Housing Market Crisis

By: Corey Mutterperl

It is being reported by the U.S. Census Bureau that sales of newly constructed homes fell to their lowest levels ever recorded for the month of January 2009.  In addition, the average sales prices of new homes also dropped for the month of January by 15%.  These poor sales figures are forcing new homebuilders to sharply cut back on new construction and are forcing them to try to sell off their inventories of vacant properties.  Analysts are expecting sales to be a problem as long as potential buyers are nervous about their jobs, the economy and continue to be limited in accessing mortgages from the credit markets. President Obama, in his new budget, wants to cut mortgage interest deductions for high-income taxpayers. He is seeking to cut the itemized tax deductions from 33%-35% to 28%. This change would give people in the higher tax brackets less of a benefit from deductions such as mortgage interest, taxes, and charitable deductions. The housing industry is very upset with this proposal because they feel it will force housing prices lower. The value of high-end homes would be reduced by the increase in costs of ownership. With the housing market in such terrible shape, the talk of raising taxes and lowering this mortgage interest deduction has caused many to feel the housing market will struggle to recover.

 References:

http://money.cnn.com/2009/02/26/real_estate/new_home_sales/index.htm?postversion=2009022611 

 http://money.cnn.com/2009/02/27/real_estate/mortgage_interest_deduction_slashed/index.htm?postversion=2009022718