As a Realtor I get hundreds of emails from all Real Estate groups requesting me to ask Washington to renew the $8,000 first-time homebuyer tax credit.
The question is, should Washington renew the tax credit?
There are lots of reasons to renew it including; 1.4 homes sold to many first-time buyers, it has caused home prices to stabilize and has allowed many sellers and builders to finally sell their home.
Obviously, from the standpoint of most Realtors, Lenders, Builders, Title Companies and sellers it has been a good program.
So obviously it should be renewed, right?
We should see if there are any reasons not to first.
Washington always sells programs to the public by saying that the Government or the Treasury will provide the $8,000. Of course Washington has no money to give. They should say the taxpayer will provide the $8,000 though that is not even totally honest. Our country is so far in debt that the taxpayer cannot pay the $8,000 for every buyer, so instead we are selling bonds to China, Japan and others to pay for the program. So when the taxpayer is finally given the bill it will be for the full cost plus several years of interest.
Washington historically always underestimates the cost of programs.
Medicare was predicted to cost $12 billion in 1990, but instead cost $110 billion.
Cash for Clunkers was predicted to cost $1 billion, but instead cost $3 billion and also lasted three months short of what the original $1 billion was supposed to last.
Finally, the $8,000 first-time homebuyer tax credit was supposed to cost taxpayers $6.6 billion, but instead the cost is $15 billion.
Was each of these programs worth the original predicted cost? How about the actual cost? You decide.
Studies and Washington has told us that low down payment or no down payment programs were one of the major causes of the foreclosure crisis we are now in. It seems that if you put no money down, the seller pays all the closing costs and then home values decline, many of these buyers stop paying their mortgages. They then live in the home rent free for 1 - 2 years until the foreclosure process takes the home away.
Washington has the taxpayer guaranteed no money down 100% USDA loan. Some would say this is the governments own sub-prime loan and it is being used for many first-time buyers. There is also a 3.5% down FHA loan guaranteed by taxpayers. If home values decline 10% - 20% and these buyers walk. Plus many of these buyers have only one or two months of mortgage payments in their bank accounts. They are just one payment away from default. There is no room for a job loss, illness or any emergency.
When buyers get a conventional mortgage loan and put down 10% - 20% they have some money on the table. If the values go down 10% - 20% they stick it out and pay their mortgages. Much less foreclosures in this group due to more money invested up front.
Should we be giving the tax credit to those least likely to default on their mortgage?
Or maybe the tax credit should not be paid in year one, but instead after the buyer has lived there for 3 - 5 years. It would still reward buyers who buy now, but they would only receive the taxpayer's money when they have shown they are responsible homeowners. If we gave it to all buyers it would help all price ranges rather than just the lower price ranges that now have fairly low inventory levels.
Finally, can the taxpayer afford another $15 billion or so to extend the first-time homebuyer tax credit another year? It can be argued that this program is much better than much of the other spending going on in Washington, but when we look at the U.S. National Debt Clock we see that we have some real long-term financial problems that will be a burden on future generations. When we see that every man, woman and child already owes more than $38,000 toward the U.S. Debt and that with unfunded liabilities every American including a newborn baby is on the hook for $192,000 we really need to consider what is good spending and what is not. This year alone the government has spent nearly $3 trillion with only $1.5 trillion collected in taxes.
Obviously as a Realtor this program has been very good and I would love seeing the program extended or as many are calling for, making the tax credit available to all buyers, but as a concerned American Taxpayer I believe our government really needs to curtail spending taxpayer money on all sorts of programs. After all the government is now selling our debt to China, Japan and others with the understanding that at some future date the U.S. taxpayer will be required to pay the principal plus all the interest that has accumulated.
So, should Washington renew the first-time homebuyer tax credit? Should they renew Cash for Clunkers? Should they create tax credits for more industries such as appliances, furniture, clothing and so on? Or should Washington stop spending taxpayer money until we get our house in order?
Tell me what you think, but keep it clean. :)
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