If by success, you mean that a lot of people took advantage of it… The IRS has reported that 1.4 million taxpayers have claimed the first-time homebuyers credit. The credit is available to taxpayers who have not owned another principal residence at any time during the three years prior to the date of purchase of a new home. Other restrictions and income limitations apply.
The credit is fully refundable, which means that to the extent that the credit exceeds a taxpayer’s tax bill, they’ll receive a refund check. Even better? You don’t have to wait until April 15 to claim the refund.
Congress is feeling the pressure to extend the program. As of today, there are six bills in Congress that would extend the program. And while it feels like a winner in Congress already, there’s at least one potential problem: how to fund it. Do the math: 1.8 million taxpayers at $8000 a pop exceeds $14 billion. Billion.
Cash in hand has been a key factor in the success of the program. By year’s end, another 400,000 (or so) sales are expected to be logged to take advantage of the program. The total represents an increase of sales of just under 10% – meaning that about 165,000 more taxpayers sought out homes because of the credit than would have without the credit. Some call it a victory. Others? Not so much.
Those who oppose the program cite not only the high cost but also the low percentage of taxpayers actually persuaded by the credit and the possibility that a concentrated “rush” could create another bubble (a la Clinton’s expansion of the capital gains exemption in the late 90s).
What do you think? Boost or bust?
I’ve been semi-serious about buying a home this year, and the tax credit definitely enticed me. But, I decided to wait until I have a little more saved up for a down payment on a better home and my wife completes grad school.
Having watched the market for about two years (when I started saving), I definitely see the bubble effect. When the tax credit went into effect, homes under and around $200k (a starter home in Minneapolis) started selling much, much faster, sometimes over their asking price. I fully expect to see the market cool down again once the credit expires, and in fact I’m counting on it so I can be more picky.
In some ways a boost. In others a bust. We are all chasing the same dollar around the economic doughnut. When dollars stop circulating (consumers stop spending) there is a recession. This was one of the things done to get those dollars circulating again. It appears to have been successful especially since new housing starts have picked up. A strong positive sign. Yes and it will produce a bubble but hopefully the economic recovery will be far enough along to absorb the bubble. As far as extending it, no. It did what it was intended to do and extending it would do nothing more than run a good thing into the ground.