Home Buyer Tax Credit Brings Hope to Housing

Check out the latest from the respected Economists of the National Association of Home Builders:

Home Buyer Tax Credit Brings Hope to Housing

The housing market received what should prove to be a real boost when, earlier this month, Congress and the President extended the first-time home buyer tax credit that was set to expire on Nov. 30 into the spring and expanded it to include eligible move-up or repeat home buyers.

First-time home buyers will now be eligible for the tax credit if they sign a contract by April 30, 2010, and settle on their home no later than June 30. Likewise, move-up/repeat home buyers (existing home owners) who have lived in their primary residence for five of the last eight years will now be eligible for a tax credit of up to $6,500.

Housing Still Faces Significant Headwinds

The housing market still faces significant headwinds, even as they begin to abate.

The Federal Reserve’s October Senior Loan Officer Opinion Survey on Bank Lending Practices revealed that the majority of banks are continuing to tighten lending standards for mortgages, as they have every quarter for the last four years.

However, the tightening is significantly below its peak in July 2008. Most banks this quarter reported that they neither tightened nor loosened their standards, those that tightened them reported raising their standards only somewhat and one bank reported that it had loosened its standard for issuing prime mortgages somewhat.

As Housing Improves, Nonresidential Construction Struggles

Private nonresidential construction fell 7.6% from September 2008 to September 2009 according to the Census Bureau’s Value of Construction Put in Place data, which are not adjusted for inflation. Construction of office space was down 25.1%, while commercial construction “which includes restaurants, retail space and warehouses” was down 31.6%.

While single-family home construction was up 2.4% in September from the month before, production was down 47.6% from September 2008.

Multifamily construction, which faces stiff competition from the single-family market and significant obstacles to obtaining financing, decreased 4.1% in September from August. Compared to September 2008, construction was down 28.9%.

Tough Times for the Rental Market

The rental vacancy rate rose to 11.1% in the third quarter “the highest reported since the Census Bureau began compiling it in 1960” and up from 9.9% in the third quarter of 2008.

The number of units for rent that are vacant year-round rose from just under 4 million units in third quarter 2008 to 4.6 million units in third quarter 2009. These figures include apartments and single-family homes for rent. The glut undoubtedly includes for-sale units that could not sell and were eventually placed in the rental market creating more pressure for the market.