Realtors and home builders are pleased Congress recognizes the need to stimulate the overall housing market, not just help borrowers facing foreclosure.
The House included a tax credit for first-time home buyers in the housing measures that passed May 8. The tax credit would induce many Americans who don't own a home "to at least take a look at what's out there," said Jerry Giovaniello, senior vice president and chief lobbyist for the National Association of Realtors.
Once they look, many will buy, he said, since interest rates are low and housing inventory is good.
| Home buyer tax credit |
| What: Temporary tax break designed to stimulate housing demand |
| Who's eligible: First-time home buyers |
| Amount of credit: Up to $7,500; amount would phase out for individuals with incomes of $70,000 or more ($140,000 for married couples) |
| Catch: Taxpayers would have to repay the credit, without interest, over 15 years |
| Expiration date: Break would expire one year after bill's enactment |
| Status: Part of housing package passed by House May 8; must pass Senate and be signed into law by president before going into effect |
| Source:National Association of Home Builders |
NAR Chief Economist Lawrence Yun predicts the tax credit would boost sales of new and existing houses by 1 million homes over a year.
"That is huge," Yun said.
It would bring annualized home sales to 6.5 million, compared with their current pace of 5.5 million. That's still well below the "frenzy level" of 8.3 million in 2005, he said.
"It is just a restoration of home sales to the pre-boom years," he said.
The National Association of Home Builders is more conservative in its estimate of the tax credit's impact. NAHB expects the credit, as currently written, to boost sales by nearly 100,000 homes. The indirect impact would be bigger, since many owners of homes sold to first-time buyers would then buy new homes themselves, said Jerry Howard, the association's CEO.
An increase in housing activity would help millions of existing homeowners as well as those who depend on building and selling homes for a living, tax credit supporters contend.
"Without bold action to spur housing market activity, inventories across the country may continue to grow, placing downward pressure on home prices and wiping out equity that so many Americans have worked so hard to build," said Rep. Bill Pascrell Jr., D-N.J.
"It's vitally important that this gets done," Howard said.
Under the bill, first-time home buyers would be eligible for a tax credit of up to $7,500 to use as a down payment for a house. The amount of the credit would phase out for higher-income taxpayers. It would have to be used within a year of the bill's enactment.
Taxpayers would have to repay the amount of the credit to the government over 15 years -- essentially making it an interest-free loan from the government.
Some doubt tax credit's impact
Critics of the tax credit contend it would have only a minimal impact on home sales.
"The vast majority of this tax credit would likely subsidize taxpayers who would have purchased homes anyway," the White House's Office of Management and Budget contended in a May 6 statement opposing the bill.
Plus, the "unprecedented" provision requiring users of the credit to pay back the government "would be complex and burdensome," both for taxpayers and the Internal Revenue Service, the OMB statement contended.
The president's senior advisers would recommend a veto of the House's housing package in its current form, the statement said. The White House particularly opposes a provision that would allow the Federal Housing Administration to insure up to $300 billion of refinanced mortgages for borrowers who can't meet their payments on their current loans.
"It would force FHA and taxpayers to take on excessive risk and jeopardize FHA's financial solvency," the statement said.
House Republicans shared similar concerns about the FHA provision. Many also doubted whether the tax credit would lead to many purchases by first-time home buyers.
"This no-interest loan is structured so low, $7,500, it won't allow them to buy a home," said Rep. Kevin Brady, R-Texas.
The fact that home buyers would have to pay the credit back to the government makes it "rather useless in trying to stimulate the housing market," said Rep. Lee Terry, R-Neb. "This is really a faux or phantom tax credit."
Credit could be strengthened
NAHB's Howard hopes the tax credit will be strengthened when the Senate takes up the housing package. For example, Congress could forgive some of the credit for buyers who stay in their houses a certain number of years. Or Congress could enact a larger tax credit for a shorter period of time, which could have an even greater stimulative effect, Howard said.
In any case, the tax credit concept is "gaining momentum," he said.
Several thousand Realtors visited Capitol Hill the week of May 12 to keep that momentum going.
Besides the tax credit, the housing industry also is pushing to make FHA-backed mortgages more available. It also wants Fannie Mae and Freddie Mac, government-sponsored enterprises that buy mortgages, to play a bigger role in the market.
Howard is confident a housing compromise can be worked out that will be acceptable to President Bush.
"We're pretty optimistic this thing is going to get done before the Fourth of July," Howard said.
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