The popular First Time Home Buyer $8000 tax credit is due to expire November 30, 2009. There are some
efforts to extend the tax credit, but there are many who question whether the incentive has been effective.
No doubt the tax incentive, as with Cash for Clunkers, brought buyers out to take advantage of the incentive, but the question is whether the incentive produced the desired result of stabilizing the housing market.
"If you pay people to buy something, they will."
The question is if we are getting new home buyers or just encouraging home buyers to purchase earlier. In other words, are we taking away from next quarter's home sales by having them purchase this quarter instead.
The question is if we, the US tax payers, can afford $8000 or $15,000 each to pay people to buy a home. Would it not be better to find real solutions to foreclosures, to unemployment, to provide for easier home loan qualifications, to enhance financing options.
Is the tax incentive program building a sustainable housing market?
For those interested in qualifying for the incentive, it would be wise to finalize your property search and purchase contract, and to get your financing approved quickly. Most lenders are anticipating a mad rush to close these purchase transactions, and many will likely miss the deadline.
Lenders are already taking longer in underwriting, and lender delays will only get worse. Some home buyers who try to squeeze in will be disappointed.
That is unless the deadline for the tax incentive is extended.
There is interest in trying to improve the incentive: to extend through this year or even through 2010, to offer to more buyers, to increase the amount, to be more targeted to specific needs.
An NPR Planet Money story quotes Andrew Jakabovics, associate director of housing at the Center for American Progress, "Four out of 5 of the buyers were given $8,000 for doing something they were going to do anyway."
From an article posted by David Abromowitz, a fellow with the Center, "We overspend because the credit is insufficiently targeted to provide purchase assistance primarily to those in need of the help. This credit effectively costs roughly $40,000 for every truly new purchase that would not have happened otherwise."
The Center has close ties with the Obama administration, and, if the thinking is that the $8,000 tax incentive is not effective in stimulating new home sales or to addressing targeted needs, only encouraging many to purchase sooner and helping those not needing help, then the tax credit might not seen as worth the cost.
The reported cost to date for the incentive is $11 billion. Of course when the credits are received they should give the Spring economy a spending boost. $11 billion plus is a lot of pocket change.
Today the administration announced the new record deficit of $1.42 trillion, with more to come as we struggle with increased spending demands, reduced income, and still growing unemployment. Such numbers will be factored into the decision whether to extend or not to extend the First Time Home Buyer tax credit.
In response to one of the comments, I posted my alternative solution to the tax credit here.
I read through this hoping to find some sort of alternative solution. Sadly none was offered. I think its kind of like what you here about our system of democracy, it's flawed but it beats the alternative.
France and Mark,
I have to accept your criticism about not offering a solution. That is a very fair comment, and one that I will work on. Maybe some comments here will offer some solutions. There are some alternatives in the NPR piece and in the Abromowitz linked article. (Though I am not sure I like the Abromowitz targeted need approach.)
The suggestions that I prefer, which are hinted at in my post, are to loosen some of the qualifying requirements.
We lost the DPA. We lost several low downpayment options. I have lenders weekly raising the credit score requirements.
If we want to increase sales, let's increase the pool of qualified buyers. I actually wrote a couple posts on that issue last year.
An $8000 guarantee, in addition to MI, may stabilize the MI industry and might encourage lenders to loosen up. And it would be $11 billion that would not all be spent.
There, my alternative. And it was somewhat mentioned in the post.
Thanks,
Richard
Hi Richard, Your post is a fair assessment. I wrote about this as well and where the current 3 bills on this end up and which of the 3 bills has favored status. That said, it really comes down to politics. If the czars and the rulers in congress believe that this extension can affect the next midterm elections in a positive way, they will most ikely pass something. If not, as incredulous as it may sound, they will take the sound bite position of saying they are taking serious action against the deficit. NAR wants the bill they support to get passed. Currently, the favored bill is the one authored by the chair of house better ways and mean committee.
William,
You are so right. If our representatives think this will get them elected, then they will vote for it. If they think it will not help them get reelected then they will not vote for it.
The question is not whether it is good or bad for the housing market, the economy, or the US Treasury - the question is only if it will or will not play well in their district.
The job of a representative is not to represent, but to get reelected.
The politics of the sound bite. France and Mark's comment had me thinking last night as I was running at the gym. I am posting separately my alternative.
Thanks,
Richard