Industry Wants 1st-Time Homebuyer Tax Credit Expandedby Tim Manni
Due to rising mortgage rates and an under performing market, special interest groups have begun to exhort lawmakers to expand one of the year’s more appealing home-buying incentives. The National Association of Home Builders along with the Business Roundtable, “an association of chief executives,” have prompted lawmakers to increase the first-time homebuyer tax credit by $7,000 and expand the offer to all homebuyers. The group would also like to see the tax credit’s December 1 deadline pushed back.
Housing professionals argue that creating more of an incentive for “trade-up” buyers, or non-first-time homebuyers, would create significantly more demand in the marketplace:
Business leaders say that while the first-time-buyer credit has succeeded in jump-starting the bottom end of the housing market, more needs to be done to lure “trade-up” buyers back to the market. Realtors and builders argue that boosting sales among existing owners as opposed to first-time buyers will spur more sales because each transaction involves two home sales. “That ‘move-up’ buyer has got to have somewhere to go,” says Mr. Smith, who warns that without more incentives for existing homeowners, the housing market’s “stalemate will be nasty and protracted.”
Besides enhancing the tax credit, industry groups have also called upon Congress to continue efforts to keep mortgage rates at 5%. Mortgage rates have climbed 0.71% in the last two weeks, finishing at 5.74% on Tuesday.
While these incentives for the beleaguered housing market seem beneficial to all on the surface, there are several underlying issues which make these “improvements” suspect to serious speculation.
First, we must examine who’s calling on policy makers to enhance the tax credit: they include special interest groups like home builders and realtors. An enhanced tax-credit would serve to generate more business for them.
“These groups are likely seeing some increase in their business, so they automatically think that more is better,” said HSH Vice President Keith Gumbinger.
Second, it’s too soon to tell if the existing tax credit has even been a viable success or not. Policy makers should strongly consider gauging the success of the existing program before they enact another.
Third, when will these incentives end? How much money is enough to jumpstart the market to levels that certain groups deem “acceptable”? Also, how much government intervention can the marketplace handle? “What’s happening is that we’re essentially borrowing from tomorrow’s demand,” said Gumbinger.
These are unique times and our government has concocted some unique ways of dealing with the issues. But the longer these interventions persist, the harder it will be to reestablish a normally-functioning marketplace. Are additional government tax credits the cure for the housing market’s woes? We think not.