By Barry Rutenberg
Third Vice Chairman, National Association of Home Builders
Nov. 3, 2009 | Exclusive to BBN
I’ve been a home builder for more than three decades, and during those years our industry has had its share of hard times. Mortgage interest rates approaching 17 percent in the 1980s, shortages of key materials, price spikes – we’ve pretty much seen it all.
At least that’s what I thought until the current downturn slammed into the housing market like a Category 5 hurricane.
We will end 2009 with about a half million housing starts nationwide, the lowest number since 1945 when America had been engaged in World War II for almost four years and most of the country’s industrial capacity was being diverted to the war effort. Looking at today’s market from a different point of view, housing starts in 2009 will be roughly one quarter of the two million starts recorded just four years ago in 2005.
Admittedly, we have recently seen some positive signs in the market. Both housing starts and new home sales have increased modestly in recent months, and home prices, as measured by the Case-Shiller Index, have increased. Moreover, NAHB’s Housing Market Index indicates that builder sentiment about the market has perked up a bit.
Some of the improvement in the market is undoubtedly due to the $8,000 tax credit for first-time home buyers; NAHB estimates conservatively that the tax credit was responsible for about 200,000 additional home sales and that it has resulted in a net increase of 187,000 jobs.
Yet despite these positive indicators, the housing market remains very weak. It wouldn’t take much to reverse any gains that we have made and stop the recovery in its tracks. In particular, we are concerned about what will happen to housing demand and the economy when the first-time home buyer tax credit expires at the end of November. At a time when builders are also facing a severe credit crunch for housing production loans and widespread problems with inappropriately low appraisal values, losing the tax credit could cause the market to falter and fail.
Because housing and the economy are at such a critical crossroads, NAHB recently launched a comprehensive campaign called Revive Housing, Restore America, to convince Congress to extend the $8,000 tax credit beyond the end of November and to expand it to include all home buyers purchasing a principal residence – not just first-time buyers. As part of this same campaign, we have also lobbied hard for expanded Net Operating Loss (NOL) tax relief for businesses in order to help keep more home builders in business and avoid further layoffs across our industry.
Throughout our campaign, a primary goal has been to get Congress to focus on housing as a means of creating jobs and pulling the economy out of recession. These efforts recently got a boost from the Obama Administration, which officially stated its support for an extension of the tax credit.
Late-Breaking News Flash
As of publishing time for this report, I’m happy to say that we are very close to claiming a big victory for our members. As a result of the hard work of NAHB’s grassroots and our allies in the Senate, a proposal to extend and expand the home buyer tax credit has been included in Senate legislation to extend unemployment insurance benefits for jobless Americans. A provision to expand Net Operating Loss tax relief for businesses is also included. The Senate is expected to approve the entire package with these housing provisions before the end of this week, and immediately send it to the House. This means that, with any luck, the legislation could hit the President’s desk for his anticipated signature within a matter of days.
Specifics of the housing proposals that are likely to be part of the final bill include:
Home Buyer Tax Credit Provisions
- The $8,000 tax credit would be extended until April 30 for first-time home buyers.
- A new $6,500 tax credit would be created for move-up buyers for the same period.
- Both categories of buyers would have until June 30 to close on the home after signing a contract prior to the April 30 deadline.
- Both categories of home buyers would have new, higher income limits of $125,000 for individuals and $225,000 for couples.
- Move-up buyers must have been residing in their primary residence for five consecutive years out of the last eight in order to qualify for the credit.
- Homes over the purchase price of $800,000 do not qualify.
Net Operating Loss (NOL) Tax Relief
- There would be a five-year carryback for NOLs in either 2008 or 2009, not both.
- Years one to four allow for 100% use of NOLs; year five is limited to 50% of a company’s taxable income in that year.
- There would be no size limitation for the company or other cap on revenues.
- Unused NOLs in year five are still eligible for the 20-year carry forward.
- Small businesses (with less than $15 million in gross receipts) would be able to claim a five-year carryback for 2008 losses (under the American Recovery and Reinvestment Act) and for 2009 losses according to the proposal.
- There would be no limitation for NOLs claimed against Alternative Minimum Tax liability in carryback years.
Taken all together, these provisions should go a long way toward stimulating home buyer demand across multiple sectors of the market and keeping more people employed in the building business. NAHB estimates that the extended and expanded home buyer tax credit alone will generate 180,000 additional sales and create 211,000 jobs, $9.6 billion in wage income, $7.2 billion in small and corporate business income, $5 billion in federal taxes and $1.9 billion in state and local taxes. That’s a solid boost for housing AND state and local economies.
Stay tuned for further updates on the status of this legislation; we hope to have a final victory to report to you very soon!
I’d like to remind you about NAHB’s upcoming International Builders’ Show, which will be held January 19-22 in Las Vegas.
If you aren’t already signed up, you should know that this year’s IBS will be the most affordable show to attend in many years, with fantastic hotel rates available through the NAHB housing block and some truly outstanding registration deals.
In fact, NAHB members can actually get a pass to view all of the exhibits during all four days of the IBS completely free of charge. And non-members can get a four-day exhibits pass for $25. Those are amazing deals, but if you want to take advantage of them, you must register by December 11.
Check out the BuildersShow.com Web site and see what’s available to you. It just could be one of the most important business decisions you make all year.
