The $8,000 tax credit for first-time home buyers is set to expire at the end of November, but lawmakers don’t want this benefit to end. While there have been some positive signs in the real estate market, the current credit hasn’t done much to stimulate house prices or the economy overall. All year, some senators and representatives have been suggesting improvements designed to further jump-start the real estate industry, none of which have been passed yet. Here are some of the enhancements they have been considering.
- Extending the deadline from November 30, 2009 to May 30, 2010 or November 30, 2010.
- Expanding the credit to all home buyers rather than just those who have not owned a house in the past three years (otherwise known as “first-time” home buyers).
- Increasing the credit from $8,000 to $15,000.
- Eliminating the income cap for qualification of $75,000 (or $150,000 for married filers).
These changes, if signed into law, would redirect the focus of the credit from the average consumer who needs a little boost to purchase a primary residence to investors and speculators. Flippers would still be discouraged because the bills currently under consideration in the House and the Senate both call for paying back the credit if the house is sold within two years or if the purchaser is not a primary resident sometime within two years.
For many people, $8,000 is not a big enough incentive to buy a house if they aren’t financially ready to do so. I don’t think increasing this to $15,000 would change much. This credit, if the changes become law, is a bailout of the housing industry, just like Cash for Clunkers was a benefit for the auto industry.
I’m glad everyone is excited about receiving checks from the government in June or July, but there seems to be a misunderstanding amongst people I talk to. While President Bush and a contingent of the legistlative branch have agreed on the propsed details, the bill still has to pass the House and the Senate. None of the details have been finalized, and no voting will take place until next week.
It’s possible Congress will pass the bill straight away, but I doubt it. The politicians will use this bill as an opportunity to propose other laws which would be added to the economic stimulus. One proposal that may be raised in the Senate is was the idea of offering the rebates for some through food stamps — a much quicker way to get “money” into the hands of the people who will directly stimulate the domestic economy.
In 2001, when $300 or $600 checks were sent out to taxpayers to stimulate the economy, a majority of the funds that wasn’t saved or directed towards debt was spent on clothing. When most clothing is manufactured overseas, spending of this type had little effect on the domestic economy.
By the time the checks arrived in 2001, the economy was already halfway towards recovery. That could happen again this year, particularly if checks are delayed until the end of tax filing season by the IRS.
Before you start planning what you’ll do with this money, wait for the bill to pass the Senate and for the President to sign it into law. Celebrating now is premature.
Economic stimulus package puts President Bush, House leaders on same page [Chicago Tribune]
Lessons from the 2001 Tax Rebates [NPR]
February 13 Update: The Senate and House of Representatives have both passed the compromise version of the stimulus bill. Read the complete stimulus bill here, and you’ll be a step ahead of many of the congressmen who didn’t have a chance to read it before voting.
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