Economic Stimulus Package: Federal Tax Credit for First-Time Home Buyers

$8,000 Home Buyer Tax Credit at a Glance:

• The tax credit is for first-time home buyers only.
• The tax credit does not have to be repaid.
• The tax credit is equal to 10% of the purchase price of the home up to a maximum of $8,000.
• It is only available for purchases between January 1, 2009 and December 1, 2009.
• Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit.

In my personal opinion:

"This bill will have very little effect on the housing market, as it is only a tax credit for a specific type of buyer, who has a specific salary range. Its disappointing that Congress cannot come up with a more substantial fix for a very substantial issue; In fact our Congress has grossly failed the American people, in my opinion".

Concepts that would really work, include:

• Taking billions and working with Lenders to refinance homeowners who are in trouble today to refinance their notes into lower rate mortgages that the homeowner could afford. (Rates that are dramatically lower, in my estimation 4.0-4.5% would have a real impact). If we can stop the flood of foreclosures, we can begin to reduce the inventory of homes for sale, which will then impact the entire market.
• Having the government finance a period of very low interest rates available to everyone. This would:

1. Allow current home-owners who are not in trouble, but "just meeting their monthly obligations" to refinance and save real money every month. This would free up Billions for consumer spending to revitalize the economy.
2. Motivate buyers who have been on the sidelines waiting for the "perfect time" to make a move and lower our inventory of properties for sale, which would in turn help stabilize values and set the stage for a gradual increase in values over time.
3. Make housing more affordable for families who have not yet realized the "American Dream".
4. Increase consumer confidence and establish more of an environment of hope and a return to more normal conditions.

• Have the government provide dramatic tax credits to investors who rehab properties that are in disrepair. This will (a) remove abandoned properties from the open market, reducing the inventory (b) help stabilize neighborhoods where foreclosures have left many homes abandoned, thus leaving other home owners with homes that have seen dramatic value reductions due to the number of foreclosures in their neighborhoods and (c) generate new spending and new jobs in the construction and other industries

[Update 2/24/09: Since I originally wrote this article, I have become aware of a new program through RI Housing, made possible through Federal funding, that provides financial assistance to buyers who purchase foreclosed properties; This is a step in the right direction and will have an impact, but I believe we need more dramatic programs, described in this section. For information on this RI Housing program, see the entry above this one titled "Neighborhood Stabilization Program: February 23, 2009]

• Have the government provide funding to states to allow state and local governments to purchase abandoned properties in locations where acquiring such properties could be useful in (a) developing public parks (b) erecting new government buildings (c) building new schools or (d) building community centers for purposes that effect the common good of citizens
• Provide a tax credit to Home Builders; Doing so (a) could help companies survive (b) could help keep people employed (c) could help stabilize new construction and the need to meet housing needs and (d) would help set the stage for return to normal conditions in the economy
• and finally, but most importantly, establishing strict financing guidelines for the purchase of Real Estate. Guidelines must begin with the qualification of buyers. Anyone who finances real estate should have the financial ability to do so. All buyers (a) must have a reasonable debt-to-income ratio (b) must inject a deposit (amount to be determined) to generate a true sense of ownership and value invested (c) must have both their income & job status verified. When the market does return to "normal conditions", 100% financing and other Wall street developing financing vehicles must be outlawed to prevent an artificial "run-up" and balloon in the real estate market again. When people are allowed to purchase real estate with no money down, and use very risky financing vehicles to finance speculating in the market, home prices will always rise artificially and create an unstable environment. It will take time for the economy to regain confidence and for the housing market to improve, but when it does happen, these rules must be in place to ensure the Real Estate market returns to what it always was, a gradual increase in value over time, with short-term corrections from time to time. Making the housing market as speculative as the stock market is damaging to Americans, our most valued assets and the foundations of our economy.

For additional information concerning the Federal Tax Credit, visit:

http://www.federalhousingtaxcredit.com/