Make us your home page
Instagram

Goodies to lure home buyers back into market

WASHINGTON — What will it take to get consumers off the sidelines to buy more houses and help stimulate the economy?

How about a mortgage at 2.99 percent fixed rate for 30 years for anyone who purchases a home before next July 1? Or how about a non-repayable federal tax credit of 10 percent of the home price up to $22,000?

Would enticements like these be sufficient to shift you into buying mode? Alternatively, if you preferred a plan that cost the Treasury less, would you go for a mortgage in the 4 percent to 5 percent range, fixed for 30 years, along with a $7,500 tax credit?

Though these may sound like wish-upon-a-star daydreams, some major housing groups are asking the incoming Obama administration to put hefty homebuying incentives like these at the center of any national economic stimulus plan.

The National Association of Home Builders wants Barack Obama and the new Congress to use a combination of deep mortgage interest rate "buy-downs" — rate reductions to 2.99 percent or 3.99 percent — plus federal income tax credits to jolt housing sales and new construction back to life.

The National Association of Realtors, the largest housing lobby with 1.2-million members, also is asking the new administration for mortgage subsidies and tax credits, though not as deep or expensive as those proposed by the builders.

At the association's annual convention Nov. 7 in Orlando, the Realtors' chief economist, Lawrence Yun, said Congress should authorize a new housing stimulus that in the coming year would reduce new purchasers' 30-year fixed rates 1 percent or more below prevailing rates.

The Realtors also plan to lobby for a revised home purchase tax credit program — removing the current requirement that credits must be repaid — and to make permanent the $729,750 high-cost area limits on mortgage amounts available through Fannie Mae, Freddie Mac and the Federal Housing Administration.

Those limits, authorized by Congress in February as part of the first 2008 stimulus program, will otherwise expire Dec. 31.

The housing industry's new emphasis on mortgage rate buy-downs harks back to the 1970s, when the government lowered rates to consumers through a program known as the "Tandem Plan," where the Government National Mortgage Association (Ginnie Mae) purchased discount-rate loans made by private mortgage lenders to home buyers.

Buy-downs — essentially rate subsidizations — have long been a tool used by real estate sellers, buyers and brokers to enhance the affordability of purchase transactions. Here's how they work: If 30-year mortgage rates are around 6.5 percent, as they were in early November, a seller might offer to subsidize the interest rate of a purchaser by paying the lender money to cover the difference.

Though the cost to do so varies according to market conditions, a traditional rule of thumb for such buy-downs, according to John Paul Nicolaides, area manager for Wells Fargo Home Mortgage in Red Bank, N.J., is that for each one-quarter percentage point reduction in rate, the subsidizer — in this case the seller — would pay about one point (1 percent) of the mortgage amount to the lender.

A rate reduction of a full percentage point to the buyer, in other words, would cost the seller four points. On a $200,000 loan, that would come to $8,000 (4 times $2,000). On the same sized loan, a buy-down of 2 percent — from 6.5 percent to 4.5 percent — could cost $16,000.

In both the builders' and Realtors' proposals, the buy-down subsidy would be paid by the federal government. David Ledford, senior vice president for housing policy at the National Association of Home Builders, acknowledged that a mass-market buy-down plan would be expensive — an estimated $130-billion to $140-billion.

But Ledford argued that it would be a cost-effective way to energize the housing sector and stimulate the broader economy. "Our view," he said in an interview, "is that until you stabilize housing, we're not going to get out of the (economic and credit) mess we're in" — with rampant foreclosures and short sales, a glut of unsold new and resale houses, and a credit squeeze for many consumers.

What are the odds that the housing lobbies' proposals will make their way into the Obama administration's major economic stimulus package expected in January? Don't hold your breath for 2.99 percent 30-year mortgages. But smaller rate buy-downs — along with a revised tax credit — just might make it into the mix.

Ken Harney can be reached at kenharney@earthlink.net.

Goodies to lure home buyers back into market 11/14/08 [Last modified: Tuesday, November 18, 2008 4:04pm]
Photo reprints | Article reprints

Copyright: For copyright information, please check with the distributor of this item, Special to the Times.
    

Join the discussion: Click to view comments, add yours

Loading...
  1. Federal agencies demand records from SeaWorld theme park

    Tourism

    ORLANDO — Two federal agencies are reportedly demanding financial records from SeaWorld.

    Killer whales Ikaika and Corky participate in behaviors commonly done in the wild during SeaWorld's Killer Whale educational presentation in this photo from Jan. 9. SeaWorld has been subpoenaed by two federal agencies for comments that executives and the company made in August 2014 about the impact from the "Blackfish" documentary. 
[Nelvin C. Cepeda/San Diego Union-Tribune/TNS]
  2. Legalized medical marijuana signed into law by Rick Scott

    State Roundup

    TALLAHASSEE — Gov. Rick Scott on Friday signed into law a broader medical marijuana system for the state, following through on a promise he made earlier this month.

    Gov. Rick Scott signed legislation on Friday that legalizes medical marijuana in Florida.
  3. Line of moms welcome Once Upon A Child to Carrollwood

    Business

    CARROLLWOOD — Strollers of all shapes and sizes are lined up in front of the store, and inside, there are racks of children's clothing in every color of the rainbow.

    At Once Upon A Child, you often as many baby strollers outside as you find baby furniture and accessories. It recently opened this location in Carrollwood. Photo by Danielle Hauser
  4. Pastries N Chaat brings North India cuisine to North Tampa

    Business

    TAMPA — Pastries N Chaat, a new restaurant offering Indian street food, opened this week near the University of South Florida.

    The menu at Pastries N Chaat includes a large variety of Biriyani, an entree owners say is beloved by millions. Photo courtesy of Pastries N Chaat.
  5. 'Garbage juice' seen as threat to drinking water in Florida Panhandle county

    Water

    To Waste Management, the nation's largest handler of garbage, the liquid that winds up at the bottom of a landfill is called "leachate," and it can safely be disposed of in a well that's 4,200 feet deep.

    Three samples that were displayed by Jackson County NAACP President Ronstance Pittman at a public meeting on Waste Management's deep well injection proposal. The sample on the left is full of leachate from the Jackson County landfill, the stuff that would be injected into the well. The sample on the right shows leachate after it's been treated at a wastewater treatment plant. The one in the middle is tap water.