The $8,000 first time home buyer tax credit is currently set to expire November 30, 2009. That means eligible buyers must take title to their new homes on or before November 30 to receive the credit. Learn about the tax credit here.
The looming expiration is generating debate in Congress whether to extend the life of the credit. The real estate and mortgage loan industries are lobbying hard for an extension of the highly successful program.
Why extend the tax credit program?
Proponents of the extension point to how the tax credit has been stimulating the real estate market. The New York Times in an article published today cites analysts’ estimates that the credit has generated 100,000s of home sales that would not have taken place had the credit not existed.
These sales helped stabilize the real estate market earlier this year at a time of crisis when fears of a new economic depression were widespread and highly creditable.
The New York Times article estimates the tax credit’s cost to the Federal Treasury at $15 billion to date. This seems relatively modest given the overall size of the nearly $1 trillion stimulus spending plan passed by Congress last February.
350,000 – 400,000 additional home sales
That $15 billion seems money well spent; the tax credit certainly has had a big impact on the national housing market:
“The National Association of Realtors estimates that about 350,000 sales this year would not have happened without the lure of the tax credit. Moody’s Economy.com used computer modeling to put the number at 400,000,” quoting from the New York Times article.
In Massachusetts, I have seen many home buyers active in the market because of the credit. Interest in starter homes is bordering on the frantic as the expiration for the credit draws near.
The Times article demonstrates an additional spillover benefit of the tax credit: the article recounts how the Meyers family purchased a condo, got the tax credit money, and used the funds to purchase a number of pieces of furniture and appliance items.
“We did exactly what the government wanted us to do,” Ms. Meyers was quoted in the article. “We stimulated the economy.”
$50 billion to $100 billion expansion of credit program?
There’s even talk by lobbyists of getting Congress to increase the tax credit to $15,000 and expanding it to cover all buyers, not just first time buyers.
This would be a major financial undertaking. The Times article quotes experts who estimate the cost of extending and expanding the tax credit at between $50 billion to $100 billion.
Note that money would be borrowed by the Federal government, adding to the large deficit we are piling up. On the other hand, an expanded credit available to all home buyers might help bolster sales of trade-up homes in hard-hit markets across the US.
One possible solution
Extending the life of the first time home buyer tax credit as currently structured would seem a no-brainer and should quickly be done by Congress.
However, greatly expanding the tax credit to apply to all home buyers as some lobbying groups seem to want could be very expensive. Perhaps that should be done but only if a firm time limit to such an expanded credit is imposed.
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