Extending First Time Homebuyer’s Tax Credit

Ahh, the first-time homebuyer’s tax credit, the deadline is approaching and the government is trying to figure out what to do, again.  Last winter they couldn’t decide if it was going to be $7,500 or $15,000 and how it was going to be applied.

I quit paying attention after they gave a bunch of false starts through cable news.  Cable news is so hungry to report that they jumped too soon a couple of times. Afterwards many people AND agents were left with erroneous information.

One guy who tracked it and has been tracking it well, he must have a lot of patience, is Jay Thompson of the website PhoenixRealEstateGuy.com.  It looks like we are close to a deal to extend.  I gave my opinion on why I thought it would be extended and last winter I gave my reasons why I didn’t think it was a great idea.

The biggest question, if this makes it through Congress in it’s current form, will it actually increase sales?  I don’t think it will.  There will be a small bump possibly but it will just be a bonus to the rest of the buyers.  It is a one time benefit that you don’t realize until tax time.  Buyer’s are thinking about their cost now and the cost in the future.

Much like walking into a store to find the item you are buying anyway just happens to be on sale, buyers out there will get a extra benefit that isn’t worth the cost to the government.   The major benefit is that those buyers will get a bonus around tax time that they can put into the economy but I don’t think it will have a significant effect on sales.

I guess a “significant effect” can be debated in terms but in this post based on CalculatedRiskBlog.com‘s numbers, the expect increase in sale was less than 10%.  4 million sales, 2 million new buyer’s and 350,000 induced by the tax credit.

Oh, and don’t forget about the rampant fraud that they are just starting to learn about.

Treasury Inspector General for Tax Administration J. Russell George told a House panel that more than 19,000 people filed 2008 tax returns claiming the credit for homes they had not yet purchased. George said his office had identified another $500 million in claims, by some 74,000 taxpayers, where there were indications of prior home ownership.

He told a House Ways and Means oversight subcommittee that they also found 580 taxpayers under the age of 18 who claimed $4 million in first-time home buyer credit. One was 4 years old

So follow Jay on his site, or Twitter, to get the best news on this as it develops.  Once the dust settles I will have information about it here.  And if you know anyone looking for a home in Phoenix, give him a call!