Stimulus Plan No Sweet Deal for the Housing Industry

After days of debate, House leaders and the Bush administration announced a pending economic stimulus plan Thursday–but it may not be what the residential industry was hoping for.

Speaker Nancy Pelosi and Treasury Secretary Henry M. Paulson Jr. were two of the parties who announced the plan at a Washington, D.C. news conference today; briefly, some of the high points are:

  • The $150 billion package, said to be aimed at the middle class, allows for stipends of $300 to $1,200 per family and provides tax
    incentives for businesses to encourage spending.
  • About two-thirds of the total package would go
    toward the consumer rebates; one-third would be earmarked for business
    tax breaks like equipment purchase write-offs, the New York Times says.
  • Roughly 117 million families could receive the rebates, according to an estimate from Democrats.
  • The plan also includes a little jumbo loan help, thanks to a provision to allow Fannie Mae
    and Freddie Mac to
    temporarily buy mortgages of up to $625,000, surpassing a $417,000
    federal limit, which will allow Fannie Mae and Freddie
    Mac to increase financing for homebuyers who want to buy higher-value homes.   

At first glance, the thought of free money is likely to make anyone cheer; but for the troubled housing industry–struggling through its second year of the slump, which the National Association of Realtors said today would continue through the first and possibly second quarter at least of 2008–the package will only provide limited relief.

True, extra cash may translate into extra spending, which could boost the overall economy, which could cause the creation of new jobs, which could prompt relocation and higher incomes, which could increase the need for housing.

But extra cash could also just prompt tapped-out Americans to pay off some of their massive outstanding debt–total consumer credit hit a new high of $2.49 trillion in October, according to the Fed–or treat themselves to a vacation, piece of jewelry, car repair–who knows? It’s a long, bumpy road to increasing housing demand, and $300 might just not get us very far along.

That said, the plan does contain one interesting caveat that might offer some relief to the residential building community.

During the debate over the plan’s specifics, the Democrats’ request to extend unemployment benefits was shot down;
which is unfortunate, since, according to Democratic Senator Max Baucus, fewer than 4 in 10 unemployed U.S. workers receive unemployment benefits.

However, in exchange for cutting the extension and vetoing additional food stamp
programs, the Bush administration and Republicans brokering the deal
agreed to pay the $300 stipend to all workers who earned $3,000 or more
in 2007–even those who didn’t make enough to pay taxes.

Workers who
did pay taxes can earn more and families may get $300 per child (up to
$1,200). Individuals earning more than $75,000 wouldn’t receive the

That could provide some much-needed capital for builders who were experiencing their worst year ever due to the housing slump–especially part-timers like contractors and project specialists.

But the tax breaks the plan offers seem less exciting. Giving a tax break for buying new equipment or doing other things to grow a business to an industry that’s seen need drastically decrease in the past year (many homebuilders, such as Lennar Homes, who reported a 49 percent fourth quarter drop in home deliveries, are still suffering) is like giving a cat a laptop–sure, gifts are nice, but they really don’t have any use for it.

The tax break will probably help other industries and, in turn, flood more money into the economy, but it’s disappointing that the plan didn’t include any special provisions to help invigorate our industry. (Not counting giving the jumbo loan market a kick. That may help move some homes, but–as the foreclosure rate rises because previous loan programs pushed homebuyers into properties they couldn’t afford–the jumbo market doesn’t really seem like the best place to focus, does it?)

What do you think about the proposed plan? If it passes next month, will it help your business–or your family? What actions do you wish the government would add? Share your reactions by posting them here on the MHN blog.