Builders Want $250 Billion Housing Stimulus

Washington, DC, Nov. 24, 2008--Home builders and others are lobbying Congress for for a $250 billion stimulus package they call "Fix Housing First."

The National Association of Home Builders is arguing that financial markets won't turn around until home prices stabilize. Supporters of the effort, listed on the fixhousingfirst.com website, includes Mohawk Industries and the Carpet and Rug Institute.

Some economists fear federal intervention to help homeowners may instead encourage more overbuilding. In addition, there are concerns that federal assistance could artificially prop up the price of houses.

NAHB is calling for a tax credit for home purchases and a federal subsidy that would lower a homeowner's mortgage rate.

Builders are promoting the campaign with full-page newspaper advertisements, but face an uphill battle, with critics suggesting the proposal is too expensive and that it too heavily promotes home purchases rather than addressing loan modifications for delinquent homeowners to stem foreclosures.

The effort aims to stop the adverse feedback loop gripping the market. The cycle begins when falling home prices prompt some borrowers to default, leading to foreclosures. That further depresses home prices, hitting the banks that hold mortgage-backed securities, causing them to pull back and freeze credit. That in turn causes the economy to slow.

"The basic asset that is underlying all the financial problems that we're experiencing is highly unstable, and it's causing an ongoing hemorrhaging in the financial system," said David Ledford, who oversees housing finance and policy for the National Association of Homebuilders. "It's starting to snowball."

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.

Realtors are pushing a 4.5% interest-rate buy-down for new loans. Lawrence Yun, the chief economist for the National Association of Realtors, estimates that each 1% decline in interest rates could generate between 500,000 and 800,000 home sales.

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