photo courtesy of aimeesblog

Like a ticking time bomb.

The First Time Home Buyer Tax Credit is set to expire on November 30, 2009.  If you haven't closed on your new home by then, you're out of luck and will miss out on the (up to) $8,000 tax credit.  People are beginning to panic a bit and the government has floated a few ideas about extension and even possibly expansion of the program.

We've all been watching the news, opinions, rumors, and thoughts on the First Time Home Buyer Tax Credit with baited breath.  From agents to lenders to consumers to concerned citizens; we all want to know what's going to happen next.  Some are for an extension, some are against it.  Some have even floated ideas about a modification to the theory of the tax credit.  So what to do about it?

"Death to the Tax Credit!"

Recently, a growing number of agents have said "let's kill it now."  Of course, some people immediately paint those real estate agents as uncaring and unkind.  Who doesn't like the idea of buying a home and getting a little help?  I for one would love to be a first time home buyer and receive a check in the mail.  The question becomes "at what cost?"  Obviously, the money comes from somewhere and we all know that (like it or not) we are currently spending a lot of money to get our economy back on track (even though the First Time Home Buyer Tax Credit is but a small part of it, it all adds up).

My views tend to lean towards this idea.  We've given buyers a chance to get into these homes.  Some have, some have not.  We still can't change the fact that many have lost their jobs or had other issues affect their credit in such a way that they can not qualify for loans.  No one dares float the idea of loosening credit standards (a huge part of what got us here), but in reality - that is the big stumbling block we face.  We can give money out like candy, but if people can't qualify for a loan it doesn't matter.  Offer me a million dollars to buy a new home and I still will sit on the sidelines if my credit score is too low.

Over at AgentGenius, Greg Cooper made a video about his thoughts on the First Time Home Buyer Tax Credit and I asked his permission to repost the video, instead, I decided to send you straight to AgentGenius, because you should be there anyway - to read the article and watch the video, head over to "First Time Homebuyer’s Credit- Should It Stay Or Should It Go? AG Politics."

"We need to extend and expand the Tax Credit!"

This idea has been out there since the original $7,500 tax credit - as you can see by the current First Time Home Buyer Tax Credit, this was extended, modified, and expanded.  There is no doubt in anyone's mind that the tax credit has helped clear up some of the inventory we had as well as get people back into the housing market.  I love the tax credit for what it does, don't get me wrong.  Incentives are always a good thing for the people receiving them.

I love the theory of the tax credit, I'm just not so sure on its long term effects.  Right now, agents and buyers are having a great time.  Sellers too.  We're doing what we need to buy: agents are working, buyers are getting new homes, and sellers are moving out (and let's not forget the consequences of buyers with a pocket filled with $8,000 that they didn't have yesterday).  This is the way we like to see things.  If you watched Greg Cooper's video though, in the back of your mind you must wonder - what happens when the end finally comes?

I fear we may be pushing ourselves towards a new artificially created housing market.  What happens when the push behind it does finally go away?  I'm not an economist, so don't quote me, but the fact is I fear the long term consequences of pushing it out further than it has already run.

As for the public, I wonder what this does to our collective psychology.  Are we perhaps creating a nation of "waiters" - people who will wait out everything, because there may be a better deal tomorrow?  This kind of thinking will do us no good at all.  We see it everyday with people who wait for interest rates to drop, homes prices to come down, and homes to hit the foreclosure market.  The worst is when they wait...and miss out on it.  And when the First Time Home Buyer Tax Credit truly ends (whenever it may be), what will the repercussions be on those that weren't able to get into a home because of job losses, credit, etc.  Will they just be sent the bill for helping those who were able to take advantage of it?  Seems a little lopsided when you think of it that way.

"Let's change the rules!"

Some have suggested expanding the tax credit to include everyone - not just first time home buyers.  Now, I know this contradicts much of what I'm saying, but if we are to continue with the tax credit, I do think it should be offered to everyone.  I also think the people who received the $7,500 tax credit should be given amnesty on the re-payment.  Why do we punish the first batch of people to jump at the chance to get a new home and take advantage of this program?  Instead we reward the latecomers?  Just doesn't make sense to me to reward one and not the other.

Making the tax credit available to all, probably would have opened up the markets quicker the first time around.  So if we are going to toy with the idea - let's give it a shot and see how it pans out.  It will still cost us a fortune, which I'm not a huge fan of, but I'd rather see it on a wide scale than still limited to a select group to test the theory of how well it really works.

Over on Jeanna Martinez's post, "Fence riding the tax refund wave all the way to shore...," Jeanna talks about a slow degradation of the total amount of the tax credit over time.  So the next one might be $5,000, then $4,000, then $2,500...you get the picture.  This would allow us to wean ourselves off of the theory that we get something in return for buying a house.  We always have received something in return - a home.

"It's not over yet!"

Congress currently has several proposals to extend and expand the First Time Home Buyer Tax Credit and obviously it will be a boom to buyers, sellers, and agents if they continue it.  I still fear the long term effects of it, both in psychological terms and financial terms.  I also worry for those that start the buying process now, but don't make it to the November 30th deadline - something needs to be done to deal with that.  When a closing slows down by a day and someone loses that tax credit, expect the lawsuits to start popping up.

No matter what direction it goes, I will follow, but I do hope we consider the long term vs. the short term.  Many people thought of their houses as ATMs during the run up to the housing market slow-to-a-crawl.  Today, many people are viewing their houses as a tax credit.  I worry about both mentalities.  A house should be thought of as what it is - a home.  First and foremost it is a place to hang your hat and live your life.  A place to build memories and enjoy time with your family.  It does have appreciation which builds equity as a great benefit, but once we start looking for that in the short term rather than the long term, we are dooming ourselves to another round down the road.

Check out the conversation between Will Ellis and I about the First Time Home Buyer Tax Credit on Twitter.

Will is a local San Antonio follower, so it was great to speak with him about the issue.  Are you from San Antonio and want to join the conversation?  Come say hello to me on Twitter - @rerockstar.