By Jim Hagerty
It looks as though first-time home buyers won’t be the only sector to take advantage of a tax credit to secure home ownership. While the tax credit for first-timers was set to expire at the end of the month, the House of Representatives voted Nov. 5 to not only extend the assistance program, but expand it to include those who already own homes. The Senate approved the measure Nov. 4.
With President Barack Obama’s (D) signature, the new program will still grant first-time home buyers—those who haven’t owned a home in the last three years, up to $8,000 in tax credits. Those who have owned their home for at least five years will have access to credits of up to $6, 500.
Changes have also been made to income qualifications. New tax credits will not be available for those with incomes above $125,000, up from the previous ceiling of $75,000. The income minimum for joint filers is now $225,000. Under the previous guidelines, the minimum income for joint filers to qualify for a first-time tax credit was $150,000.
To qualify, both sectors must sign purchase agreements by May 1 and close before July 1, 2010. Whether the program will continue from there isn’t known. Regardless, agents aren’t looking that far into the future. Most feel the program has sparked a significant upswing in activity. Extending and expanding it now means Realtors will have more in their arsenal, especially in areas still limping from the housing slump.
“We do have some reasons to be excited,” Illinois Association of Realtors President Michael Onorato said. “What the first-time buyer credit did was impact the lower end of the market in terms of price points. By expanding it, we’re going to finally see some move-up buyers.”
According to stats, 51,000 buyers took advantage of the credit program as of September. More than a million homes were sold nationally to first-time buyers who utilized tax credits.
A questionable, at best, win-win, extending a modified program will come with about $15 billion in tax losses to the federal government.
The big picture
While some feel the cost of the new program is too great for the government to bear, others feel the feds should simply err on the side of faith and leave a rebound of the crippled housing market in the hands of the consumer, regardless of what it costs. Congress has obviously looked at the issue through rose-colored glasses. Breaking it down, the numbers indicate those in Congress who voted against the extension had done their homework.
According to the National Association of Realtors, about 350,000 of the 1.4 million buyers would not have purchased a home without the tax credit. When looking at the big picture, 350,000 homes, although a significant number in this economy, only a select few are staring the problem in the face.
With the existence of FHA still in place and Freddie and Fannie now controlled by the Treasury, additional government hands in the housing bubble is doing little, if anything, to move American consumers away from independence on the real estate front. The way it stands now, most—if not all—FHA premiums paid are routed back to the Treasury, which, some say, offsets the need for the first-time tax credit to have existed in the first place. The Fed has also doled about $200 billion to more than 550 banks; not to stimulate the housing market, but to simply keep lenders from falling. Bailout funds have not been used to increase lending activity. In fact, most have cut programs and drastically tightened up credit guidelines.
From a consumer standpoint, there is an upside to the existence of the program. A new home purchase puts money in the pockets of the seller, who, in turn does with the proceeds what she wishes, including purchasing more consumable products. As buyers turn to retailers to furnish new homes, a single $8,000 tax credit can be responsible for hundreds of thousands of new dollars injected into the economy. How long we stay addicted to federal assistance before taking it on the arches and moving forward with truly new money may be the internal question worth attempting to answer. At least until bailout funds are paid back, the circular flow of federal money will continue, and obtaining a home loan could come with a few bumps. Those with income, clean credit and down payments are still in the driver’s seat.
From the November 11-17, 2009 issue