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Debate on Tax Break for First-Time Buyers

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By : Paul Escobedo    99 or more times read
There are a variety of reasons that many believe that the tax credit should be allowed to expire on November 30. The fact that the housing market is showing signs of recovery with the National Association of Realtors reporting that the sales of existing homes has risen for the last four consecutive months is one good reason.

Another is that tax credits are always a form of government spending and our government-with a running $1.6 Trillion deficit this year- doesn’t have the money to spend. The more our government spends, the more future generations of Americans have to pay back to bail us out now. As of now, the tax credit has already cost future generations as much as $15 billion.

Probably the most important reason why the tax credit should be allowed to expire, many of the lobbies for the automakers, banks are waiting to see whether or not the government has the determination to cut back on a program once it has already begun to throw money at it. The other lobbies are also currently getting breaks and bailouts from the government.

An almost unheard of truth regarding the tax credit is the fact that it doesn’t make actually owning a home more affordable. The housing market will adjust, just as it has shown to do in the past. If the government starts, and keeps subsidizing the buying of homes, it will increase the number of people that buy homes and the amount in which they can afford to pay for the home, which in turn will raise the prices on new and existing homes.

It has become almost common knowledge that the primary factor for the rapid decline in the values of homes over the past couple of years was caused by the saturation of the housing market. There were just too many homes and that caused the value of homes to decline, which kept potential buyers from purchasing because they didn’t want to buy a home in a waning housing market. The lack of demand for homes in turn caused home values to decrease even more.

To try to somewhat remedy this, Congress agreed to make available a tax credit of up to $8,000 for first-time home buyers. This tax credit, coupled with more affordable mortgage rates, has facilitated the moderation in the decline of home values throughout the country. According to the National Association of Realtors, to date, the tax credit has helped to sell as many as 350,000 homes. Homebuyers who have been waiting for the market to change have been taking advantage of the tax credit, and are slowly cutting into the flood of homes on the market and that is starting to increase home values.

Letting the tax credit expire would be detrimental to the recovery that we’ve been seeing signs of recently in the housing market. Currently the amount of first-time buyers wanting to use the credit is increasing rapidly. That means that lenders and settlement service vendors are being bogged down by borrowers trying to get their sales finalized in time to receive the tax credit. Because of this, Congress needs to act quickly and extend the credit beyond November 30.

The credit shouldn’t just be extended; it should be expanded as well. It should be increased to $15,000 and made available to all buyers looking for a new home. The tax credit should also be made available at the time of closing in order to use it for the down payment and closing costs instead of having to wait for the buyer’s tax return.

If the tax credit is extended and expanded it would speed the recovery of the housing market by enticing “move up” buyers to purchase homes. “Move up” buyers are buyers who currently own a home and are looking to buy a larger home. Getting “move up” buyers in the market is said to be a key factor in stabilizing the market.

It is also proven that home sales stimulate the economy, through the sales of items for the home. A homeowner that has moved in the last two years will spend on average between $4,000 and $7,400 more than an average homeowner during that period of time; those figures were obtained from a study done by the National Association of Home Builders.

The market is finally starting to show signs of relative stability. It is, however, still in a very fragile state. If the tax credit was allowed to expire, that relative stability could be put in jeopardy.

Arguments for both sides were made and both contain valid points as to why the credit should be allowed to expire or extended and expanded. The decision is not likely to be made easily, and shouldn’t because of the impact each decision has the potential of making on the economy. One thing is for certain, the decision will be made soon because the tax credit is due to expire on November 30, 2009.
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