RISMEDIA, September 17, 2010—Realogy Corporation, one of the largest providers of real estate and relocation services in the United States, announced that it is urging Congress to take immediate action on a number of pressing issues with serious ramifications for the housing market in general, and specifically for the millions of Americans who are homeowners, potential home buyers and/or home sellers. Realogy also delivered letters to key Congressional leaders including Speaker of the House of Representatives Nancy Pelosi, House Majority Leader Steny Hoyer, House Minority Leader John Boehner, Senate Majority Leader Harry Reid and Senate Minority Leader Mitch McConnell, among others.
First and foremost, Realogy president and chief executive officer Richard A. Smith called upon Congressional leaders to delay the income tax increases scheduled to take effect on Jan. 1, 2011. Smith also added Realogy’s strong support to the positions taken by the National Association of Realtors regarding the following three topics: making permanent the current FHA and GSE mortgage loan limits, which are set to decrease on Dec. 31, 2010; passing FHA reform; and reauthorizing the National Flood Insurance Program, which will otherwise expire Sept. 30, 2010.
“Unless they are substantially postponed, the pending income tax increases in January will likely delay any recovery in housing,” said Smith. “It stands to reason that if you reduce the spendable income of individuals and small businesses, there will be less money flowing into the overall economy and the housing market, which would not help homebuyers or sellers.
Generally, it is counterintuitive to think that higher taxes in an already fragile economic environment will lead to a more robust economy.
“From a real estate perspective, higher tax rates on individuals earning $200,000 or more and families earning $250,000 or more stand to have a decidedly negative impact on the move-up home buyer segment,” added Smith.
“Mortgage loan underwriting standards are already very stringent, and increasing the highest tax bracket rate by 13% will make it even more challenging for move-up buyers to qualify for loans. Without an active move-up market, housing will not fully recover and neither will the economy.”
A recent op-ed article in The Wall Street Journal by Steven Gjerstad and 2002 Nobel laureate Vernon L. Smith shared their research and empirical evidence from the past 14 prior U.S. recessions showing that economic recovery has always been preceded by a recovery in the housing sector.
Specifically, data going back to the Great Depression shows that the recovery of new residential construction has preceded recovery in every other sector of the economy by a large margin. Clearly, consumer investment in residential real estate leads the way and drives increased consumer spending in durable goods and investments.
“History has also proven that the move-up home buyer is critical to a sustained recovery in housing,” said Smith. “If the impending tax increases stall the move-up buyer segment of the housing market, which is likely, that outcome will also have a negative impact on first-time home buyers. In many regards, the housing market works like a ladder. The first rung of the ladder is the first-time buyer. For the market to operate efficiently, the first-time buyer at some point moves up a rung, leaving open an entry-level home and allowing the seller of the home they just purchased to move to their next home. Any break in this natural progression can create stagnation and inventory imbalances. If the government goes through with these income tax increases, it could effectively keep millions of credit-worthy home buyers on the sidelines. With such significant amounts of disposable income being taken out of their pockets through higher marginal tax rates, people will logically delay spending on real estate, consumer goods and investments. Clearly, that would not be a good outcome.”
In addition, Realogy joins with the National Association of Realtors (NAR) in making the following three requests for action by Congress:
-Make permanent the current FHA and GSE mortgage loan limits. The current loan limits are set to expire on Dec. 31, 2010. Given the time it takes FHA and the GSEs to reset their underwriting systems to accept the loan limits, unless Congress acts before October, there could be a gap in loan limits and borrowers could be left in limbo. Right now, FHA and GSE loan limits are set to drop to 115% of local area median home price with a cap of $625,500 (from the current limit of 125% of local area median home price with a cap of $729,750). NAR estimates that more than 612 counties in 40 states and the District of Columbia would be negatively impacted by the loan limit change, and the average decline of loan limits would be more than $50,000. With tight underwriting constraining mortgage availability, lowering the FHA/Fannie/Freddie loan limits will only further restrict liquidity.
Retaining the current loan limits will allow home buyers in higher cost areas to have access to affordable mortgage financing and share the same opportunity to achieve homeownership that borrowers in other regions of the country enjoy.
-Pass FHA reform (S. 3704). FHA is critical to a housing recovery because while private lenders have not yet returned to the market, FHA is filling the gap. More than three-quarters of FHA’s purchase-loan borrowers in 2009 were first-time home buyers, and nearly half of all first-time buyers in the housing market in the second quarter of last year used FHA loans. This bill will strengthen FHA and allow it to continue providing responsible borrowers with affordable mortgage financing.
-Reauthorize the National Flood Insurance Program (NFIP) to provide property insurance market certainty on a long-term basis. Since September 2008, Congress has approved eight short-term extensions and twice allowed the NFIP to expire. Each day the program lapses, NAR estimates that up to 1,400 home sale closings could be delayed or cancelled. The NFIP is currently set to expire Sept. 30, 2010. We join NAR in supporting the passage of the House Reform Bill (H.R. 5114) and in amending the bill’s provisions that phase-in actuarial rates for older properties so the provisions apply only to those with severe repetitive losses. It would not be good policy to allow the NFIP lapse again or hold it hostage to extensions of other federal programs. The NFIP must be reauthorized to continue issuing flood insurance policies long-term in order to prevent further disruption to recovering real estate markets.
“Each of these issues is significant on their own, but without immediate action taken by Congress, they will collectively pose a serious threat to the recovery of the housing market, which comprises approximately 20 percent of GDP,” said Smith. “We are making Realogy’s voice heard on behalf of the 3,800 U.S. franchisees that have affiliated their independently owned and operated businesses with our respective brand networks—Better Homes & Gardens Real Estate, Century 21, Coldwell Banker, Coldwell Banker Commercial, ERA and Sotheby’s International Realty—as well as NRT, our company-owned brokerage. Collectively, our franchise affiliates and company-owned brokerage represent approximately 200,000 real estate sales professionals in more than 7,000 offices throughout the United States.”
For more information, visit www.realogy.com.
