Federal Deficit Needs a Smart Fix

The huge federal deficit remains a major economic challenge.

February 1, 2010

For the first half of this year home sales will improve by more than 20 percent over the same period of 2009. That means we could see a sales pace of more than 5.7 million by June, a much welcomed improvement from the last few years.

The home buyer tax credit is playing a big role in that gain. By the time it expires in June 2010, I expect that some 4.4 million households will have taken advantage of the credit. With those improved sales, inventories will tighten, prices will firm up, confidence will increase, and household spending will rise, solidifying a housing-led recovery.

Of course, the broader economy must cooperate for us to reach that goal. Fortunately, signs are pointing in the right direction. At the end of 2009, long-term mortgage rates were at a historically low 4.8 percent. While they’ll surely increase in 2010, it’s unlikely they’ll rise to more than a still-low 5.8 percent. 

Even unemployment, the bleakest part of the economic picture, is showing improvement. Employers reported about 11,000 job losses at the end of November, the smallest tally in a long time.

The economy’s downside continues to be the huge federal deficit. As the economy grows, income to the government will increase and the deficit as a percentage of the budget will improve. 

Therefore, policies should be focused first on growing the economy. Still, there will be pressure on the government to come up with a credible plan for paring the deficit down even more, including through tax increases. It would be a mistake, though, for the government to look for a quick fix on the backs of home owners.

Policies that promote responsible home ownership, like the mortgage interest deduction, property tax deductions, and the capital gains exclusion on primary residences, provide incalculable social benefits. This is not the time to lose sight of the stabilizing influence of home ownership on communities.

Lawrence Yun
Chief Economist and Senior Vice President of Research at the National Association of REALTORS®

Yun oversees and is responsible for a wide range of research activity for the association including NAR’s Existing Home Sales statistics, Affordability Index, and Home Buyers and Sellers Profile Report. He regularly provides commentary on real estate market trends for its 1.3 million REALTOR® members.

Dr. Yun creates NAR’s forecasts and participates in many economic forecasting panels, among them the Blue Chip Council and the Wall Street Journal Forecasting Survey. He also participates in the Industrial Economists Discussion Group at the Joint Center for Housing Studies of Harvard University. He appears regularly on financial news outlets, is a frequent speaker at real estate conferences throughout the United States, and has testified before Congress. Dr. Yun has appeared as a guest on CSPAN’s Washington Journal and is a regular guest columnist on the Forbes website and The Hill, an “inside the beltway” publication on public affairs.

Dr. Yun received his undergraduate degree from Purdue University and earned his Ph.D. from the University of Maryland at College Park.