Thursday, April 3, 2008

New Housing Bill: How Will It Affect Investors?

It appears that the Senate is ready to pass a housing bill intended to help the ailing real estate market. Democrats and Republicans have fought over the details, but agreed yesterday to a tentative deal, according to an article in the New York Times. Below is an excerpt from the New York Times article that talks about the key points of the bill, some of which may be of interest to investors:

“Senate staff members, speaking on condition of anonymity because the bill was not yet fully drafted, said it would include $100 million to expand counseling for homeowners at risk of defaulting on their loans, tax-exempt bonds to let local housing agencies refinance subprime mortgages and some $4 billion in grants for local governments to buy foreclosed properties.

“The Senate measure is also expected to include several tax provisions, including a credit of $7000 for purchasers of foreclosed properties that have been sitting vacant, and a break for struggling home-builders, allowing them to claim current losses against taxes paid in earlier, more profitable years. This provision, intended to aid home-builders, would cost about $15 billion in the first year.”

The biggest potential impact of this bill for investors appears to be the credit for purchasers of foreclosed properties. If that credit is allowed to investors, and not just buyers of owner-occupied properties, then investors could profit handsomely. It sounds like Republicans were trying to raise this credit to as much as $15,000, while Democrats were pushing for less credit and more counseling for homeowners.

The homebuilder tax aid will help those investors who own stock in homebuilders, or who are in the home building business themselves, but it may be too little too late to save many of these struggling companies.

It will be interesting to see how the $4 billion allocated for local governments to buy foreclosed properties is used. The question is: For what will they use the properties after they are acquired? If local governments effectively take foreclosed properties off the market, then it should boost their real estate markets as they decrease available inventory.

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