In my last blog First-time Home Buyer Tax Credit Extended and Expanded I covered the nuts and bolts of how the First-Time Home Buyer Tax Credit has changed. Now it's time to dig a little deeper and examine if this tax credit is a good idea.
Cost
The first aspect to look at is cost. The previous tax credit cost the federal government approximately $10.8 billion in lost tax revenue through August 22, 2009. The final numbers for its cost through November 30, 2009 are not yet available. Because many people who got the credit were going to buy a home anyway and because of rampant fraud, this amounts to $43,000 for each home sale generated that wouldn't have occurred otherwise.
Fraud
This brings us to the fraud that has occurred. The initial credit had no means in place of verifying if someone legitimately qualified for the credit. As such there were many people obtaining the $8,000 credit who either had not bought a home or who were not actually first-time buyers. Investigations found that a number of people fraudulently claiming the credit were IRS employees and minors, one as young as four years old. An inspector general for the Treasury Department stated that hundreds of millions of dollars in fraudulent claims have been identified.
The new tax credit now requires that buyers submit a copy of their HUD settlement statement as proof of a home purchase. This flimsy requirement does not, however do anything to verify that the property is being purchased as a primary residence, as required, as opposed to being used as a rental or second home.
Benefit?
After looking at the downside of the First-Time Home Buyer Tax Credit, is there an upside? Will it spur more home sales in Omaha? Will it boost Omaha real estate values? Economists have weighed in on the national affect of the original First-Time Home Buyer Tax Credit and estimates of the number of home sales generated due to the credit range from 200,000 to 400,000.
Locally it seemed that during the initial tax credit typical starter homes were selling a little more briskly than I might have expected. I would assume this trend will continue now that the credit has been extended. How will the expansion of the tax credit to current homeowners affect the Omaha real estate market? The hope of course is that these buyers will help reduce the supply of higher priced homes and I anticipate that this will happen at least to some degree. On the other hand for each of these homeowners who purchases a new home, they will also be increasing inventory when they go to sell their current home.
My Take on it
What do I think? Obviously, as a Realtor®, I benefit if more sales are generated and I expect that to be the case. However I do not think it is the best use of our tax dollars. With the economy as bad as it is and the government spending money as fast as it can print it, I think this is a huge waste of money. Never the less, if you are in a position to take advantage of it, then more power to you.
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| Troy Trumm, Trumm Team - 402-943-9494, Omaha NE |
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Interesting take on the tax credit. I am definitely inclined to agree with you. Although it may be good for our business, it certainly isn't the best use of our tax dollars!
Due to low prices, low rates and the former first time buyer tax credit we have NO INVENTORY. I am a little disappointed this was extended and expanded but I guess my first time buyers who are stuck in short sales are happy.