What Does the First Time Home Buyer Tax Credit Extension Mean to our Economy and our Future?

November 1, 2009 at 2:31 pm Leave a comment

It looks like the Congress is on the verge of extending first-time home buyer tax credit of $8,000 through April 30, 2010. The Obama administration has said they support an extension. In addition, repeat buyers who have owned a home for at least five years and buy a new house will receive a $6,500 tax credit under the Senate version of the bill.

What does this mean for the economy and for our future?

More taxpayers’ money is being handed out to anyone who buys a home for the first time or to those repeat buyers fitting the qualifications. The government has yet to release close to $8 billion in housing recovery effort under the stimulus package. In the end when the economy turns around, lawmakers could ask for higher taxes from responsible taxpayers to pay for everything else and make up for their lavish spending. Our pain is just about to begin.

Our country is awash in debt. By some estimates, the total cumulative debt for each American may be around $700,000, according to discussion on the topic at wikipedia.org. Money has been borrowed from many foreign countries, chiefly China and Japan. When the loans come due, what will we give them? Trade concessions; military concessions; land? Anything but money, because we don’t have it. Whoever has the most money holds massive power. America is financially strapped and may not hold on to the power it has for so long.

But back to the matter at hand — will the housing market recover faster with or without the $8,000 home buyer tax credit? Given the correct approach and perception, the housing market would recover without the $8,000 or with a reduced tax credit. The perception that home buyers should buy a home because of the tax credit is flawed. Instead, lawmakers should encourage home buyers to buy a home now because it is good for them and good for their future. If they buy a home now, they get ridiculously low prices. Some prices are below building cost, interest rates are very low and home buyers get instant equity with their home purchase. These are more than enough reasons to buy NOW. To add a whopping $8,000 tax credit to the deal is to spoil home buyers for doing something that already benefits them!

Anyway, why an $8,000 tax credit? Why not $2,000? How did Congress come up with the figure? For all the benefits that home buyers already get in this market, $8,000 for every home purchase is way too much.

In the end, the lawmakers should focus on increasing home values more quickly instead of increasing sales. If potential home buyers realize that prices are moving convincingly higher, they will feel a sense of urgency to buy a house now, before prices move higher, which will fuel a recovery in the housing market. That is much better than an $8,000 tax credit and would save taxpayers a lot of money.

Entry filed under: Arizona Real Estate, Chandler Real Estate, Foreclosures & Short Sales, Phoenix Real Estate, Real Estate Deals. Tags: , , , .

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