Last week, the president signed a housing bill that gave the Treasury Department the authority to safeguard Fannie Mae and Freddie Mac and offered foreclosure prevention help for hundreds of thousands of homeowners.
Passed just a week ago by the House and sent to the president over the weekend by the Senate, the bill had been in the works for a long time.
Many members of the single-family industry hoped the new law, which includes a $7,500 buyer tax credit, would spur home sales.
But some multifamily industry members had expressed concern about parts of the bill–the tax credit in particular.
The National Multi Housing Council was against the $7,500 first-time homebuyer tax credit and questioned "using taxpayer dollars to encourage Americans to buy an asset that is likely to lose value in the coming months," Senior Vice President of Government for NMHC and the National Apartment Association Jim Arbury told the Philadelphia Business Journal.
Given that just last week the S&P/Case-Shiller index said home values are still falling–the index fell a record 16.9 percent in May compared to 2007 levels, and each of the 20 metropolitan regions had annual drops–that’s a fair assessment.
However, the tax credit isn’t so much of a concern anymore, according to the Business Journal, for a few reasons.
- The credit’s income standards and repayment rules will reduce the amount of people who will use the credit. Those restrictions are considerable: The tax credit is $7,500 at most; if your adjusted gross income is more than $150,000 (or $75,000 if you’re single), the credit will be less.
If you financed the property with a state or local housing agency tax-exempt bond mortgage or don’t use it as your main residence, you also don’t qualify, according to the San Diego Union-Tribune.
And you’re not going to get a big check for the credit. It really works more as an interest-free loan, and buyers need to make pro-rata repayments on their annual tax filings for an up to 15-year period.
- It’s also unclear how the law will affect single-family purchases because it eliminates seller-funded down payment programs for FHA-backed loans. According to The Wall Street Journal, they were used by as many as one in 10 buyers.
Down payment help programs make it easier for people to buy homes with no money down–given today’s tight economy, scraping together a decent down payment is no easy task.
But buyers who use FHA loans can’t take down payment assistance from the home seller (which is often funneled through a nonprofit group but really comes from a builder trying to sell a new home) starting in October.
- And of course, there’s always the question of whether or not the lending industry will embrace the new law. Some builders already have embraced the new provisions. Pulte Homes, for one, is offering a matching discount to the $7,500 tax credit being offered to buyers to spur home sales, according to BusinessWeek.
But no one is sure how enthusiastic lenders will be.
The program is voluntary, and lenders who participate must agree to take a sizeable loss and shrink the principal of each loan before refinancing. Also, Dan Gorczycki, managing director, Savills Granite, told MHN that servicers will have to pay taxes on delinquent loans.
As a result, the law really doesn’t appear to pose any kind of threat to the multifamily market.
In fact, the National Multi Housing Council (NMHC) praised Congress for working to add liquidity to the federal tax credit program to help production of affordable rental housing through the Low Income Housing Tax Credit (LIHTC) program. The National Apartment Association (NAA) and the National Association of Home Builders (NAHB) also expressed support.
The NMHC also noted that the continuing problems in the single-family market will only increase need for multifamily housing–rental properties and also condos which, as we’ve previously reported, have retained their value much better than single-family units in the past year.
The council is also likely to be pleased with what the legislation may do for apartment developers; it increases low-income housing tax credits that have prompted the building and conservation of almost 2 million affordable rental housing units, according to Business Journal.
And, as Gorczycki says, even if the new law helps 400,000 people sidestep foreclosure, there could still be 6 million who can’t avoid losing their home.
The truth of that number is that those 6 million people will need new housing–and many will opt for rental units because they are unable or unwilling to obtain financing to buy again.
No one wants people to lose their homes. But we need to make sure we’re being realistic about giving them incentives to buy new ones–and that our industry is prepared for the influx of renters who are due to hit it.
Hopefully, the new housing law will help both multifamily and single-family. Do you think that it will?