The Homebuyer tax credit ending in a couple months may not be going away after all…
I just noticed a post from Pete over at BibleMoneyMatters about the new talks of extending the homebuyer tax credit and not only that, they are also talking about raising it from $8000 available to first-time homebuyers to $15,000 available to ALL homeowners.
According to an article over at Financial-Planning.com…
“…the National Association of Realtors wants to expand the tax credit to $15,000, and it wants to allow all buyers to be able to qualify, not just those who have been out of the market for three years, according to The New York Times. The $15,000 figure is actually the amount that the credit’s initial sponsor in Congress, Sen. Johnny Isakson, R-Ga., a former real estate agent, had wanted. Now Isakson is introducing a bill that would provide up to a $15,000 tax credit to any buyer who stays in their newly purchased home for a minimum of two years, according to the Times.”
The current housing tax credit is projected to cost the U.S. government over $15 billion dollars, and while I am excited that I get to be a first-time home owner and get $8000, I am very concern for our country because of the excessive government spending. If this bill were passed and allowed everyone to be eligible for the credit while increasing it to $15,000 I can’t even imagine how much that will cost the government. Some estimates are saying as much as $100 billion, I kind of think that is a pretty modest estimate.
What does the White House think about the bill?
According to the Associated Press…
“White House spokesman Robert Gibbs said the administration’s economic team was evaluating the impact on new home sales and would make a recommendation to the president.”
Not sure what that means, but they clearly aren’t ruling it out.
Would you buy a new house if the government would give you $15,000?
When is it time to say that enough is enough? What do you think? Let me know in the comments below…
{ 32 comments… read them below or add one }
Thanks for the link Bob. It is a bit concerning that the government is spending so much money.. If they extend it to the tune of another 50-100 billion dollars – I’m not sure that is going to be a good thing. Sure, it may stimulate the real estate market to some degree – but at some point the bleeding with all of this out of control spending has got to come to a stop! Scary times we live in.
While I wouldn’t hesitate to take my money back when buying a house, the government’s spending completely out of control. All this spending together is a ticking time bomb.
The housing credit, an attempt to prop up houses will probably not have the effect that is expected. I expect that after incentives are taken away housing prices could drop drasticly (provided full blown inflation doesn’t hit by then.)
I can’t escape the fact that this will bring us full circle to where we were three years ago, with an overheated market supercharged on 100% financing.
A $15,000 credit will cover a 5% down payment on a purchase up to $300,000, meaning you can use a 95% loan plus the credit to effect a zero down purchase. Since the median price of a house is around $200k, we’re talking about a LOT of zero down purchases on the horizon.
Yeah, it may juice the housing market for a time, but then we’re back to people owning houses with no skin in the game.
As much as I would like $15k, I do NOT want this to happen. It won’t actually fix anything. Problems will continue way on down the road, and taxpayers will be paying for this for decades.
People don’t need houses! They just need a place to live. There’s nothing wrong with renting! ARG!
Wow. If this is true, then I’ll have no excuses to NOT buy a house…
Of course, the Realtor Association wants this. They make money when we buy houses!
I agree with everyone else so far. I would definitely do all I could in order to buy a house in order to get the rebate. However, it is ridiculous how Congress is rushing into pumping money into the economy. Actually, it’s not ridiculous, it’s downright scary! Perhaps they are feeling overly powerful.
Dave Ramsey is right when he says that the economy will fix itself. Furthermore, isn’t the government doing the same thing that caused much of this problem in the first place by going deeper into debt without a way to repay?
While it is a wonderful thing on the face of it, I agree with Bob that our government simply cannot give money (as in tax credits, in this case) that it doesn’t have! A good example of a fiasco is the “Cash for Clunkers” program. Car dealers are STILL waiting to be paid for the vehicles that they took to sell their cars which isn’t right at all. Further, American car manufacturers didn’t benefit all that much but Japan sure did. I know, you are thinking what does this have to do with the $15000 tax credit? My concern is that when the time comes to take the tax credit, it won’t be there, for one thing…they will “change” their minds and secondly, someone like my hubby and me wouldn’t benefit at all since we make so little money, we don’t pay taxes.
Most importantly, though, is that all these programs are throwing money around like we have it and we don’t. I don’t know if you have noticed but everything costs more these days and that is due to the devaluation of our dollar. Printing money only makes that money less valuable. The current administration doesn’t seem to get that. We need to pressure the politicians in Washington to cut waste and fraud, to NOT bail out any more companies or institutions, stop printing money, not legislate a health plan that will cost trillions of dollars (this from the government itself…not Obama…but GAO and other departments). We must remind those who represent us that they work for US not the other way around.
Keep in mind that this tax credit is piddly when compared to the money the Fed is spending to keep mortgage rates artificially low. The Fed is on schedule to purchase $1.45 TRILLION in mortgage-linked securities in 2009 alone.
Also, as with virtually all government programs, the existing program cost about 2x as much as the government initially though.
Steph — Your comment has some factual inaccuracies… Example: Cash for Clunkers led to GM having it’s lowest inventory level EVER. Chrysler had to push up production on 50,000 cars. 42,000 jobs in America were saved from layoff because of the excessively low inventory levels. This is the part you rarely see on the news. People love bashing a program in its immediacy but never like to stick around for 6 months to a year to see its real impact. I guess it makes it easier to play the blame game that way. Furthermore, car dealers knew they would have to float the money. They didn’t HAVE to participate so any “woe is me” they try to play is just games.
Just wondering Bob, what made you say you suspect it will be more? Just intuition? Or do you suspect they will allow more than 6.7 million homeowners cash in?
And for anyone who says “How dare the government do this!?! But I’ll take the money!” You are part of the problem. And don’t offload responsibility. Let’s set up a scenario: You watch a man steal my Black Berry Tour (about $500 sans contract). He offers to sell it to you for $100. You agree knowing it’s not yours. The police could potentially get you as an accessory.
Now, that isn’t my line of thought. I would like to see the data behind this program. If net inflows exceed net outflows, then yeah… why not do the program?
MLR,
my logic for thinking that it would be more is that, while the $8000 was a nice incentive – it was only open to first time homebuyers. If it had been open to all homebuyers I think it would have been taken advantage of by whole lot more Americans. If this one is open to everyone, I think it will get a lot of takers. And if you add to that and incentive that is almost twice as much ($15K) I really expect that we will see a lot of people taking advantage of it. With this being a tax credit, it will probably be more difficult to monitor how many people are taking advantage of it until after next April (when tax returns are filed)…
Wow, I think this is great. I have been paying taxes for years, and it is wonderful to get some help. If it passes I will finally be able to get a leg up.
Thanks US government.
MLR- As many people expected before the Cash for Clunkers program even began, it’s looking like the program won’t save any jobs. It only pushed off job losses to the future. We are already seeing signs of this less than one month after the program’s conclusion. Automotive news reports that “September’s light-vehicle sales rate will fall to 8.8 million units, consumer auto site Edmunds.com said. That would be the lowest rate in nearly 28 years, tying the worst demand on record.” That’s saying a lot considering population increases and the increased rate of car ownership over the years.
With regard the the various housing stimulus programs, 3 questions must be asked.
1) Is it the government’s job to prop up housing prices?
2) How does this affect young and low income families?
3) Where does the money used to prop up housing prices come from?
It’s my opinion that the government has no place in the housing market. For nearly a century, government has been pushing home ownership through various programs. Yes, home ownership reached an all-time high, but was followed by a huge crash because not everyone can afford to buy a home (even if the government keeps telling us that everyone should own a home). To keep the charade going, the government continues to spend trillions to keep the housing market afloat.
I believe there is a moral aspect that many fail to consider. Everyone can agree that these programs keep home prices artificially high. Absent government intervention, prices would definitely be much lower. As a result, we are left with a large segment of society (e.g., low income, young adults) that are kept out of the market.
Given that the money the government is using to support these programs is either borrowed or printed, there is an additional moral aspect. In essence, we are stealing the wealth of our children, grandchildren, great grandchildren, etc. to support an over-inflated lifestyle. After all, future generations are going to be on the hook for paying this debt back through higher taxes and inflation.
The credit extension and increase is still very much in the proposal stage. It all depends on the state of the housing market and right now is a50/50 proposition as to whether it get’s extended or not.
Bob —
Gotcha.
Rob –
I don’t know of anyone who predicted that aggregate demand would go up, that just doesn’t make sense. Everything I read was on the advantages of shifting the demand curves. Essentially, we robbed Fall sales and pushed them into the Summer.
So any “breaking” report that sales are lower now is a “no-duh!” The fact is that, as of now, 42,000 jobs have been saved. Because of the mass exodus of inventory from the manufacturers lots, they had to increase production and hold off on layoffs.
Going forward, you better bet that they will be utilizing flex schedules, no O/T for the line workers, and targeting at a less than 90% efficiency (traditionally car manufacturers run their lines at 90%+ to make money). All of those things combined should equal a slower inventory build up — Enough to stock the lots as to not inhibit sales, but not so much that they have a huge amount of capital tied up in old inventory.
I think the simple question is: Would you rather, a) Lay off 42,000 people today, or b) Potentially lay off 42,000 people in 4 months
With unemployment already hovering around 10%, would it be wise to lay off another 42,000 people in one fell swoop? Only to have that ripple into other aspects of the economy. Especially as other economic indicators are pointing towards a rebound… we need to build the momentum and manufacturing is not an area we want to take a huge hit.
Just my two cents.
MLR- I would rather cut 42,000 jobs today, considering taxpayers have already given 10s of billions to “save” jobs in the auto industry. If so many jobs are being “saved,” why are additional bailouts continually necessary? Perhaps it’s because many of these jobs are completely unnecessary. If there is no need for these jobs, the government has no right to spend for the sake of spending just to keep them. The fact is that when government subsidizes inefficient industries, it hurts the economy by devoting resources to away from more efficient uses.
Let’s not forget that this program was only supposed to cost $1 billion and ended up costing $3 billion. I saw no reason to throw an additional $1 billion on the fire in the first place. Fun fact: $3 billion amounts to roughly $71,400 per job saved plus interest on the debt.
I’m not pessimistic by nature; but unlike you, I see no recovery in sight. I see people pointing to second derivatives and a bunch of government spending/handouts propping up various sectors of the economy as recovery.
The inherent flaw with Keynesian theory is that it’s short-sighted. It ignores future costs for the sake of current consumption. Although, it doesn’t surprise me that more people don’t see this, given that most Americans conduct their own finances in this way.
As a Realtor I talk about the tax credit almost every single day. I have a lot of potential buyers that are waiting to see if this new credit gets passed, and a lot that are just waiting out the market to see what happens. Many buyers are trying to time the market at its lowest point, with the best interest rate, however once the market shows positive signs of an upswing it will be much harder to get the deal you could be getting now. We have already seen multiple offers on homes that are priced competitively and near the $200k range (in Richmond, VA). Multiple offers means that you may be making AT LEAST full priced offers, with no closing cost assistance from the seller. My last buyer walked away from the settlement table with more money than he walked in with, and is getting the $8k tax credit, on top of his Zip Realty rebate of 20% of my commission. Now that’s a deal.
Will the $15k stimulate more buyers in general? Possibly. There are also programs out there that will allow buyers to take out a second mortgage on their purchase to pay for their downpayment, in hopes that when they get the $8k tax credit they will then pay off that second mortgage. However, I see most buyers holding on to that second mortgage and using the credit money towards whatever their heart deems worthy at the moment…not good.
Kacie, maybe YOU don’t think that there’s anything wrong with renting, but millions of other people would disagree with that. Continue renting your apartment if it makes you happy, but do not speak for other peoples’ needs and wants. There IS something wrong with renting: it’s called wasting money on an “investment” you don’t own or control, that you’ll never see a return on.
I think that the credit should be extended until next 2010.
I am in the process of purchasing my second home, if 15K happens I would rather wait. When its’ going to take effect if everyone passes the bill??
This will not help the economy in the long run since more and more people will buy their second home and let go the first to get the the 15k rebate.
I am one of the lucky one that can rent house close to my mortgage payment. In my opinion whoever cant’ will let go their 1st home/
Renting? No ma’am! I want a house and I will do all I can to get one if this tax credit is extended.
I think it would be great if they extended and raised it to $15,000. My husband only makes 15 an hour and we still can barely afford anything, because everything is so exspensive these days.. Renting is just pretty much throwing our money away. I would love to be able to own a home for my children to grow up in. I don’t think that people with more than one home should be able to get it though considering there are people who are alot worse off..
I feel the need to state the obvious: we don’t get everything we want in life.
Samantha’s post demonstrates to a T how the US has become a entitlement society. The simple fact that her husband only makes $15 per hour does not entitle her/them to $15,000 of someone else’s money. The truth is that Samantha and her husband have not purchased a home, not because her tax-paying neighbor isn’t paying enough taxes to cover their mortgage , but because they cannot afford to do so.
Perhaps even more important, a recent Brookings Institute analysis (found in the following Barrons article) concludes that the $8,000 subsidy actually costs $43,000 per extra house sold. Worse yet, the new $15k tax credit will ultimately cost $292,000 per home.
http://online.barrons.com/article/SB125609957458798391.html
Rob, excellent post and you brought all of the discussion here to a sensible conclusion. This “spreading of wealth” (i.e. communism, socialism, etc.) simply doesn’t work. Ask Russia. All it breeds is bitterness and anger. You are so right that a person who CAN afford to buy a house should not have to pay higher taxes so a person who has low income can get money to buy. My husband and I are renting by choice. Is it throwing money away? Maybe but we are senior citizens and decided years ago that we didn’t want to have a high house payment when we retired and we don’t. Sadly, we live in a nation I no longer recognize where too many citizens feel that the government “owes” them or “give” them something. What those who feel this way don’t get is that the money and/or perks we ALL pay for. It is called taxes. There is no free lunch…we pay for it one way or the other.
(Burn for $8000.00). We were told that there would be nothing held from us, and all bills would first be presented on CNN prior to passing. The first stimulus was not made public until three months after passing.
If I knew that there was a 3 year period before purchasing a new home I could have delayed my mortgage two months and be a first time home buyer.
Thank you government for the lie. As a Viet Nam vet I should be used to being screwed by this government.
No one seems to like “BIG” goverment, right. Then why are we so much better off than the poverty, millitary ran, no people’s goverment nations. Why are we in Hatti saving what is left. I think we should take another look at what we have and why we have it. In your everyday life what have you given up just because it was not needed in another one’s eyes.
The Haitian government has a long history of oppressive and corrupt dictators. With this came a great deal of government control. This government control and oppression has lead to Haiti being the poorest nation in the Americas. You are mistaken if you believe that some lack of government involvement lead to Haiti’s history of economic woes.
The US, on the other hand, has achieved financial prosperity because it was founded on the idea of liberty. The founders believed that a free society is the most just and would result in the greatest prosperity. Policies that take money from one person for the purpose of redistribution spit in the face of what has made the US such a success.
But all this talk about Haiti really has little to do with the conversation. The question we should be really asking is:
Is it the US government’s responsibility to assure that home prices continue to rise? Put another way, do you believe that the US government should take money out of your paycheck to assure that your neighbor’s home doesn’t decline in value? If so, we can get rid of the middle man by having you send checks directly to people like my sister (home value declined by nearly 60% over the past 4 years).
I’m of the belief that people should only buy homes that they can afford, regardless of government incentives. Policies such as these only distort markets and create bubbles like the one that exploded 3-4 years ago.
@uclalien: wow, you are absolutely right on the money (pardon the pun) here. Not only that, but we don’t have the money! The government is throwing money here, there and everywhere that we don’t have. You and I must live on a budget, right? We have all got in over our heads with debt (I would guess, most of us anyway) and it takes a monumental effort to become debt-free. We have to do without for a while, right? We have to carefully plan our meals, our trips in the car are planned, right? So the federal (and, in my case, the state) government continues to spend money that it does not have. No money? No problem! We’ll just print some more. We are looking at some serious repercussions soon and our children and grandchildren will be the ones cleaning up the mess. Very nice of them to give a tax credit but our kids will be the ones who actually pay them in the way of high taxes and/or hyper-inflation.
Giving something to everyone? Didn’t think that was possible. Usually it’s only special interest that get the breaks. HUD did a great job of that and THAT’S why we are in the mess we are in. Don’t remember anyone ever knocking on my door with free “Ameridream” downpayment plans…Oh, wait, I’m American and my heritage is “mostly” white; (not enough Indian to qualify, only 1/8th). So what’s wrong with letting EVERYONE in on a little help? Believe me if you don’t take it while they offer it, someone else will set up an organization to give it away somewhere else anyway. The government will never stop funding special interest groups….Get use to it! 15K, I’ll take it!
It takes longer to sell because of the economy, which isn’t our fault ,so yes I wish they would extend the money for buying a home and yes 1500 would be great for both first time home buyers and people like us that are trying to sell our house and move we need more time!!!!
Barry-
Perhaps you didn’t receive a “free ‘Ameridream’ downpayment plan” (yet), but the fact is that the government is heavily subsidizing ALL home purchases in the US (including yours) through artificially low interest rates, the direct purchase and guarantee of mortgages, and other government programs.
“So what’s wrong with letting EVERYONE in on a little help?”
The problem is that:
1) The government can’t afford it (or in other words, it’s bankrupt).
2) It really doesn’t help at all. It only inflates home prices.
Betty-
Whether you choose to blame the government for its various programs that push home ownership, buyers/sellers who had (and continue to have) unreasonable expectations for home values, or bankers for making irresponsible loans, the economy is in the tank because of all three. All of which are the result of human action. Saying this recession “isn’t our fault” is a cop out and does nothing to prevent the same thing from happening again in the future. I’m not trying to be mean, but if you need to move, no matter the reason, this would seem to imply that you made a bad choice when purchasing your home. It really isn’t taxpayers’ responsibility to pay for your lack of foresight.
And of course your home will take longer to sell. It’s overpriced! Otherwise, you wouldn’t need taxpayers to chip in to get someone to buy it at an inflated price. The sooner sellers realize this, the better off we will all be. Those who are pushing for taxpayers to subsidize the sale and/or purchase of homes are only perpetuating the problem.
I have been working on buying a house for 1-1/2 months now. I understand that I do not qualify for the First Time Homeowners credit because my wife sold her house less than three years ago. I also do not qualify for the $6500 credit because we have not owned a house for at least three years currently. (I am a first time home buyer) At this point and my families future, I do not want the Governments hand out. Every since I was 18 I have battled just to build my credit. I still believe in the American Dream.
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