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February 10th, 2009 (Modified on March 6th, 2009)

Is the $15,000 Tax Credit a Good Idea?

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Like anything else, it all depends on who you ask. The Senate is set to vote today on their version of the Economic Recovery and Reinvestment Act which includes a non-refundable tax credit of 10% of a home’s purchase price — capping at $15,000. From a homebuyer’s perspective, the Senate’s version is undoubtedly the better deal as opposed to the House’s $7,500 tax credit that has to be repaid over 15 years.

Some critics fear the Senate’s aid to homebuyers is not only a waste of money, it’s addressing the wrong issues. For months many of the government initiatives aimed at  righting the housing market — specifically foreclosures — were only aimed at borrowers who had fallen behind on their monthly payments. Critics say this tax credit is abandoning that focus, giving aid to borrowers who can already qualify for today’s strict lending standards:

But the measure has its share of critics who say Washington shouldn’t be spending billions that largely benefit homeowners with equity in their homes, and upper-middle-income borrowers who have stable incomes and good credit. [Thomas Lawler, an independent housing economist in Leesburg, Va.] and others say the real focus should be on stemming foreclosures, which are flooding the marketplace with price-destroying competition.

Others believe such a significant tax credit will have an effect similar to falling home prices: it will attract borrowers who were once unable to afford monthly payments a year ago. While we have become skeptics of the expectations of success for housing programs’, hopes are high:

The National Association of Realtors estimated the Senate measure will attract an additional one million buyers who would otherwise have remained on the sidelines. “Consumers will view the tax credit as they do lower home prices,” said Lawrence Yun, NAR’s chief economist. “And more people will qualify [for buying homes].”

We’d like to hear from those who believe this measure is enough to finally get homebuyers back into the market?

Also, who thinks this initiative is too expensive and a waste of time?

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6 Responses to “Is the $15,000 Tax Credit a Good Idea?”

  1. PT Says: February 10th, 2009 at 12:46 pm

    We have been shopping for a house for two years and have not been able to find anything we like at an affordable price. Prices have dropped a little, but most people are holding out and there is not alot of inventory. If the tax credit could be used to build a house, we would jump on it.

  2. Tim Manni Says: February 10th, 2009 at 1:37 pm

    PT,

    Good to hear from you. I haven’t heard much that discusses the tax credit for new homes specifically, but a tax credit has been advocated by the National Association of Homebuilders for some time now. The details released so far speak to home buyers in general, so I believe that includes new homes as well. When I find more info regarding the tax credit and new homes I’ll let you know.

    Thanks,
    Tim

  3. Chris Says: February 10th, 2009 at 1:46 pm

    FOR THOSE WHO BOUGHT IN JANUARY:
    THE HOUSE PASSED THE BILL FOR A $7500 TAX CREDIT THAT DOESN’T NEED TO BE REPAID AND IS AFFECTIVE FOR PURCHASES OF HOMES AFTER 01/01/09.
    THE SENATE CHANGED IT TO A $15,000 TAX CREDIT BUT IT IS ONLY AFFECTIVE FOR PEOPLE WHO PURCHASES AFTER IT’S SIGNED.
    IF THE SENATE PASSES THERE’S TODAY, THEN THERE WILL BE A MEETING BETWEEN MEMBERS OF THE SENATE AND MEMBERS OF THE HOUSE TO WORK OUT THE DIFFERENCES BETWEEN THE 2 BILLS.
    I BOUGHT IN JANUARY SO I OBVIOUSLY WANT THE $15,000 TAX CREDIT THE SENATE PROPOSED BUT WITH THE START DATE THE HOUSE PROPOSED.
    YOU NEED TO MAKE YOUR VOICE HEARD AND CONTACT YOUR SENATORS AND HOUSE REPRESENTATIVE. THIS IS AMERICA SO YOUR VOICE IS YOUR POWER. E-MAIL THEM OR CALL THEM. HERE IS A CONVENIENT NUMBER. CALL AND ENTER YOU ZIP CODE AND IT WILL GET YOU IN CONTACT WITH ALL OF YOUR CONGRESSMEN. DECISIONS ARE BEING MADE, DO IT NOW. 1-866-924-NAHB (6242)

  4. Ginny Says: February 11th, 2009 at 7:17 pm

    The tax credit also helps a seller/buyer scenario. Many sellers have seen their home values go down because of the competition with short sales and foreclosures. Sellers who have kept their homes up, have good credit, have paid their bills on time, etc. are finding that their largest asset is going down in value. The tax credit will help soften that blow when they get an offer 10% less just because down the street someone is selling his or her property as a short sale (for less than they owe on it.)

    The tax credit will also help people who are making major purchases spend a bit to get their new home ready for them. Typically home owners will decorate or update their new homes in their own personal style. Generating more home sales will be a welcoming indication that we can move forward with our lives once more.

    I hope that the final bill keep the $15,000 credit but have it refundable. That would jolt the housing market in a big way and at the same time put money into the hands of folks with jobs and good credit to help stimulate the economy and reverse this downward spiral where folks are conserving rather than making judicious, well-informed purchases. A lot of job losses have been a not only the result of the housing market crisis, but the fact that Americans have quit spending. This results in more job losses.

    The good thing about the compromised bill moving through Congress is that it has a mix of a lot of different kinds of stimulus ideas. I think this one is will be worth it.

  5. Tim Manni Says: February 12th, 2009 at 11:50 am

    Ginny,

    I agree — from a real estate perspective this has the potential to generate a lot of activity. As you stated, 15K does have the ability to “help soften that blow” many homeowners or potential buyers are experiencing. Thanks for sharing your insight, hope to hear from you again soon!

    Thanks,
    Tim

  6. online tax services Says: March 28th, 2009 at 8:43 am

    Illinois State Lawmakers are talking about raising the state income tax rate by 1- 2%.

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Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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