Home Buyer Tax Credit: Would It Work?

A little bird told me that the home builders will be on Capitol Hill next week, pushing for a home buying stimulus. Now before everyone goes crying “Big Builder Bailout,” just listen to the proposal, which is only for owner occupants, and the thought process that goes behind it.

The builders are asking for a home buyer tax credit, not just for buyers of new construction, but all home buyers. The credit amount would be 10 percent of the home price, capped at 3.5 percent of FHA loan limits, so ranging between about $10,000 and $22,000. This is an out and out credit, unlike the $7500 tax credit offered last summer that has to be paid back over time; that one did nothing to stimulate home buying. The credit would be available at the time of closing.

In addition to the credit the proposal seeks a government-funded mortgage buy-down program, in which a 30-year fixed rate loan would be available at 2.99 percent for the first six months of 2009 and then at 3.99 percent for the rest of the year. The builders also add at the end: “continue foreclosure prevention measures to keep people in their homes…” You can find the whole shebang at www.fixhousingfirst.com.

So the premise behind this proposal is that rather than putting all your eggs in the foreclosure mitigation basket, which isn’t working all that well so far, the only way to save the housing market, which in turn will save the economy, is to stimulate home buying. Get all the pent-up demand off the fence with great deals on homes—an offer buyers just can’t refuse. By stimulating home buying, you knock down the excessive inventory, put a floor under home prices and restore home equity, which in turn could help somewhat (though not totally by any stretch) the foreclosure predicament.

Does it help the big builders in the end? Of course it does, but it’s not a direct bailout, a la autos, by any stretch. And, as one public builder suggested to me, the big builders only represent 20 percent of the home building business, and they are, so far at least, in large part weathering the storm (although they’re not exactly a buy…). It’s the little guys who are going out of business at an alarming rate.

Is this the right fix? Dunno. I’ve heard so many proposals at this point that I really don’t think any one of them is the golden ticket. But I do know that home purchasing creates jobs, and I’m not talking about builders and Realtors. Think about the last time you bought a home. How many people were involved in the chain? And once you moved in, how many retailers did you frequent in your quest to put your personal mark on the place? From curtains to carpet, restocking the fridge to hanging the family photos. And services: Movers, landscapers, painters, plumbers, electricians, trash haulers, storage facilities. I could go on.

Buying homes, new or old, creates and maintains jobs. Foreclosure “mitigation” is one part of the puzzle, but it’s not the whole picture. We who cover housing are hearing nothing but gloom and doom as we head into the new year. And despite what you all may think of the media, and its propensity to tout the dire and the despondent, here’s a newsflash: Hope is a good story too. Just ask our new President.

Questions? Comments? RealtyCheck@cnbc.com