Is the First Time Homebuyer Credit a Bad Idea?
Apr 26th, 2010 by Carlos
In case you’ve been frozen for the past 36 years, you probably know about the first-time home buyer credit. The government started it to give home buying (and the economy in general) a boost by offering a credit to certain buyers in exchange for buying a home. Since home buying had stagnated after the mortgage crisis collapsed, it seemed like a good idea to boost the sales of homes by giving people some money in exchange for doing it. While it looks like it might be helping boost the numbers, a lot of people aren’t so sure that it’s a good idea.
I’ve written about the buying a home a lot and one thing I’ve noticed in the comments is a very specific kind of resentment towards this program. Usually, people are mad for one of three reason:
It’s Not Fair
They either just bought a home or don’t qualify for the credit or they qualified for the credit when you had to repay it. Which—to be totally honest—sucks a lot. If I had just bought a home and gotten a $7,500 credit that I had to pay back and then a few months later the “you don’t have to pay it back” version came out, I would be pissed off too.
It’s Not Smart
They think it’s bad strategy to put people into homes (and mortgages) who are so close to not being able to afford it that they need an $8,000 “loan” to make it happen. This makes sense—$8,000 is nothing compared to the commitment you’re making when you sign up for a 30-year loan. What happens when these people run through that money and hit a speed bump?
Politics
Some people just don’t like the government getting in the way. The idea that they are paying their taxes and that some of that money is going to go to someone who can “barely” afford a new home just doesn’t sit well with them. These people aren’t fans of government intervention and this programs gets all up in their nerves.
One More POV
Regardless of your opinion, the credit is having the intended effect: more people are buying thanks to the incentive. Now all that’s left is to hold on and see what kind of long-term impact this has on the economy and the real-estate market in general. What will happen once the credit ends? Will prices stabilize? Will the economy be affected?
For those answers, we’ll all have to wait.
I have mostly noticed that the tax credit resulted in homes in my area being over-valued…and people are buying them too! And not for significantly cheaper (I browse the assessor’s office a couple months after local homes sell, to cross check them against my value).
I really hope that people are taking the $8,000 and using it to bolster their liquidity or build up their equity, and not buying furniture and new cars.
I bought my house when the incentive was $7,500. After spending several days on the phone with my senators and congressmen about making it retro-active, it turns out they don’t really care. I put $5,000 to a principal payment and dropped the rest into my emergency fund.
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