Congressman Burton to Co-sponsor the Homebuyer Tax Credit Act

Posted on | March 17, 2009 | No Comments

The current recession started with a crisis in the real estate market, and the solution, in large measure, remains tied to the real estate market.  However, there are three problems with the massive stimulus plan Congress passed, as it relates to housing.

First, the current stimulus plan limits the $8,000 tax credit to first time home buyers.  Those buyers are in the lower end of the housing market.  So, there is no direct stimulus for middle to upper-end home buyers, who tend to buy larger and more expensive homes.  It made no sense for Congress to stimulate demand for the lower end of the housing market and essentially ignore the other portions of the housing market.

By offering a tax credit to all home buyers, not just first time buyers, Congress would provide needed stimulus for the entire residential real estate industry.

Secondly, Congress failed to account for the fact that all real estate markets are not alike.  Some areas of the country are suffering more than others.  Southern California, Florida, Arizona and Nevada have horrible real estate troubles.  California has seen a drop of nearly 75% in home values in particular areas of that state.  Supply in those markets is out-pacing demand.  There are too many homes, and too few buyers.

In Indiana, we have not suffered huge drops in values, because values here were never over-inflated.  The fall in Indiana property values has not been so deep, because the rise in values was not as high over the past few years.

We need a program that accounts for the differences in local real estate markets across the country.  Congress should establish a formula for determining what constitutes “excess” housing supply for a particular market.  For example, Congress could determine that a normal amount of housing inventory is five months of home sales, on national average.  Then, Congress could provide greater buyer incentives for those markets with excess inventory (greater than five months of inventory), until housing supplies have dropped to a “normal” level.  This would enable Congress to direct more aid to those markets in greatest need.

Thirdly, there is a difference between stimulating the sale of existing homes and stimulating demand for new home construction.  In Marion County, Indiana, we have too much housing inventory.  We need incentives for home buyers to purchase existing homes.  We do not need incentives for new home construction.  By contrast, housing inventories in the surrounding counties are much lower.  Arguably, Hamilton County, Indiana is seeing a housing shortage.  So, new home construction should and could be stimulated in those counties that do not have excess inventory.

What’s the first rule of selling real estate?   Location, location, location.  Congress has ignored that basic principle.   All real estate is not the same, nor are all real estate markets the same.

Are there any solutions in development?

Sort of.

Indiana Congressman Dan Burton is going to co-sponsor the Homebuyer Tax Credit Act, H.R. 1245.  The goal of the bill is to stimulate the entire housing market by offering a $15,000 tax credit to individuals who purchase a home in the next year.  The amount of the tax credit would be $15,000 or 10 percent of the purchase price, whichever is less. Purchases must be made within one year of the legislation’s enactment, and the tax credit would not have to be repaid.  The bill, if passed into law, would replace the current $8,000 housing tax credit.

H.R. 1245 would address some, but not all of the concerns I have expressed in this blog.

What are your thoughts on the subject?  Post your comments.