No One Likes the Homebuyer Tax Credit

I disagree completely.The tax credit exists (IMO) to push those who are considering switching from renting to owning over the edge. $8,000 is a serious advantage to renters who have no equity in a home to roll over for closing costs and a down payment on a new home.Personally, I plan to take advantage of the credit before it expires. If it hadn’t been extended, I would not be planning to purchase a home anytime soon.

That’s not the official website of the tax credit – it’s run by the National Association of Home Builders, an industry group. 

I don’t see how this tax credit can be called “nonsensical in theory” – maybe it’ll turn out not to have much effect, but it’s at least a logical idea: if people are considering buying a home, $8,000 in free money from the government might push them into making a purchase. This will indeed help “put a floor” under falling home prices, since it reduces the inventory of unsold homes sooner rather than later.

Thanks for catching that, Geektronica. I added the IRS.gov page on the Homebuyer Tax Credit instead.

Steven Pearlstein says that “Even its most prominent supporters acknowledge that of the first-timers who have already claimed the credit, only one in five wouldn’t have bought a home without it.” The people who think the program is a waste wouldn’t deny that, for some people (like nicksergeant), the $8,000 tax credit is what seals the deal. But they say those people are outnumbered by people (like Ezra Klein) who would have bought a home whether or not there was the tax credit.

I don’t have good numbers to back up the Pearlstein quote above, but that’s the argument at least.

I call bull crap on this too.  It pushed my daughter to purchase a modest home in south St Louis city.  It was basically a sound house but would soon need a new furnace.  She felt confident she could swing it with the help of the tax credit.  She would probably still be renting at this point without the extra little help.

I agree with the other posters, and would like to add that I do not see any difference* between this and the ‘Cash for Clunkers’ program that Good seems to fancy. *(other than the fact that if the argument is made that the incentive benefitsthe ’seller’, the homebuyer credit benefits a citizen rather than an antiquated corporation…).True, this may artificially prop up housing prices. BUT!!!, if we all flip back a few years, we will realize that this is partially what caused the current recession. I also argue that it does, in fact, encourage those on the fence about buying to make the purchase. In fact, one could see it as a check (an economic stimulus check, in the manner of those sent out early 2008) to a few select citizens, who will more than likely be spending the money. And in doing so, make the world go round…

Ok, so one element of the argument against the tax credit is that it doesn’t do much to get people to buy homes. Glaeser claims the tax credit doesn’t make the difference for 4 out of 5 first-time homebuyers. But we have lots of anecdotal evidence from the comments that it does. I’m sure it does make the difference for some people. What percentage, exactly, is another question.

But the second element of the argument is that we just shouldn’t be incentivizing the buying lots of single-family homes. And that’s a principal difference with Cash for Clunkers. Buying more fuel-efficient cars is good; buying more energy-inefficient, single-family homes may not be.

But while we’re at it, I think it’s very hard to guage the net effect of the Cash for Clunkers program. So I’ll reserve judgment on that myself for now.

Thanks for all the productive comments. I’m enjoying the convo.

Um… 8k is pretty nice. It encouraged my fiancee and I to buy a house. So I’ll have to disagree.

You’re welcome-An American Tax Payer

I’m another first-time home buyer who took advantage of this credit.  That eight thousand dollars most certainly *did* make a difference in our ability to buy our home.And, no, we did not run out and buy a McMansion in suburban sprawl with taxpayers’ money that we didn’t deserve or need.  (Sheesh!)We bought a modest little eighty-five year old cottage in Oakland California.  We consider our purchase of a tiny existing home to be a very “green” choice.One thing that amuses me is how much the title of the article is at odds with its content, law makers and the so-called “real estate industrial complex” like this credit, according to the author.  Is the author saying that No one they care about or value likes this tax credit?

Home buying stimulates the economy.  New homeowners get involved with furnishing, decorating, repairing, personalizing their new home.  They end up buying products needed to maintain the home inside and out.  They may have furniture but will probably need more over time.  They usually have vacuums and what they need for the kitchen but may get more items as they settle in to their home.  Typically they will need more items to maintain their home/investment – tools, lawnmowers, rakes, shovels, gardening items, painting supplies – and the list goes on.  The aggregate impact on the economy is a significant ripple.  Families, towns, cities and nations, grow and bond home by home, neighborhood by neighborhood.  The Harvard professor that suggests dense apartment living has advantages is thinking in a very narrow environmental reference.  There is typically no greater anonymity and detachment from neighbor to neighbor than in dense urban superstructures.  Crime rate rise, even within those vertical cities.  Kids have no yards to play in that they can call their own.  No gardens to plant and enjoy from your window, unless it is in a window box on the balcony or you live within sight of the communal garden.  People get to know each other in suburbs and small communities.  They do business together, socialize together, go to church together, help each other in a crisis, work and play together.  If more businesses recognized the advantages of being more toward the suburbs rather than dense packed cities, people would be able to stay closer to home, commute less, use less gas (since that seems to be a concern of the professor).  Suburban sprawl, much to his apparent disdain, is more the fabric of America than dense packed superstructures.  It also spreads wealth to more people since home values do tend to increase over the various cycles.  Apartment building ownership is concentrated wealth for a few.  The air is fresher in the suburbs, breezes blow across the parks and yards, and the scenery changes over the course of the year as seasons come and go.  The tax credit for new home buyers gets some people off the financial fence and into a home.  Stabilizes real estate prices. Generates economic growth.  The Cash for Clunkers program took many good working affordable cars off the road and put them into scrap heaps.  Many people that are out of work or in school that need affordable transportation are having a hard time finding serviceable vehicles, and the prices have increased over what they would have otherwise been worth if there was more market competition from having alleged “clunkers” available for resale.  Not all of the cars taken to the scrap heap merited that treatment.  How much energy is going to be used to recycle those vehicles into some other product to be bought and sold, if people have enough money to buy the product.  Otherwise, those clunkers will be laying waste in scape yards.  What is the environmental impact of that outcome?  What happened to all of those tires (4 per “clunker”)?  Replacement vehicles have the same number so the amount of tires impacting the environment in some manner only increased.  How much fossil fuel and other source generated energy will be consumed destroying all those cars to get a few more cars on the road that get a few more MPGs?  The “Cash for Clunkers” was a clunker program and waste of taxpayer money overall.  The housing tax credit will benefit the economy.  Hopefully it will be one of the cornerstones to a healthy economic recovery that creates more jobs and the politicians recognize the value of cutting taxes, decreasing the size of government and getting back to representing the people the make up this great country and not the special interests that stand to gain from pushing their own agendas that best service their wealth accumulation more than the average citizen’s. 

I would like to say that my husband and I have been renting our home for 2 years and the $8000 tax credit made this seem like as good a time to buy as any. We had a 20% downpayment but we didn’t have enough money for the closing costs.  Our plan was to borrow the money from our parents, who are very good and reasonable about helping us out, and then repay them when we got the credit in the spring.  Unfortunately, after we got the ball rolling on the mortgage and everything, we found out that we didn’t qualify for the tax credit because we are buying the house from my husband’s parents.  It’s not like we’re buying it really cheap, we’re paying fair market value, but we still won’t get our credit, and so have to do a long term loan for the closing costs.  The reason we jumped on buying the house now was because of that credit; if they had cut the program short we probably would keep renting until we saved up a little more money.  So in a nutshell, I liked the idea of a free $8000 from the government and it did give us incentive to buy now; I just don’t like the restrictions they put on it which left us out in the cold.

As a mortgage underwriter, I can say this credit has persuaded a lot of first time home buyers.  In 15 years I have never seen anything like this.  I have more work on my desk than I can count.  It’s Sunday, and I am getting ready for work.  We are staying til 10 at night and working weekends trying to close everyone.  I just hope everyone understands you don’t get the whole $8000.00.  That is just the max you can get, but it is based on your loan amount.  But even telling buyers that piece is not slowing them down.  We thought we might catch a break the end of November, but now that they extended the credit to June of next year, the applications are rolling back in again. 

This is such a fabulous program. If I had the money I would take advantage of it ASAP. I hope it doesn’t go away for at least another two or three years, or at least as long as it takes to get people back into homes. The posting makes an argument that the Tax Credit is about luring homebuyers away from the cities and into suburbs and takes a bit of a pot shot at gas guzzling; however, I don’t believe that is the aim of the credit, nor is the the main use of the credit. Sure, there are people who will use this for homes in the suburbs, but is the author saying that we should just let all those living spaces dry up and turn into ghost towns if no one can afford to live there? I don’t believe this supports mansions, or buying out of one’s means. Nor does it do more harm than good, rather the opposite. I will happily pay extra taxes for this as opposed to some ridiculous bank bail out with rewards that will never be passed on and that I will never see.

This tax credit also applies to a purchase of a condo in a dense urban environment.