Our guest blogger is Andrew Jakabovics, Associate Director for the Economic Mobility Program at the Center for American Progress Action Fund.
In November, the National Association of Realtors’ Pending Home Sales Index fell to its lowest level since the Index was created in 2001. November’s reading of 82.3 was 5.3 percent lower than last November and marked a second consecutive month of year-over-year declines, after a downward revision of October’s numbers to 85.7 left us with a 4.5 percent annual drop for that month. The index is a measure of anticipated sales over the next few months, based on the number of homes that have a signed contract but have not yet been closed upon.
Unsurprisingly, the real estate industry is looking to use the confluence of weak home sales and consideration of a stimulus package in Congress to push for an expansion of the $7500 homebuyers’ tax credit in an effort to spur commission-generating home sales.
But the high cost of housing isn’t the issue for most people; indeed, the Realtors predict that the share of homes considered affordable this coming year will match record highs set back in 1972. Moreover, the credit will only save the average buyer the equivalent of a latte a month, which is not likely to incentivize anyone who is not already planning to buy a home, thus making it a poor use of taxpayer resources.
The truth is that buyers are remaining on the sidelines not because homes are unaffordable or because interest rates are high, but because they are concerned about ongoing declines in home prices and are uncertain about their job security.
To address the problem of house price declines, we must stop the high rate of foreclosures, which drive down local home values and blight communities. The second $350 billion of the Troubled Assets Relief Program (TARP) should be used for the acquisition of mortgages and mortgage-backed securities.
The underlying mortgages must then be restructured where feasible to provide the current homeowner with a sustainable monthly mortgage payment. The modified mortgages would then be resecuritized and sold back to the secondary market with a government guarantee. Increased confidence in job security will come through the passage of a recovery bill that puts job creation at the fore and sets the economy back on a path towards growth, along the lines the Center for American Progress has detailed.