Extend the Homebuyer Tax Credit Now
Now is the time to extend the home buyer tax credit. Housing has always led this nation out of economic downturns, and with the tax credit extended through 2010, it can again. This is crucial to the housing market and to economic recovery.
The Washington Post editorial (“Extra Credit: It’s time for Congress to cancel a temporary tax subsidy for homebuyers,” September 19, 2009) was based on some faulty assumptions if, followed to their conclusion, could be fatal to both housing and the economy during these months of optimism.
The editorial presumes that the recent trend of rising home sales over the past few months signals a healthy market. It does not. While the recent good news about housing is encouraging, we are not in a “good” market the Post describes.
Foreclosures still dominate the housing inventory and must be cleared out before there is any home price stabilization and real housing recovery. To say present conditions have the “promise” to end the foreclosure wave is premature and perilous. The key point many critics, including the Post, have missed is that the present foreclosures are driven not just by abusive mortgage products, but also by rising job losses and falling wages.
To see this market clearly, it is important to recognize that while present home sales have been rising recently, they are far from normal and well below the activity of the pre-bubble years. And present home sales are not moving “demand around – from the future to the present” – they are catching up with pent-up demand from the past three years when potential buyers stood on the sidelines and didn’t budge until they got help from Congress in the form of a tax credit.
The tax credit will cost the federal government an estimated $15 billion in revenues to date, but comparing it to the “Cash for Clunkers” program is like comparing apples to oranges. Families know that when they buy a car, they will likely replace it at some point in the future; buying a house is a more permanent decision than buying a car. More importantly, unlike the $700 billion bailout of Wall Street and banks, the housing tax credit puts cash in the hands of financially healthy home buyers and helps to stabilize home prices. And let’s remember that homeowners comprise the largest base of U.S. taxpayers.
So far this year, more than 1.4 million first-time homebuyers have benefited from the tax credit, and 75 million American homeowners are beginning to witness stabilization in their housing wealth.
NAR estimates that each home purchase generates about $63,000 in the economy – as recent home buyers pay for big ticket items like moving costs, appliances, furniture, home repairs, and landscaping. That’s a little more than the average American household’s annual income; another way to look at it is that each home purchase creates the equivalent of one additional job in the economy.
To encourage a healthy market, Congress should extend the tax credit through 2010. This will give the market time to clear away excess inventory, which will help stabilize home prices. That in turn will rekindle consumer confidence in the economy and the housing market.
We in the real estate industry look forward to a time when we no longer need the credit and when sales are normal and markets and home prices stabilize. But that time is not upon us. Only its fragile beginning is.
Charles McMillan, President
National Association of Realtors®
