President Clinton's plan to allow first-time homebuyers to withdraw money from IRA accounts without penalty will have little impact on the housing market, at least in the short run, according to mortgage lenders and financial planners.
In addition, the proposal may hurt individuals because it would deplete individual retirement accounts, some planners warned.
"A lot of people's initial approach will be that this will be a real panacea," said Harry Horn, president of Academy Financial Inc., a financial planning firm in Lutherville.
But he added, "It won't have a big impact on first-time homebuyers."
Mr. Horn said few first-time homebuyers, even if they have IRA accounts, will have enough money saved to pay for a down payment and closing costs.
"Most younger people buying their first home are in their late 20s, and I would think that they would tend not to have much saved up," said David Croney, a partner at Chesapeake Financial Planning and Tax Services Inc. in Annapolis.
The proposal to allow first-time homebuyers to withdraw funds from their IRA's without paying taxes or a penalty was part of President Clinton's "middle class bill of rights" -- a $60 billion package of tax breaks -- outlined in a televised speech earlier this month. Currently withdrawals before the age of 59 1/2 are subject to both income tax and a 10 percent penalty.
In addition, the president proposed allowing families with incomes up to $80,000 to deduct IRA contributions up to $2,000. The current income limit is $50,000.
The changes -- especially the expanded deductibility of contributions -- would eventually have an effect on the housing market, but not for several years, until prospective homebuyers could stash away enough money, according to Pamela O'Rourke, acting editor of the IRA Reporter, a newsletter based in Minnesota.
"We may have to give it a few years, but I don't see it being 10 years," she said.
Americans had about $860 billion was sitting in IRA accounts at the end of 1993, the latest year for which the IRA Reporter has figures. Ms. O'Rourke did not have figures for the amount of money held by those in their 20s and 30s, the traditional age for buying a first home.
But the amount now held by younger people is probably small because contributions into IRAs fell sharply in 1987, after the deductibility of contributions was restricted. Ms. O'Rourke noted, however, that some young people have significant sums in IRA accounts, especially those who saved in 401(k) retirement plans and, on leaving their employer, rolled over the money into an IRA account.
On a $80,000 property, a first-time buyer would need about $5,000 in closing costs, as well as a down payment of several thousand dollars -- although many first-timers may qualify for programs that require less money upfront.
Harry Gormley, senior loan officer at MNC Mortgage Corp. in Lutherville, said the president's plan would help some first-timers find the money.
"It's a step in the right direction, but it's not utopia," he said. "It would certainly help people to be able to afford to get into a property. The question I have to ask is: How many people have IRAs?"
"There's a lot of money in IRAs but I don't know how many people have that much money," especially first-time homebuyers," he said.
Mr. Horn said the change would spur young people to save money in IRA accounts, but any effect on the market may take years to be felt.
"I don't think it will drive the market," he said. "It will take a while to accumulate money."
Mr. Horn warned that using IRA money for buying a home may hurt people in the long run because it will deplete savings intended for retirement.