$7,500 Homebuyer Tax Credit Needs Reworking

By: Alicia Schuller, Marketing Coordinator, NHS of Baltimore

It’s no secret. The economic downturn facing the United States right now was triggered by carelessness in the mortgage lending markets. Congress recognized the need for immediate action earlier this summer when they passed the Housing and Economic Recovery, which among many things, offered a $7,500 dollar tax credit to first time homebuyers as a way to stimulate home sales. The question now is-- is it working?

According to an article released last week by the Washington Post, very few first time homeowners have taken advantage of Congress’ tax credit. The largest reason-- the credit essentially amounts to a zero interest, federal loan. Given the current state of the economic crisis, potential homebuyers are extremely weary of loading on more debt.

This is not a good sign for an economy that is in desperate need of pumping up the housing market before it will see an end to the financial mess. Congress is now considering a second rescue bill to shore up the rescue package passed in early October. In addition to more federal oversight and assistance for businesses, the bill would include even more money for homebuyers, upwards of $12,000. However, it is still unclear whether a repayment provision will be included. Many argue this summer's housing bill provided enough money, but needs to be reworked to exclude the repayment requirement.

Cheryl Cassell, our own Assistant Director of Single Family Programs believes the best remedy for the housing market is a tax incentive that does not include a payback provision. “Housing tax credits can be a “hit or miss” in stimulating the housing market. The most recent tax credit proved not to be attractive because of the [the repayment component]. Historically, first time homebuyers generally do not have sufficient savings for a significant down payment. As such, instead of a tax credit with a repayment stipulation; a down payment credit or down payment assistance program would be more effective in stimulating the housing market.”