Should tax credit for first-time home buyers be extended?

Health care is front and center today in Washington, but expect a key housing issue to get attention soon.

The $8,000 tax-credit for first-time home buyers expires in late November and there is talk about extending it.

As many as 40 percent of all home buyers this year will qualify for the credit, the New York Times reports. It is on track to cost the government $15 billion, more than twice the amount that was projected when Congress passed the stimulus bill in February.

Many say the credit is directly responsible for several hundred thousand sales, helping a moribund industry return to life.

Others disagree, saying most of the money is going to people who would have bought a home anyway. And they add that unless it is allowed to expire, the tax credit is likely to become another expensive government program that refuses to die, the Times reports.

What do you say? Up or down for an extension?

65 comments Add your comment

howard

September 16th, 2009
8:28 am

Enter your comments here

Payton

September 16th, 2009
8:37 am

crazy

September 16th, 2009
8:52 am

extend it! I’m buying a home in December!

Brad Steel

September 16th, 2009
9:06 am

No. Some, if not most, of the housing bubble can be contributed to government subsidies including interest deduction and no capital gains tax. Additionally, home ownership is way over-promoted and romanticized by government and special interest groups. Look what that has delivered.

Of course and industry is going to benefit if your pay people to buy the product. But how in the hell does that make sense?

timthebrave

September 16th, 2009
9:09 am

I bought a home last month. The program definitely got me buying a home a year or 2 earlier than expected. I love the program but I may be a little biased

Patricia H. Cobb

September 16th, 2009
9:11 am

Yes, I think the Tax Credit should be extended.

From a realtor's perspective...

September 16th, 2009
9:33 am

This program should absolutely be extended…and it is working. This particular program has helped get buyers “off of the fence,” to make them buy now instead of waiting later. A home is typically the largest item a person buys in his or her lifetime. People have lost money in their stock portfolio’s, their 401k’s as well as the value in their real estate for the most part, and as a result of that, they have been timid about going out and buying such a big ticket item. It is a fantastic time to buy, and there is no doubt that this program has resulted in helping get rid of a bunch of inventory that has just been sitting. The sooner the inventory of properties gets depleted, the sooner values will tighten up and the sooner that some of these vacant lots, which there is currently a 10 year supply of in metro Atlanta, can be built on. As a result of those lots being built on, it will put folks to work. The grading people, the foundation crews, the concrete companies, the framing crews, the lumber yards, the electricians, the plumbers, the heating and air people, the insulation people, the deck people, flooring people, applicance retailers, roofers, landscapers, sheetrockers, etc.,etc., etc. They will be earning money and they will be spending money and as a result of it, the government, both state and federal, will be collecting taxes. I would much rather see the government spending money on a program like this or the cash for clunkers program rather than throwing it down the tubes in Iraq, or Afghanistan or wherever else we are trying to clean up some other person’s problems. You want to talk about waste, blame that. But don’t cut off this program here because it is working and helping all kinds of people and this fragile, shaky, economy.

Fina

September 16th, 2009
9:57 am

definitely should extend it…I believe it allows people who really want to buy a house but who need to work on certain things like credit and downpayment an opportunity to take advantage of the tax credit.

From a Buyer's Perspective

September 16th, 2009
10:05 am

@From A Realtor’s Perspective – Excellent post, I am looking to purchase a home this month and the tax incentive was a “major” element in my decision. Many folks are struggling right now to get rid of their current house in order to move on to a new one. Any incentive to get the ball rolling and to free up the log-jam in the industry has to be welcomed with open arms.

Dave

September 16th, 2009
10:11 am

Let the credit expire. While we’re at it, let’s get rid of the mortgage interest deduction. We shouldn’t encourage people to send $100 to a lender to save $25 in taxes. If an $8,000 subsidy is the difference for homebuyers’ ability to purchase $200K homes those homebuyers are probably too close to the edge and I fear that this will further extend or creat another credit crisis as many of the current buyers won’t be able to continue to make the debt payments for 15 or 30 years. The National Association of Realtors doesn’t care about that. And as for those realtors who say this is working, how do they figure? When I look at the housing numbers on census.gov I see absolutely no evidence that this is doing anything. My guess is the realtors who are aggressively pushing this credit are anecdotally seeing an increase in their own business.

If we ever get the ‘Fair tax’ all these targeted credits become moot!

Jazzy

September 16th, 2009
10:32 am

I would not have looked into purchasing a home this year if not for the credit. It was a great incentive for pretty much everyone that I personally know of who purchased this year. All of my coworkers (there are 7 of us) purchased homes this year due to the credit. No one was talking about buying before the credit was made available. Unfortunately, I attempted to buy in the Spring and was outbid numerous times. So I will go back to the drawing board next year. If the credit isn’t extended, I may actually be inclined to continue renting. I can say that the $8k certainly stimulated the economy. My coworkers, and many others I know who were able to buy, were also able to fully furnish their homes. Some of the homes needed repairs, they were able to pay someone to do it. This brought $ to the economy and to folks who might have otherwise been out of work. EXTEND IT at least another year! :-)

vince neil

September 16th, 2009
10:39 am

how is keeping one’s treasure considered a subsidy….is this from the assumption that all gold belongs to the government..or us collectively….What the government actually is?????
a direct payment to one to buy a home should be avoided but the promotion of activity by lowering the tax impact is an incentive to prosperity……I can assure you that any money i keep will be better allocated by me than a centralized entity…..

Jazzy

September 16th, 2009
10:52 am

Dave, you are wrong sir. The credit industry is tighter than ever. I have well over 750 score, plenty in reserves and holdings and still had to undergo scrunity from the lender. I was approved with no problem but unless you have at least a 620 (some now want 650 and up) and cash reserves this credit won’t even help you because you won’t be approved for a loan. The $ can’t be used for downpayment, either. So, this credit is great for those who are financially READY to buy but probably wouldn’t have otherwise. It’s a great motivator! :-)

Sarah

September 16th, 2009
11:29 am

Hi,

I am saving money to buy my first place. Nothing fancy at all and the deadline of 11/30/09 is on my mind. It would be nice if the credit could be extended until 12/31/09 since it is techinically the end of the year.

Ms.Tiff

September 16th, 2009
11:32 am

Yes, I think the credit should be extended. I’m in the process of buying a house now and the process is taking a little longer than I expected. Yes, I have my down payment, but the organization I’m going through to purchase my home has so many applicants trying to buy a home that they are overwhelmed. So please extend at least until next summer.

Tyree

September 16th, 2009
11:38 am

NO. The government has place subsidzing homes, cars, healthcare. Let the free market reign. The government did help me purchase my home, my car, nor my current healthcare. But I do pay taxes.

Marq James

September 16th, 2009
11:56 am

Extend it until spring. By then we should be in a solid recovery.

Martin

September 16th, 2009
12:01 pm

Let it expire so that prices will go where they belong, further down.

I want to buy a new home where I’m not competing with a bunch of bidders who have an extra $8,000 to spend. Instead of renting for the past ten years, I bought a house in a crappy neighborhood and have kept it (and my mortgage) up all this time. But because I am already a homeowner, I don’t qualify for this tax credit, even though I would jump at the chance to move out of my crime-ridden neighborhood. I have watched my home and houses around it plummet in value, even as I have made repairs and improved it. But somehow it is my responsibility as a taxpayer to shoulder the burden of other people buying houses in a market that’s already down? And I don’t even get to benefit from this program?

GET RID OF IT. It’s unfair, and it’s unnecessary.

al

September 16th, 2009
12:04 pm

absolutely it should be extended, and i’ve been saying this for months now, since we found out that it ends on 12.1.09. we’re currently about to purchase now, instead of in the spring when we had planned to buy, just b/c of the $8000 tax credit. we weren’t in a rush to purchase until we found out we had to close by 11.30.09, and that put us into a frenzy to find a house and buy it asap! so yes, it is stimulating an otherwise completely downed market. it needs to be extended to 12.1.10!

al

September 16th, 2009
12:16 pm

henry, what talk is it that you are aware of, in regards to them extending the program? what’s definitive that you know?

Dave

September 16th, 2009
12:32 pm

@Vince Neil – A refundable tax credit is the EXACT same thing as a direct payment to an individual for the purposes of buying a home (or anything else for which the government issues credits). Lowering taxes is lowering tax RATES. Tax credits are just welfare administered through the form 1040.

@Jazzy – No way is the credit industry tighter than ever. It may very well be tighter than the “free money to all” that a lot of the ‘No-Doc’ lenders were pushing earlier in the decade but that’s a good thing! I don’t really know what those credit numbers mean because there are a couple of different scales that lenders use. At any rate, I don’t worship at the great altar of the FICO. Wise lenders are returning to a more traditional means of determining eligibility for credit – projected future income (based on current income) – existing debt etc.

I still believe it should expire and find it interesting that this link is below a story talking about foreclosures hitting record highs while the realtors are responding how well it works.

Jazzy

September 16th, 2009
12:42 pm

Martin, you, too are misinformed. You are not awarded the credit until AFTER you have closed. And you WOULD actually qualify if you haven’t purchased in the last three years. If only folks would educate themselves about these things before gripping about what the next person might be getting over them. Good grief, this nation needs prayer!

Moon

September 16th, 2009
12:52 pm

Should up !! too tight

Martin

September 16th, 2009
12:55 pm

1. It’s actually given as a tax refund after you file your taxes. You are allowed to amend your 2008 taxes and receive the credit this year in your refund. Not that this makes any difference. It’s still free money and it affects how much people can afford to pay for a house. In fact, that’s what it was designed to do.

2. From irs.gov, “Taxpayers (including spouse, if married) who owned a principal residence at any time during the three years prior to the date of purchase are not eligible for the credit.” So, it doesn’t matter when you purchased it, it’s when you owned it that matters.

Jazzy, it looks like you are the one who needs to educate yourself before calling people out.

Tyree

September 16th, 2009
1:01 pm

+1 Martin. It’s unfair. I paid my mortgage on time. Worked hard. The government has not done one thing for me. Why should we the taxpayer subsidize new home buyers? Yes, sour grapes here. How come those that have rented now get an extra $ 8,000.00 if they desire to purchase? Those of us that saved and been responsible get nothing if we wanted to buy.

Dave

September 16th, 2009
1:09 pm

Jazzy – If the credit is extended, please do yourself a favor and pay a professional to prepare your taxes. As Martin showed, you are incorrect about how to qualify for the credit. You would also be helped by researching the ‘fungibility of money’. While technically the refund or credit isn’t received until after closing, as Martin illustrated in point 1 it is free money that is subsidizing people’s purchase of homes.

Unfortunately, I see no evidence that this credit is doing its intended purpose of turning the housing market.

Crichelle

September 16th, 2009
1:13 pm

Please extend it….am currently looking for a home and am feeling pressured to get it done prior to November 30…So call your congressmen and senators and have them to vote yes on an extension!

MICHELLE

September 16th, 2009
1:20 pm

I say extend it. I am working on my credit and I have done exactlty what I need to do. But my credit score is not at 620. I can get approved but I have to select a certain area that I do not want to live near. Please extend until the end of next year. When people start working on there credit it takes almost a year to get a decent score. What credit counsler service is good to help improve your credit? Please let me know.

Lee

September 16th, 2009
1:31 pm

Interesting how my comment was removed …. its all the truth about foreclosures …. they know this.

From a realtor's perspective...

September 16th, 2009
1:41 pm

Dave, unless you work in the real estate business, you won’t be able to tell if the housing market is turning around. However, i can tell you that this tax credit has really helped the real estate business this year and that things are selling. Now, the things that are selling are very good deals and the buyers, who are able to get the money, are in control and they are absolutely beating up the sellers, because they can, and they have their pick of inventory to choose from. This tax credit not only applies to first time home buyers, but to people who have not bought within the past three years. The sooner the inventory is purchased and off the market, including the glut of foreclosures, the sooner values will begin to tighten up and possibly begin to increase again. And I tell you that it is very tough to get money right now. One has to have good credit and a good job and money in the bank and with all that, the banks are still very shy about loaning money because they have all been burned. 90% of the deals i have done this year have been through FHA which allows the buyer to put down 3.50% of the purchase price. In the past, we hardly ever did an FHA deal. From what i have seen, the typical lenders want 10% to 20% down to buy a home and for the most part, people don’t have the cash to put down because they have lost it in the 401k’s or the stock market. Ask anyone who is an appraiser or a loan officer or a realtor, or a home builder / renovator and i guarantee they will tell you that their business has picked up substantially and it can be attributed to the $8,000 tax credit. Initially the senate was trying to make it a $15,000 tax credit and boy if that had happened, it would have really heated things up…i have a feeling that this $8,000 credit will be extended. And remember, it’s a terrible time to sell, but the sellers who are selling will make it up on the back when they go to buy, so essentially, it’s a wash.

Dan

September 16th, 2009
1:52 pm

It would be very foolish and risky after all of the pain and “over correction” we have all experienced in our housing market to terminate the credit…. extending the tax credit (which indirectly pumps money into the economy) and also allowing ALL BUYERS to receive a tax credit will allow this country to emerge from a HOUSING DEPRESSION.. please , lobby speak to your congress man/woman;home sellers, who have lowered their prices dramatically , need help in getting normal buyers to by homes , to get the people with money , good credit , and the desire to buy, OFF THE COUCH !!! Believe me, the tax credit will be extended , make no mistake about it..

Tee

September 16th, 2009
2:35 pm

I say extend it. I would be able to use it. My lease expires in March of 2010. I would miss out otherwise. The credit wasn’t in place for a full year if it ends this year.

Jazzy

September 16th, 2009
2:40 pm

Martin- you can’t used the tax credit to get approved for a loan, you can’t use it for downpayments, and you can’t have it credited to your contract at closing. So again I ask, how is it affecting how much you can pay for a house if you can’t even obtain the money until months after you’ve closed? You can’t even amend your taxes until after you’ve closed and from there it’s 12 weeks. At best the $ will help furnish the house and/or make upgrades. These things put people to work and pour $ into our ailing economy. We should cease it?? Okay.

Dave- Since I don’t know of anyone who has received this money prior to closing I can’t attest to that. The money doesn’t help you BUY the house. After you close you can file an amendment, the govt doesn’t cut you a check until 12 weeks later. Help me out here, how are we subsidizing free money to homes that are already paid for?

Jazzy

September 16th, 2009
2:55 pm

@Tyree: because the economy is in shambles and needs relief. Your upstanding responsibiity has nothing to do with my financial situation nor anyone else’s. I would be able to purchase a home with or without this credit. Many of the people taking advantage of the credit are well qualified to purchase a home without this additional incentive and that is what it was intended to do: allow those who are IN A POSITION TO BUY to go ahead and buy earlier than they would have to stimulate a weak housing market. Get over yourselves.

Dave

September 16th, 2009
3:20 pm

Jazzy – I would try to help you out, but in addition to reading about ‘fungibility’ you need to read an economic defintion of a ‘consumption subsidy’. In my last post, I wrote that the credit isn’t received prior to closing, but that doesn’t change the economic substance of the transaction. Whether the $8,000 is received before or after closing, the home purchase is still being subsidized. Energy credits for energy efficient appliance and vehicles work the same way.

Curious

September 16th, 2009
3:30 pm

I have heard that the Car Dealers that were using the Cash for Clunkers program to sell some of their inventory were having trouble getting THEIR checks back from the government. They’ve already sold the car and given the “Cash” to the buyer…and are waiting for a long time to get THEIR money back. Some of the dealers are still waiting.

Any thoughts on what this says about the first time home buyers having a problem getting THEIR money back when that time rolls around?

Dan

September 16th, 2009
3:41 pm

IT’S A TAX CREDIT… it reduces your tax bill when you file your taxes….. you save money
that way…. the government makes back your tax saving because they’re tax revenue increases with the sales of billions of dollars of homes around the country and increased tax revenues from agents making commssions, etc. etc…..the government will increase it’s revenue… they won’t lose money on this tax credit.. they don’t send people checks for $8,000…

Martin

September 16th, 2009
3:44 pm

“So again I ask, how is it affecting how much you can pay for a house if you can’t even obtain the money until months after you’ve closed?”

Because you have other money saved up that you will use for the downpayment and for other future expenses. The expectation of receiving an additional 8 grand in a matter of weeks or months changes the equation of how much you can afford. Money promised for the future has a value in the present.

It’s simple economics. If you don’t understand it, I can’t force you to.

Scott

September 16th, 2009
3:47 pm

Dave- You obviously do not work in the real estate market and must have missed the part were 1.2MM home sales have been attributed to the tax credit (350,000 in Aug alone). I would suggest this implies it is working as intended. Our sales locally are 238% of PY over 50% of which we can directly connect to the tax credit.

Scott

September 16th, 2009
3:51 pm

Martin- You can obtain a bridge loan at your local bank using the tax credit as collateral. This cannot be used for your down payment, but can be used for closing costs, paying points to lower your rate, etc. I believe the intent was that one would use the $8000 and buy a plasma TV or couch or bedroom set thereby stimulating the rest of the economy.

Mary

September 16th, 2009
3:52 pm

I am a strong believer in extending the tax credit for first time home buyers. In fact I think it should be increased to a larger amount, if possible. I’m in favor of anything that will help this economy recover.

Curious

September 16th, 2009
4:08 pm

Thank you Dan…especially for the large bold letters intended to make me feel stupid. Appreciated.

Dave

September 16th, 2009
4:46 pm

Scott – according the National Association of Realtors only 350,000 homes bought since the credit was enacted are homes that otherwise wouldn’t have been purchased. $15 billion seems like a lot of money to spend for an additional 350,000 transactions. If you’re OK with that math then I suppose you would think the credit is ‘working’. I don’t doubt that you may see an increase over a prior year though I would question how you are calculating what percentage is attributable to the tax credit. 2008 was unusual because of a panic and presidential election and I believe other factors are share some responsibility for any increase in sales volume.

Dan – I;m not sure I follow your logic. It is a (refundable) tax credit that either reduces the amount you pay or increases your refund by $8,000. This effectively is the same as an $8,000 check being mailed. Since we are talking about personal residences there is generally no tax as a result of selling your home. If homeowners haven’t met the time requirements of residency or ownership or if their gain is unusually large there may be a tax impact. I suppose those that feel this is working as intended could say that the increased sales commissions the agents are receiving would generate a tax as a result of this credit.

I suppose I should note that at times I feel as if I am the last conservative living in Georgia. I am a strong supporter of lower taxes by means of lower tax rates. I am strongly opposed to targeted tax credits and to a lesser degree targeted tax deductions. I feel that those two items give politicians way too much power and lobbyists too much incentive to engage in economic rent seeking.

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Linda

September 16th, 2009
7:23 pm

What about someone who wants to purchase a retirement home. We have lived in same house for 35 years. We would like to buy a retirement home someday. If we were included in this program. We definitely would buy now instead of 5 years down the road.

sherry

September 16th, 2009
7:52 pm

Yes, it need 2 be extended till spring, I am being pressured if it expire on 11/30

sherry

September 16th, 2009
7:54 pm

Yes, it need 2 be extended till spring, I wanna be able 2 find a home by jan

Howard

September 17th, 2009
12:20 am

Yes definitIey think the credit should be extended. I’m in the process of buying a house now and the process is taking a little longer than I expected. I think many first time home buyers will agree, this is a process that shouldn’t be rushed, it’s a big investment! So please extend at least until next spring or summer.

Katiemac

September 17th, 2009
6:06 am

The tax credit should be allowed to expire. I’m tired of government officials confiscatign OUR tax dollars to spend them on programs that they decide would be good for the country, their constituencies and their personal re-election campaigns. Let us keep more of OUR money and decide how we want to spend it, whether it’s on a new house, a new car, a vacation or save or invest it. Johnny Isakson, you are wrong on this one!

Leia

September 17th, 2009
9:06 am

I say up. I need more time to raise my credit score so i can get a good loan amount.