Photo Credit: FreedomKeys.com
If you’re looking for a new home or you follow the housing industry, I’ll bet you’ve noticed the $8,000 first-time home buyer tax credit is up for renewal. If you’ve read any of the articles, blog posts or comments, you’re aware that some people want the credit extended. I don’t, I happen to be a believer in leaving markets alone and getting our national spending under control, regardless of how small the first step is.
Here are six reasons why we should let the tax credit expire and get back to basics.
- We can’t afford anymore tax breaks – Our government has had a budget deficit every year since 1969; that means we’ve spent more than we’ve brought in for nearly forty years. In 2008, we spent $451 billion on interest payments, that’s $37.6 billion a month or $1.24 billion every day – an absurd amount of money. We need to stop spending and start paying down our debt.
- The government needs to get out of the market – We offered a tax break and it did sell some homes, but all things come to an end. It’s time to get the government out of the market. We need to see where housing is on its own so we can have a real look at where we stand. Companies don’t hire employees based on incentives and investors don’t invest in industries that are temporarily subsidized.
- Tax breaks help people afford a home – People that can’t afford a home shouldn’t own a home – it’s as simple as that. It would be nice for everyone to enjoy homeownership, but it’s just not plausible. Take the last four years for example, during the early part of the decade lenders and the government offered homeownership to everyone and the end result was economic catastrophe. Sure, there were several other factors that contributed to the global recession, but getting people into a home that they couldn’t afford was a major factor. The tax break is just one more thing that might help get someone into a home they can’t truly afford, one more thing that helps create false demand, one more thing that may get us back to where we were a few short years ago.
- Some first-time home buyers don’t need the tax break – The tax break has no income limits meaning all first-time buyers qualify for the tax break whether they need a break or not. The rich qualify for the tax break just the same as the unfortunate has income limits of $75,000 for single taxpayers and $150,000 for married couples filing a joint return*. In some cases, we’re giving an $8,000 tax break to buyers that don’t necessarily need it, buyers that would buy either way. Is it fair this way, yes, is it a waste of money, yes – we waste too much money. I’m positive $8,000 can be used elsewhere, like to pay down our debt.
Thanks for the income limit correction Jay – link to income limit information - First-time home buyers aren’t the only home buyers – Currently, only first-time home buyers qualify for the $8,000 tax credit; in a normal market, first-time home buyers make up a small percentage of all home sales. If the goal is to stimulate sales, let everyone, including investors, benefit from the tax break. Extending the program’s reach would certainly bring the program’s price tag up, but it would do wonders for demand. If we’re going to get the government involved and offer a tax credit to increase demand, why not make it more effective and fair?
- An extension means more of the same – At some point, if the government does decide to extend or implement a new tax credit, we’ll have to endure more of all of this. More waiting to buy until we hear about the tax credit and more plans, voting and bickering about what to do. These tax credits take our politicians away from doing what’s most important, balancing our budget. If our budget doesn’t get under control, an $8,000 tax credit will be the least of our worries. Haven’t we had enough of the same? Let’s not vote on spending more, it’s time to change, let’s start voting on how to save more.
In a debt free America, I’d be 100% for extending and even increasing the $8,000 tax credit for first-time home buyers; unfortunately, America is $11.8 trillion in debt. Tax breaks and gimmicks like cash for appliances meant to temporarily increase sales need to stop. Sure, some of these strategies help stimulate sales, but the sales are temporary and they do little to help the economy in the long-run. Is a home builder going to hire new employees if they know sales are incentive based? Will investors invest in an industry if they don’t “really” know why it’s doing better?
If we end the tax credit, some buyers will miss out and that’s unfortunate, but eventually, some buyers are going to miss out. Let’s end the credit now so we can have a real look housing and stop spending.
See Also:
1.4 Million Americans Score $8000 Tax Credit – CNNMoney.com
National Debt Clock
* “The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) of more than $75,000 for single taxpayers and $150,000 for married taxpayers filing a joint return. The phaseout range for the tax credit program is equal to $20,000. That is, the tax credit amount is reduced to zero for taxpayers with MAGI of more than $95,000 (single) or $170,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts” – www.FederalHousingTaxCredit.com
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I agree with what you say. The government is using taxpayer money and borrowed (future taxpayer money)money for this program. The credit has pushed sales to the extent that the beginning of the recovery being lead by home sales is artificial. Everyone want to look for positive things, but this isn’t truly positive.
Great point Sam it is like a fabricated or fictional recovery.
It’s probably true what you say, but it’s hard to handle, as I know that without the tax credit, we may be hurting in the next year for business as agents. For the long run and for our cute little babies, love the picture, it’s probably for the best to not extend the credit, and I can see your point. Truthful post, and I can say most agents are afraid to post something like this.
Great job!
$8,000 first-time home buyer tax credit was good to help the market to not collapse, but now have the economic situation in the country has been stabilized and its important to not creat a new ecomomic bomb with more credit. People have to save more money before they buy houses.
I dont like that we have to pay for it but i think we still need it. I want it to be expanded and extened
Mike In Dallas´s last blog ..How to find a home quickly in Dallas Fort Worth Texas
Our deficit spending has become a subtle form of taxation without representation.
Brendan Sinclair@Vero Beach Real Estate´s last blog ..Vero Beach Real Estate Market News
I completely agree that the U.S. deficit is ridiculous. Yes, I think the $8,000 tax credit will need to come to an end so the true state of the market can be evaluated. However, I think there are a lot of other frivilous government spending that should be eliminated before the tax credit….like subsidies to terrorist countries.
Bruce Dietz´s last blog ..Awesome 4 BR 3BA All Brick Rancher in Columbia County
Great Post. I completely agree. Yes, the tax credit has helped a specific segment of the market. However, the market is returning because of other market forces as well. Over half of all foreclosure sales are cash transactions. In my market, down sizing is a big segment that is moving. The tax credit hasn’t assisted any of these buyers. Affordability and interest rates at historic levels have a greater influence on the market than this credit. The credit needs to go away and let the market recover on its own.
I’m on the fence. I think that it is driving home sales and sales will suffer without it. We’re still in the woods and need all the help we can get.
Charles@Las Vegas Real Estate´s last blog ..Las Vegas Property Auctions – Deal or No Deal?
Lost in your argument is the effect of the tax credit on other industries. In the state of Georgia – unlike some others – the credit cannot be used as a downpayment, meaning the Buyers must qualify on their own to purchase the home – be it conventional, VA, or FHA.
It has been my experience that the 1st Time Homebuyers in our area are well qualified to purchase in the first place – this is not a pure example of unqualified Buyers having inflated credit scores because of lenders taking in to account a “future” credit.
$8,000 is a lot of money for a consumer to spend post-closing on other goods and services – thereby further stimulating the recovery. I cannot believe some posters on here have the nerve to state the economic situation in this country is stabilized or improving. The housing market in particular has yet to hit rock-bottom – yesterday’s news alone should tell you that. A 1.3% increase in home sales? What about the 13% drop in AVERAGE SALES PRICE. Homes today are worth what they were in 2003 – a six-year loss of equity to many exisiting home owners.
If the credit is not extended, the 4th quarter and 1st quarter (2010) numbers will be very dire indeed. Get off the soapbox, extend the credit, make it available to everyone, and keep credit score requirements high.
Navy Chief, Navy Pride
Joe Loomer (USN Ret.)
Associate Leadership Council, Growth Chair
Keller Williams Realty Augusta Partners
Joe@Augusta Real Estate´s last blog ..Fruit of The Loomer – Are We There Yet?
@Lisa – Agents may lose business if the credit isn’t extended, but it’s going to end sometime, right? I have confidence in the real estate market and think that investors will too once they see that it can perform well on its own.
@Mike – I can certainly understand why you do
@Brendan – EXACTLY @Bruce – the $8,000 tax credit is almost a non-issue when compared to all the waste going on, but it’s still part of the problem. I think we need to start saying no to more bills – balancing the govt. budget is similar to balancing your personal budget. Starbucks may not be much compared to 3 dinners a week, but it all adds up and contributes to the problem.
@Tony – thanks – a natural recovery would feel better and more important – it’ll last –
@Charles – get off the fence! It’s still a rough market, but we shouldn’t rely on the government to help. It’s not their job and relying on them will just hold us back. Look what welfare and unemployment do to people, talk about keeping people from success
@Joe – the credit does affect other industries, but any sales realized from the tax credit are artificial and won’t do much for long-term growth and stability. Look what cash for clunkers is doing to the car industry – http://online.wsj.com/article/SB125440186148556087.html – temporary increase in sales – we spent a billion, talked a lot and find ourselves back to where we were (inventory is down though). Look how much this article estimates this $8k tax credit really costs taxpayers – http://www.cjr.org/the_audit/calculating_the_clunkers_real.php. The market has stabilized in some parts of the country; in others there’s still too little demand and too much inventory.
It’s hard to see where we are in any market as there’s this pesky little government incentive blurring our vision. I’m with you, there’s high delinquency rates in way too many markets to call a bottom. If the credit is extended, it’ll just be one more occurrence of us ignoring the fact that our nation is flat broke and we need to stop spending, even though it’ll be hard.
I pretty much have the same thought as the posting. I think the $8,000 tax credit for first home buyers should end as it just creates temporary demand for the housing market (like clunkers for $). The government should not keep throwing taxpayers money to stablize the housing market. This credit is offset by the “upward” market price. If this program has to be extended or expanded, it should be shared by everyone, not just for first time home buyers. If so, the housing market would go back up easily. Hopefully there are no bubbles then.
All great points – The $8000 tax credit as well as the “Cash for Klunkers” programs have already been funded. The money is part of the $787 Billion “Spedulis Plan” that congress approved earlier this year. We aren’t adding to that amount with these programs, just using the money already appropriated.
Bruce @ Augusta Real Estate´s last blog ..Awesome 4 BR 3BA All Brick Rancher in Columbia County
Another great post.
But one point of order. You say, “The tax break has no income limits meaning all first-time buyers qualify for the tax break whether they need a break or not. The rich qualify for the tax break just the same as the unfortunate.”
That’s not correct. There is an income limit — for single taxpayers it’s $75,000 and the limit is $150,000 for married taxpayers filing a joint return. (source = http://www.federalhousingtaxcredit.com/2009/faq.php#4 )
Granted, the majority of first time buyers probably fall below those limits, but “the rich” clearly don’t qualify.
Jay Thompson´s last blog ..Phoenix Real Estate Guy Turns Pink
Sweet! thanks for the correction Jay
I guess I should have re-read our earlier post about the tax credit
[scratching my head]
@Bruce – good point. I wish appropriated doubled for “it’s within our budget”
I’m personally in favor of the tax credit. There is going to continue to be government stimulus in one form or another. Most of the spending goes to much more dubious projects that have a far longer “trickle down” effect in the economy. The $8,000 first time home buyer tax credit has given direct stimulus to local economies. And the money has not been a waste. Supporting the real estate market has helped avoid larger losses in the bond and equities markets, and on every home owner’s balance sheet.
San Diego Homes´s last blog ..SanDiego Real Estate Prices Up Again
There is a lot of ignorance here . Does anyone realize how much tax money is being wasted here ?
On top of it does anyone realize, how this is affecting the small landlord. I am a small landlord and have had problems refilling my units because of this. I also have friends that are landlord that are allowing there places to go back to the bank…. They can not keep good tenants anymore and can not keep tenants. It is a real shame and it is really unfair all of these people were honest business people trying to make a dollar. Now the government is cheating them out of there retirement and financial stability.
Who can I write who will actually care . Before I am the next victim
@Jim – there’s not much you can do, as the credit is pretty much guaranteed to be extended. However, you can find your contact your state rep and tell them how you feel. I’ll post a link below
http://www.house.gov/