Home-buying credit needs tweaking
Home sales have continued to rise, thanks mostly to the $8,000 tax credit for first-time buyers, which is set to expire on Nov. 30. Commentator David Abromowitz says an extension of the home-buying credit needs tweaks before it can be effective.
Commentator David Abromowitz (Center for American Progress)
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TEXT OF COMMENTARY
Kai Ryssdal: It's not all that surprising that giving first time homebuyers an $8,000 discount on their taxes has helped stabilize the housing market. It's also not so that surprising that with the credit set to expire at the end of the month, signs are that it's going to be extended a while. Commentator David Abromowitz says keeping the credit alive is all well and good. But it needs a little work first.
DAVID ABROMOWITZ: Why not extend the $8,000 first-time home buyer tax credit? Everyone loves a tax break, especially when you get a quick check from the government. But Congress should at least target the credit to the people and places that really need it.
Instead, the majority of people who've taken advantage of the credit so far apparently would have bought a house anyway. A recent National Association of Realtors study showed that only 350,000 buyers would not have bought a home without the credit. Yet nearly 2 million people will get $8,000 checks this year. That means the rest of us taxpayers spent over $40,000 to get that one truly new purchaser out of five to buy a house.
The scattershot nature of this credit highlights its central flaw: it just isn't targeted towards the problems it was billed as solving: turning around communities hardest hit by foreclosures and plunging homes prices.
Worse, Congress is heading in the opposite direction: boosting eligible buyer incomes to $250,000. That's five times the national median income. And handing out $8,000 checks for homes costing up to $800,000.
Giving tax credits to well-paid lawyers in relatively untouched Seattle or Houston does nothing to boost homes sales in areas with rampant foreclosures and struggling economies. Instead, focus home-buying assistance on hard-hit areas like Las Vegas, Miami, and Oakland.
One idea is to offer the credit only for modestly-priced homes. That way, the hardest-hit communities would become magnets for buyers. Economic stimulus would flow to places where home values have dropped, and economies have suffered the most.
We do need to break the cycle of foreclosures and neighborhood destabilization. That remains critical to the nation's overall economic recovery. But for a program that may cost more than $11 billion for just a five-month extension, we should insist on maximum bang for the buck.
RYSSDAL: David Abromowitz is a Senior Fellow at the Center for American Progress.
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From Salt Lake City, UT, 11/04/2009
The whole point of the credit was to slow the drop in housing prices and protect the governments loan investments in Fannie and Freddie. Increasing demand at higher prices decreases the number of people underwater long enough for the banks and government responsible for creating this mess to unwind some of their reckless loan positions.
I've always assumed the credit would be phased out slowly with smaller and smaller extensions to avoid another crash. Increasing the availability to speculators or recent home-losers only re-inflates the bubble at tax payer expense. Regionalizing federal stimulus wouldn't fly in congress, and really is unfair to taxpayers nation wide, but tying government payments to regional historical median home prices could have saved a bit of money.
I'm waiting to buy a home at a 2000 price in a slower market after rates come up a bit and the market thins out. Demand associated with the end of credit makes it a bad time to jump in.
11/04/2009
I agree with Ms. Knapik that Mr. Abromowitz should have his facts in place before commenting on such an important issue.
It is true that based on the NAR's figures and the money spent by the gov't it cost about $40,000 for each extra house sale under the credit. An absurd waste of tax payer stimulus money!
But there are many more issues. There is such fraud associated with the credit that it has been reported that the IRS is considering auditing anyone who took the credit. The WSJ had a strong editorial against extending the credit "First-Time Fraudsters (Oct. 29). And USA Today came out against it with "Our view on economic stimulus: It’s time to pull plug on tax break for home buyers" (Sept. 21).
Does anyone realize that this is a "refundable" tax credit? That means even if you pay no taxes, you will still get a check from the government. That is probably the reason that there has been so much fraud.
This tax credit only inflates prices, convinces those who shouldn't take out a mortgage to take one out, and help the real estate industry. The stimulus money could be much better spent on jobs for the unemployed.
From San Antonio, TX, 11/03/2009
It sounded like Mr. Abromowitz would prefer that the tax credit only be available in the parts of the country that created their own housing bubbles with hype-inflated home prices and now have problems. Lots of home sellers made lots of money by selling at those prices and lots of greedy buyers who thought the bubble would never burst thought they'd cash in on the ever-expanding bubble. Those who took home equity loans to buy boats, vacation homes, etc. are now feeling the pinch as houses values declined to reasonable values.
Here in Texas our legislature has protected our citizen from themselves with strict home equity loan regulations. Our values have risen at a steady pace over the past decade. We didn't get rich on one another. But now Mr. Abromowitz thinks we should be left out of programs that could help us too. All the negative press about the economy in the rest of the country has affected us although we're happily holding our own. We shouldn't have to bail out the rest of the country for their foolish actions. Offering the tax credit only in the areas that caused their own problems is a ludicrous idea.
Also, Mr. Abromowitz commented that a buyer of an $800,000 home could get the $8000 tax credit. I seriously doubt that anyone would qualify for the tax credit would qualify to buy an $800,000 house. He should have his facts in place before making such statements.
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