A $15,000 gift for homebuyers?
The U.S. Senate approves an amendment to the economic stimulus package that would provide a tax credit of up to $15,000 for homebuyers who purchase a primary residence in the coming year. But economists are skeptical tax credits will prove stimulative.
Congress is readying a stimulus package that could include some generous incentives for homebuyers.
The Senate added to the $900 billion stimulus bill on Wednesday a home purchase tax credit of $15,000, or 10% of the purchase price. If it's included in the bill that goes to the White House, that would represent a big gain not just for potential buyers, but also for the home builders and real-estate agents' groups that have aggressively promoted such a proposal for months as part of their "Fix Housing First" lobbying effort.
The second plank of that lobbying effort — a proposal for federally subsidized 4% interest rates on 30-year fixed-rate mortgages — isn't in the bill, but Senate Republicans are pushing for such a buy-down to spur home sales. Already, the Federal Reserve Bank has tried to lower interest rates by buying up securities backed by mortgages. However, after 10 straight weeks of declines, interest rates have edged up slightly in recent weeks.
Policymakers will also consider increasing limits on loans eligible for financing from government-backed mortgage entities to as high as $729,750 in the nation's most expensive housing markets. The stimulus bill that passed in the House last week included the provision.
The Senate on Wednesday also approved $2 billion for state agencies to finance affordable housing.
Economists are skeptical that a builder tax credit or interest rate subsidies will stimulate the economy. Indeed, some argue encouraging the construction of new homes will only prolong the pain. "It is targeted not to the people who need help but an industry that wants a huge subsidy," said Thomas Lawler, an independent housing economist. "Why give an unbelievable gargantuan subsidy only to people who buy a home? What about renters who are in more dire straits?"
Proponents of a tax credit point to similarly structured subsidies that Congress approved in 1975. The program gave qualified buyers a 5% credit up to $6,000 and brought down interest rates by around 1.5%, to 7%. But critics say that the analogy is misleading because the U.S. was exiting a recession that had been induced by oil prices, not a slide in home values.
"By artificially increasing prices we are encouraging more building," says Harvard economist Ed Glaeser, who chided the Republican Party in a WSJ op-ed on Thursday for embracing interest rate subsidies.
By Nick Timiraos, The Wall Street Journal
We too just bought a HUD house under FHA. Our down payment....$100!!! (an additional $1000 earnest money that we get back after the closing) Not only that..but throught Counrtywide, we were able to get it @ 5% for 30 years. The house, well we got for $172,000 and its well worth $210,000. We couldn't pass up this deal so we took it! Not only do we get back the $1000 earnest money, but we get $500 for getting a HUD house AND we asked for $5000 closing costs. SInce the closing cost is only going to be $4000, we get the other $1000!!!
P.S. I live in Washington State. I think we only have the capapbility of putting $100 down.
My husband and I are wanting to buy a home, but we are afraid to do that right now because we may be stuck with a home that is worth less then what we paid for it. Not only this, but we are struggling with a down payment issue. We both have stable jobs and perfect credit, but that doesn't seem to be helping much.
In our county the prices of homes are still way to high for most home buyers to be able to purchase, and so they sit for months and months with hardly any activitiy. Prices drop some, but not enough for us. Everything is still way over priced in our area.