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Your Take: Isakson’s $15,000 Homebuyer’s Credit

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Colorful Houses along the White Oak Bayou in HoustonIf you’re signed up for the Bargaineering newsletter, I included a mention of a potential $15,000 homebuyer credit in the latest Thursday email. The $15,000 homebuyer’s credit was introduced by Senator Johnny Isakson (GA-R) that would increase the current $8,000 first-time homebuyer credit to $15,000 and could be used by anyone who bought a primary residence, not just first-timers. Another crucial change would be the removal of the current income limits. Isakson played a big role in getting the first $8,000 homebuyer credit into law. The logic behind this increase is in stimulating the “move-up market.” That is, those going from their first home to their second home. This US News article has more “expert” opinion on the subject if you’re interested, but I wanted your opinion.

My feelings about this potentially new credit are mixed. On one hand, I recognize the importance of stimulating the housing market. On the other, it’s another $32 billion of spending. What’s $32 billion in a budget of trillions? 🙂

I don’t like the slippery slope we’re going down. First we had the first-time homebuyer loan, then the $8,000 homebuyer credit, and now potentially a $15,000 homebuyer’s credit – all benefiting the housing industry. We have the cash for clunkers program, which recently passed both chambers of Congress and will likely be signed into law soon, which benefits the auto industry. All these programs to spur spending, which is important during a recession, but is it the right thing to do?

What do you think?

(Photo: billtex48)

{ 39 comments, please add your thoughts now! }

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39 Responses to “Your Take: Isakson’s $15,000 Homebuyer’s Credit”

  1. Mark says:

    Turbo Tax Timmy is going to try to sell $165 billion is t-bills over the next 7 days to finance our lavish spending.

    Watch two things: 10 year yeild and the equities market. A tanking of the equities will allow for the purchase of the t-bills and keep yeilds low. Inversely, increase in equities will force yields higher. An increase in yields will tank the housing market.

    Wargames: “The only winning move is not to play.”

  2. I dearly hope this bill does not get passed.

    Ideally, the goal of tax policy (aside, of course, from raising revenue) should be to internalize externalities, to use economics jargon.

    Frankly, I don’t see a single positive externality that results from people buying houses. Why we should subsidize it over any other form of spending, I don’t know.

  3. I think that if they are going to raise the amount to $15,000, they should keep the first-time buyer and income limits. Really, if people are making a high income, they can afford to buy a house anyway, especially with the housing market right now.

    • Martha says:

      @ Oliva
      The only thing that you need take into account is that if you live in a large (expensive) metropolitan area then your salary will be larger for the same job in a rural area. This adversly effects those who would like to buy a house however are above the $75k (per person) $150k (per couple) income levels. In NYC, a $75k salary doesn’t provide you that much income that you can “afford to buy a house anyway.”

  4. Dave says:

    I don’t agree with these tax credits at all. It doesn’t help with the primary problem with the housing market today – devalued home prices. I have a friend who’s house is $40K under water – he bought right at the peak and financed 100%. He can afford his mortgage and bills, but even if he wanted to, he couldn’t move.

    • Jim says:

      It helps a little at the margins. A $15,000 credit means you’ve just artificially inflated the price of every home by $15,000, since the government is footing the bill. If I was willing to pay $200,000 before the credit, that means I’m willing to pay $215,000 after the credit. It won’t help you if you’re not near the edges, so $40k underwater means you’re still underwtaer after $15k.

      • Caitlin says:

        I would hope that a lot of people will simply be glad they only have to pay $175k to hit their $200k target, rather than simply adding it onto the top of what they are willing to pay for a home.

  5. eric says:

    “On the other, it’s another $32 billion of spending. What’s $32 billion in a budget of trillions?”

    Crazy isn’t it?

  6. andrew says:

    im wondering if this will end up the equivalent of subprime mortgage where otherwise nonqualified home-buyers are buying their homes at a huge discount and won’t be able to pay their mortgages when they get laid off from work.

    • Jim says:

      Well, lenders are probably going to be a lot smarter about who they lend money too so that’s probably not going to be a problem in this case.

    • Sharon says:

      Unfortunately, I think you have hit the nail on the head. People who could not afford to buy a home before, still won’t be able to make payments after the $8,000, and many of the homes will be foreclosed on again next year. So it will be similar to the sub-prime meltdown. The only good thing is that the price of the home will go down and get closer to actual value.

  7. lauren says:

    hmmm…credit. let’s see – do i have this right? a credit on my taxes? not actual money in my hand, right?

    so for me – huh – we’re low enough income that we rarely pay any taxes – so unless you are going to give me the actual money this does not help me at all.

    politically? well…yeah. trash our country. thanks.

    • Jim says:

      Yes, it would be a credit on your taxes and likely a non-refundable one. However, the $8,000 first-time homebuyer was modified in a way to let you use it as a downpayment. That makes it effectively a refundable tax credit (and one where you wouldn’t have to wait until next year to receive).

  8. Eden says:

    If these credits are going to happen, I like seeing it move away from first-time buyers only.

    I’m open to moving up in house if I find a good deal so a $15,000 tax credit would obviously be a pretty nice incentive for me to look more seriously at it.

    Also, it would make it less painful for me to sell my current home and more or less break even.

  9. I’m definitely against this bill. It has made me think twice about selling my newly purchased home for another house simply to get the tax credit. Then I did a second take and slapped myself a few times.

    I think this will simply put people into homes they can’t afford. It will temporarily will spur the housing market but will just create another bubble.

    And if this can be used as a down-payment it’s the same thing as getting a loan with no down-payment. It promotes frivolous spending rather than saving. It just makes the current problem even worse in the long run.

  10. Matt says:

    They should remove the income restrictions, but not the first time home buyer one.

  11. I think this is just going to artificially prop up the housing market once again, and create billions more of additional spending – when we should be looking at ways to cut the budget.

    Of course, if i were looking for a house, I would take advantage of this. Who wouldn’t 😉

  12. Eric says:

    The NAHB initially was pushing for a monetized $25,000 credit. What Congress passed was the 8k credit with no monetization. that has been getting ‘tweaked’ constantly. the call for monetization is based on the reality that most folks do not have enough saved to pay the down payment on the home and then to also have a cash reserve as well as the fact that Homebuilding is as much as a backbone of our economy as autos. I am, personally, in favor of anything that will spurr on the homebuilding side of teh economy. As far as the ‘cash for clunkers’ I think that they had the right idea, but should have placed greater limits on who can trade in and what they can trade adn what they must buy.

  13. Suzanne1946 says:

    As a mortgage holder who did it right the first time, I am angry about all the “perks” those who have gotten into trouble are getting. Loans reset, interest rates lowered, etc.
    What benefits are those of us getting who weren’t greedy and got a house/mortgage that we could afford no matter what happened? I love the home I have and all the sweat equity we have put into it to get it perfect for us.
    How about a “perk” for those of us who “did it right”??

    • Jim says:

      I don’t think this helps anyone who signed onto a bad loan or is underwater/upsidedown on a loan. It might help the second group (underwater/upsidedown) a little since this moves them $15,000 closer to being able to see since a buyer will pay more now, but it’s certainly not rewarding bad behavior (unlike other programs).

      The benefit we get is that we don’t worry at night whether we’ll be kicked out of our house the next day, I think peace of mind is worth more than money.

    • Sharon says:

      Want to adopt an illegal alien, excust me, an undocumented citizen? We have lots of then on the west coast and along all the border states. Also some people are not “US” but “Me”. With only one person making an income, things might be different if you or your husband lost a job.

  14. Imagine how much we could stimulate the economy with a $200,000 homebuyer’s credit.

    Hey, I’m just saying …

  15. Mel says:

    I think these credits are inflating house prices just like the bubble stimuli and are prolonging the adjustment to what demand dictates. I think it would be stupid to buy with these credits, as soon as credits are gone, prices will drop and buyer will be taking the loss which is probably more than the credit! Also, as soon as interest rates rise, prices will drop from that too! They say California prices are going to drop another 36% this year and national home prices another 12%. Is it better to take the hit now or later? credits are just postponing the inevitable…. Time will tell……………..

  16. Gwen says:

    Give the American Public more than pennies to stimulate the economy and not big cimpanies. Since the taxpayers are supporting car and housing companies, let them decide where to spend the monwy the taxpayers must pay back anyway.

  17. Bothersome, very bothersome.

    From a selfish point of view, why of COURSE I’d like the taxpayer to fork over 15 grand (please!) and ignore the question of whether I could afford to buy the palace of my choice on my own.

    But from the no-man-is-an-island viewpoint: I don’t like it.

    In the first place, sooner or later the economy is going to get better. That’s the way of the world. At that time, most people who can afford to buy real estate will be able to buy it without a government handout. Gut instinct suggests that maybe, just MAYBE, the real estate market would be better served over the long run by waiting until the overall economy turns around to the point where buyers feel confident enough to buy.

  18. jared says:

    Personally, I’m buying a house right now and closing next week. The $8,000 credit didn’t make me buy a house for 8K more, and a 15K credit wouldn’t make me do it either. I’m buying because I can afford it and found a great deal, the credit just means I can fix up the house sooner rather than later. The goal was to spend as little as possible and if someone hands me a check then I can get a house for that much less out of pocket. If they increase it to 15k before it’s too late, that just means I can fix the whole place up in the first year and bring the value up further. As it is I’m paying $80,000 below market value on a foreclosure, to repair it now will bring it up over $100,000 in equity and secure my financial state that much faster.

  19. Anonymous says:

    Hi everyone! New member here, and just wanted to say I love the blog!

    Now as far as the $15k credit, if you are a first-time home buyer, this is a great short-term opportunity. I say short term because eventually someone is going to have to pay for that 15 grand, i.e, the taxpayers, including that new home owner. Then again that is how most things work – pay now or pay later, just like a Roth IRA compared to a traditional.

    I have heard remarks about the housing market being devalued. I say it is still overvalued. You look at some markets and a home that was $150,000 six years ago, is now $325,000 or more. That’s ridiculous! No way that home is “worth” that much money. Before 2002-2003, it took 15 – 20 years to get that kind of equity on a home. The housing bubble spoiled many homeowners into thinking that if their home didn’t gained $30k to $50k a year they were being “devalued”.

    OK, I got way off topic there.

    In the long term, the $8k or $15k credit is not a good idea. The government is just supporting another attempt at getting someone in a home that really can’t afford it in the first place. Thus creating another cycle of foreclosures, in my opinion.

    • “I say short term because eventually someone is going to have to pay for that 15 grand, i.e, the taxpayers, including that new home owner”

      Right – but the entire base of taxpayers will pay for it, whereas only a small portion are benefitting. If I can get you to give me $100, and you charge all the readers of bargaineering $1 in order to get your $100 back, I come out ahead – in the short AND long term.

    • Sharon says:

      Dear Anonymous,

      You obviously don’t live in the Western States. EVERYTHING is way underwater considering what it should sell for. You only have to look at replacement cost for insurance purposes to see just how bad it really is.

  20. Aron says:

    I think this is a great idea for first time home buyers. The Obama Administration and the Congress has not done enough with tax credits that will actually stimulate the economy or more specifically the housing market. They should definitely consider doing more for all recent home buyers.

  21. $32 billion– Spending is spending. The bill is going to come due for all this spending and we will all pay higher taxes– mark my words!

    Out of the frying pan and into the fire . . .

  22. Patrick says:

    I am mixed on this bill as well. I like the fact that it will help stimulate the economy, but at the same time it’s more spending. We can’t continue to keep spending in this manner. Eventually we are going to have to stop spending like this unless we want the next generations to have huge tax rates.

  23. Dan says:

    The $8000 helps in a way that the extra $7000 isn’t likely to help. If you’re a first time home buyer looking to get an FHA loan then $8000 for a down payment puts you right in line for an entry level house in most areas of the country. If the number were much bigger it either wouldn’t help much (i.e. just add a few thousand onto the budget) or it would encourage irresponsible behavior (i.e. taking on a mortgage you can’t afford). I think $8000 is the high water mark. Beyond that you’re helping people into houses they can’t afford or don’t need. We don’t want to prop up the “move up” market. It was that very market that created this mess.

  24. Chelsea says:

    You can’t use the $8,000 as an additional down payment unless you are getting a conventional loan. People who are putting down 3.5% on an FHA are not able to use the credit as additional downpayment money.

  25. Sharon says:

    The bad outweighs the good. Bank are not going to lend money to anyone with a previous foreclosure due to the economy. These are people who WERE homebuyers before the recession. Now they have to get private financing or rent a house for 10 or more years.
    Where’s their help? There are no loan programs for self employed people either. The money should be available to anyone regardless of how they get a loan or from whom. Actually those people who suggested that the government give every American adult a large stipend, which they in turn would have to pay tax on, was the best idea. They could have saved their home, paid off credit cards, bought a new house, car or other goods and services, which would have done a lot more for the economy than the Stimulus programs have done, which is nothing.

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