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Do Current Conditions Warrant More Government Intervention?
The 2008 calendar year posted some of the most dismal economic figures
in decades. Led by troubles in the housing market, fiscal woes spread
to the banking and lending industries and then to the stock market.
Unemployment statistics made a steady climb and capital for new
business and consumer purchases dried up during the year. The U.S.
government quickly pumped money into the system through a series of
stimulus and bailout packages, all of questionable value in helping
the economy recover. Currently, the Senate is debating the newest
proposed stimulus plan, already passed in the House. Here's a look at
the state of the current housing market as well as the plan Congress
is devising to encourage greater economic growth.
Housing Starts
The number of housing starts in the latest quarter fell by a 50-year
record low percentage, with the total of all housing starts falling
33.3 percent for the year and the number of single-family housing
starts dropping 40.5 percent during the same time. Most interesting is
the news that the decline in housing starts from the January 2006 peak
to the December 2008 low is the biggest drop in any of the housing
downturns during the last half-century.
New Homes Sales
In December 2008, sales of new homes fell to their slowest monthly
pace on record, with the seasonally adjusted annual rate of sales
falling to 331,000 units for the month.
"What more proof do you need that the housing downturn is accelerating
-- bringing the economy with it -- and that the government must take
substantive action to get qualified buyers back in the market?" said
Joe Robson, Chairman of the National Association of Home Builders (NAHB).
"We need a significant stimulus on the demand side, because otherwise,
home sales will only continue downward," he added.
Existing Home Sales
The latest survey from the National Association of Realtors showed
that pending home sales, based on contracts signed in December, were
up, based on a 6.3 percent increase in the group's pending home sales
index, providing some of the only upbeat news in the housing industry
lately.
Still, the leaders of the NAR are calling for more government action.
"Significant uncertainty still clouds the housing market despite
improved affordability conditions," said Lawrence Yun, NAR chief
economist. "For a sustainable housing market recovery and, hence,
sustainable economic recovery, we need a significant housing stimulus
and mortgage availability for qualified borrowers."
The Government Plan
So far the Congressional stimulus bill includes provisions to extend
the $7,500 first-time home buyer tax credit and the some members of
the Senate hope to increase that credit to $15,000 for all primary
residence home purchases. And Republican senators are gaining plenty
of support from the Democratic majority in order to add in a provision
to temporarily bring down the interest rate on 30-year fixed rate
loans down to 4 percent for buyers with good credit. That would bring
down the rate by more than an entire percentage point, and according
to the NAR that drop would mean an extra 500,000 home sales.
"This will help reduce inventory, which, in turn, will help to
stabilize home values and begin an economic recovery," said NAR
spokesperson Mary Trupo.
The Senate hopes to have concluded all revisions of the stimulus bill
within the next week and bring it to a vote. Only time will tell
whether the new infusion of taxpayer funds will make 2009 the year of
economic recovery or recession
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