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Home-Buyer Tax Credit A Good Start, But...

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Last night the Senate voted to include a $15,000 homebuyer tax credit to the American Recovery and Reinvestment Act (a.k.a. the big Obama bailout).

Heralded through the process by Senator Joe Lieberman (I-CT), the credit doubles the size of a tax credit passed last summer, which did very little to spark home buying.

This credit would likely not have to be paid back over time, as the previous one was.

“This robust tax credit will spark demand in our struggling housing market and offer real hope for economic recovery,” said Lieberman in the press release.

The release also cites:

An analysis by the National Association of Home Builders projects that the Isakson-Lieberman homebuyer tax credit amendment will have the following economic benefits in the first year after enactment:

  • Increase home purchases by 499,700 homes,
  • Create more than 255,000 jobs
  • Generate $12.3 billion in wages and salaries and $9.7 billion in business income, and
  • Yield tax revenues of $6.6 billion for the federal government and $2.1 billion for state and local governments.

After the release, J.P. Morgan homebuilder analyst Michael Rehaut put out a note calling the tax credit a “positive”, but adding that “structural challenges remain a greater negative for the industry.”

I tend to agree.

The tax credit, while available to all buyers, is really only going to help a first-time home buyer who has good credit and money to put down on a 30-year fixed. It won't overcome the hurdles facing the bulk of potential buyers out there who either have to sell their current home or don’t have the good credit and downpayment necessary to take advantage of today’s low mortgage rates.

In other words, the tax credit is a good start, but let’s hope it’s not the finish.

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