal would cost the Treasury $143 billion.
Other critics say that while a large tax credit could motivate buyers to get off the fence, it would do nothing for homeowners unable to refinance mortgages they can't afford, which is arguably a bigger problem.
One idea with broader support -- but with a potentially bigger price tag -- is an interest-rate buy-down that would allow existing homeowners to refinance to lower rates. Chris Mayer, senior vice dean of Columbia Business School, has suggested that the government push interest rates down to 5.25% for homeowners who prove that they can afford to live in their new homes and can document their income.
