NAR: Tax Credit Would Sell 555,000 Homes

7 01 2009

If all home buyers become eligible for a tax credit without a repayment feature, it could result in an additional 555,000 home sales – enough to meaningfully draw down excess housing inventory, according to the National Association of Realtors® (NAR).

First-time homebuyers currently get a $7,500 tax credit that must be paid back over 15 years. NAR advocates a similar tax credit, but one that applies to all homebuyers and does not have to be paid back.

Under the current $7,500 first-time home buyer tax credit, 264,000 households meet the purchase requirements. A full credit to all buyers means an additional 2.22 million households would meet the income requirements for purchasing a home, and about one in four of those households would actually make a purchase.

“A home buyer incentive is critical to help reduce housing inventory and stabilize home prices,” says Lawrence Yun, NAR chief economist. “The bigger the incentive, the faster housing can help pull the economy out of recession. The cost to the Treasury would be far less than the additional costs of a prolonged recession with insufficient housing stimulus.”

Analysis of other options shows that if only first-time buyers are eligible and the repayment feature is dropped, it could mean an additional 202,000 home sales. If extended to all home buyers but the repayment feature is retained, the gain would be 181,000 home sales.

NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth, says a flexible approach to the tax credit would have additional benefits. “A home buyer tax credit also should be allowed to be used as a part of downpayment. This would instantly add an equity cushion for homeowners – a vested financial interest provides the foundation for sustainable homeownership, which helps improve economic stability,” he says.

Source: Florida Association of Realtors.

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