The Any-Time Homebuyer Tax Credit

By: DIANA GOLOBAY
June 12, 2009 10:56 AM CST

A new bill introduced in the House Thursday, HR  2801 or Home Ownership Moves the Economy (HOME) Act of 2009, aims to make the current $8,000 first-time home buyer tax credit available to literally anyone that purchases a primary residence through the end of 2010.

The bill, introduced by Howard Coble (R-N.C.), extends the current tax break to anyone “who purchases a principal residence” through Jan. 1, 2011. It also lifts the income limitation (currently, singles earning more than $75,000 and couples earning more than $150,000 are disqualified) but keeps the $8,000 maximum credit, depending on the value of the home.

The bill extends the repayment waiver to account for the extended credit availability. Current law states the tax credit does not have to be repaid unless the home owner sells the property or no longer uses it as a primary residence within 36 months of purchase. Extending the waiver, according to Coble, provides fair treatment of home owners that purchase within the extended deadline.

And all of this, Coble says, encourages home ownership and sparks the housing market as well as the economy:

“As we have seen in the past, when the real estate market is thriving, so is the rest of our economy. Now we are experiencing the dire consequences of a slumping housing market. I believe our HOME Act of 2009 would convince many who are sitting on the fence right now to climb down and purchase a new home. Our entire economy would be the beneficiary of these new sales. Extending the tax credit to all home purchases could be just the boost our housing market needs.”

He’s not alone in pushing for broader financial incentives for home purchases. Georgia State governor Sonny Perdue on May 11 signed HB 261 into law, making up to $1,800 (or 1.2% of the purchase price, whichever is less) in tax credit available to home buyers. The state tax credit, taken over three years, is in excess of the federal tax credit for qualifying first-time home buyers. It applies to all home buyers within six months of the law’s enactment.

The Federal Housing Administration recently began allowing home buyers to “monetize” the federal home buyer tax credit toward closing costs on FHA-insured mortgages. The credit cannot count as the buyer’s minimum 3.5% down payment, but can be put toward other closing costs up front through a short-term loan the borrower repays after filing his or her income tax return.

The efforts to broaden the availability of federal dollars toward home purchases looks socially responsible on paper, especially as underwriting standards among lenders across the nation have tightened since the housing bubble fallout began.

But the principle of taxpayer money incentives for (albeit qualifying) borrowers to obtain government-insured mortgages raises questions, namely:

If the tax credit’s intended audience would not otherwise purchase a home outside of thousands of dollars from Uncle Sam, doesn’t it create somewhat of a false housing demand?

The broad argument surrounding the cause of the housing bubble generally states that risky lending practices allowed people into home ownership who could not reasonably afford payments. What began this year as a temporary stimulus to get the housing market on its feet again looks to turn into a broad tax credit for just about anyone that purchases a home, if Coble’s bill gains momentum.

Even if house prices increase under a permanent housing stimulus, they would stem from an exaggerated level of demand, so a government-subsidized housing bubble may be in the works.

Write to Diana Golobay.