New Study Finds Housing Stimulus Essential to Economic Recovery

January 15, 2009

WASHINGTON, DC – January 13, 2009 – Without substantial demand stimulus for the housing sector, the stimulus package currently being considered by Congress will only have a limited effect and would fail to reverse the loss of trillions of dollars in homeowner equity, according to a study released today by the Fix Housing First Coalition. The study, conducted by California-based expert services consulting firm LECG LLC, shows that when housing stimulus is combined with a general economic recovery program like that under discussion by the new Administration and Congress, increased economic activity grows strongly across all sectors of the economy.

Using a well regarded economic model, researchers studied the impact of a short- term program espoused by the Fix Housing First Coalition that would combine a significant tax credit for all homebuyers from $10,000 to $22,000 with a time-restricted mortgage rate write down to 2.99%.  The economic analysis demonstrated that adding these housing stimulus provisions to the anticipated economic recovery bill would over a four year period:

Increase GDP by 1 percent annually;
Create 940,000 new jobs annually;
Increase average homeowner equity by $25,000 by 2012;
Increase aggregate homeowner equity by more than $2 trillion by 2012; and
Generate revenues at the federal and state level that will exceed the cost of the program.

A strong direct stimulus to housing demand is essential to turn the economy around in a timely and dependable fashion, noted Dwight M. Jaffee, Professor of Finance and Real Estate, Haas School of Business, University of California, Berkeley who contributed to the study. Every key economic indicator – GDP, employment, consumer confidence and housing market activity- rebounds significantly faster if housing is included in the stimulus package.

The lack of demand for housing has created a self-perpetuating downward spiral that shows no signs of abating.  Potential homebuyers are fearful of entering the market out of concern that the house they buy today will be worth less in six months.  When there are no buyers, prices continue to fall, thus confirming buyers’ worst fears.  It is a classic market failure that is pulling down the entire economy.

National Association of Home Builders economist David Crowe added, Three million home building-related jobs across the country have been lost as a result of the slowdown in housing production, which represents $145 billion in lost wages and $4.9 billion in lost purchases.  Deterioration in these jobs has now spilled over into virtually all sectors of the U.S. job market.

The collapse in home equity has devastated homeowners across the country and placed many of them and their community and condominium associations in very tenuous financial positions, said Thomas M. Skiba, CEO of Community Associations Institute. Reviving the housing market in a way that restores that equity has to be a critical element in any economic recovery plan.

While the new study demonstrates the effectiveness of the Fix Housing First Coalition proposal, it also found that the program is consistent with the criteria established for a fiscal stimulus program.  It is short term.  It is effective. And it generates economic activity that will actually reduce the deficit over the long term.

The Fix Housing First Coalition is a diverse group of housing stakeholders – including homeowner and community groups, home builders and manufacturers – dedicated to addressing the root cause of our economic troubles. The coalition is advocating for a short-term incentive for qualified home buyers that would stop the fall in home values, restore consumer confidence, create jobs and lift our entire economy. For more information, visit