$15,000 Tax Break For Homebuyers, Good Or Bad Idea?

The news of the day is the Senate approved $15,000 tax break for new homebuyers:

-WASHINGTON — The Senate on Wednesday voted to expand the economic stimulus package with a tax credit for homebuyers of up to $15,000, a provision championed by Republicans as addressing a root cause of the recession.

-Senator Johnny Isakson, Republican of Georgia, a former real estate broker, who was the prime sponsor of the homebuyer credit, said it was modeled after a similar, $2,000 homebuyer incentive that helped lead the country out of recession in 1975.

“We do have a history in this country with housing and it goes back to the crash of 1974, which actually in terms of inventory and price declines was comparable to what’s happening now,” Mr. Isakson said at a news conference.

“Within one year of the inception of that tax credit, two-thirds of the available inventory that was on the market was gone. The market moved back to a balanced inventory, values stabilized and things became very healthy. The only reason I know all of that is I was selling houses in 1974, that’s what I was doing to feed my family and make a living.”

The tax credit would give buyers 10 percent of the price of a primary residence bought within one year, up to $15,000, and is intended to stabilize plummeting home prices, which caused a wave of foreclosures and led to the near collapse of the financial system as Wall Street firms wrote down billions in mortgage-backed assets.

Realtors are celebrating, no doubt, as should many others, but some are not so convinced:

New home sales increased from a 477 thousand SAAR in March 1975 to over 600 thousand SAAR later in the year. But that was from a depressed level as shown on the graph. The real boom in sales happened when the economy recovered – so I’m not sure of the actual impact of the 1975 tax credit.

Click to enlarge

And so goes the cycle of life…We humans will always argue, we will always fight, we will always have our differences, but dammit you need to start buying houses again! ;-)

-Home-buyers tax cut raises cost of stimulus bill [Yahoo News]
-Senate Adds Homebuyer Tax Credit to Stimulus Bill [New York Times]
-$15,000 Tax break for homebuyers [Calculated Risk Blog]

7 thoughts on “$15,000 Tax Break For Homebuyers, Good Or Bad Idea?”

  1. I’m going to go with the senator formerly in the trenches over calculated risk dude. His argument is that it was only from a depressed level. What does he think we have now?

  2. This expanded a 1st time buyer credit of 7500, to 15k for all buyers. 1st time home buyers get screwed here again IMO. There should be a 15% credit up to 20+k for 1st time home buyers.

    All this does is mask a further depression of housing costs and provides some cushion against losing 15k of you down payment. I will state that for anyone buying a foreclosed home is likely to benefit greatly as a result of this incentive.

    For me, this is basically a bad idea as it’s just another shill of my tax dollars. I wonder if / how Case Shiller will factor this incentive into their metrics as it certainly has an impact on the final selling price of any specific property.

    It seems that I could just buy 150k houses all day long, collect the $15k credit; sell it for 150k and do it over again?

  3. This is nice benefit that won’t work!! I’m in LA where the median home price is currently at 415,000. Median income is at 56,000 and going down. 8 years ago when prices were in equilibrium median home prices were 3.78 time median income. Today it is 7.41 time median income. In general you should by a house more than 3 times your income. Otherwise you’ll be house rich and cash poor. Home prices in LA have to drop another 200,000 for this to have effect. This will turn people that buy know into the suckers that will take the 200k loss.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s