First-Time Homebuyers Get $8,000 Tax Credit with No Payback in Stimulus Bill

13 02 2009

A new tax credit of up to $8,000 for first-time homebuyers with NO payback that’s being included in the economic stimulus package was far less than the homebuilding industry wanted, and analysts expect it will provide only a modest boost to the U.S. housing market.

The tax credit is part of the economic stimulus package expected to be signed by President Barack Obama on Monday. It was scaled back from a Senate proposal of $15,000 and limited to first-time buyers who act between the start of this year and the end of November. The proposal would eliminate the repayment requirement in an existing tax credit for first-time home buyers.

The credit for 10 percent of the value of a home, up to $8,000 was estimated to cost the government $6.6 billion.

It starts phasing out for couples with incomes above $150,000 and single filers with incomes above $75,000. Buyers will have to repay the credit if they sell their homes within three years.

Struggling homebuilders, already looking ahead to the traditional spring selling season, had been counting on Congress to help spur pent-up sales after completing the worst year for new home sales since 1982.

Executives for one major builder, Beazer Homes USA Inc., noted earlier this week that they had seen an uptick in traffic over the weekend as many prospective buyers learned of the Senate’s original incentive provision.

But with that proposal gone, Wall Street analysts said the homebuyer provision will have a negligible effect on homebuilders’ fortunes.

Real estate agents were more optimistic. The National Association of Realtors projected the change will stimulate an additional 200,000 home sales.

The big unknown, however, was the state of the economy. With employers laying off thousands of workers, many potential homebuyers are nervous about making such a big financial commitment.

Mortgage rates remain low, falling this week to a national average of 5.16 percent for a 30-year fixed-rate mortgage, according to mortgage finance company Freddie Mac.

But credit remains tight and borrowers need a downpayment of at least 3.5 percent to qualify for a loan backed by Federal Housing Administration, a popular option for many first-time buyers.

Last year, Congress enacted a $7,500 tax credit for first-time buyers, but that had to be paid back over 15 years and the impact on home sales was negligible. First-time buyers, in last year’s law, were defined as those who haven’t owned their own homes for three years.

First-time homebuyers bought 2.2 million new and existing homes last year, according to the National Association of Realtors, making up about 41 percent of total U.S. home sales, up from 39 percent in 2007 and 36 percent in 2006.

Concerns about the bill’s overall costs, plus criticism that a much larger credit would not benefit borrowers on the verge or foreclosure, and mainly help people with healthy enough incomes to buy a house helped sink plans for a much larger credit.

The homebuilding industry mounted an unsuccessful push for a credit for up to $20,000 for all buyers, flying builders in from around the country last month for a massive lobbying push that wound up falling short.

Sales fell in the fourth quarter of last year around the country, except for six states where buyers have been able to snap up foreclosed homes at a bargain: Nevada, California, Arizona, Florida, Minnesota and Virginia, the National Association of Realtors said Thursday. Nationwide, the median sales price was $180,100, down 12 percent from a year ago.

Source: AP



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