First Time Home Buyer Credit a Bust, So Far

Orlando, FL, Nov. 11, 2008--The housing industry generally praised the temporary first-time home buyer tax credits written into the Housing and Economic Recovery Act of 2008 this summer. But apparently buyers weren't as impressed.

The tax credit gives first-time home buyers up to a $7,500 credit for buying a home between April 8, 2008, and July 1, 2009. Realtors say it hasn't been effective in getting people to buy homes, which would reduce the excessive inventory on the market.
    
The problem, they say, is that buyers don't like the repayment requirement of the credit. The credit needs to be paid back over a 15-year period, beginning on a buyer's 2010 tax return. In effect, it's really an interest-free loan.

"For the economist, even with the repayment feature, it was a clear benefit. Money today is better than money tomorrow. You receive the money today, put the money in the bank, earn interest, and pay it off over time," said Lawrence Yun, chief economist for the National Association of Realtors.

"It was a clear benefit, but nonetheless, the average Joe Homebuyer does not see it that way," he said, speaking at NAR's annual conference.

To entice more first-time buyers, the industry group is lobbying lawmakers to tweak the tax credit, removing the repayment aspect. They also want all home buyers to be eligible -- not only those who haven't been homeowners for the past few years.

The National Association of Home Builders is suggesting an even heftier incentive. It wants a 10% home-buyer credit, up to $22,000, depending on the Federal Housing Administration loan limit in the market, according to a NAHB news release.

It also wants that credit to be available to all home buyers who make a purchase in the next year, and for the repayment feature to be removed.
Yun said that $7,500 is a substantial amount of money in moderately-priced markets like those in the Midwest, yet home sales aren't really picking up there.

There's a reason for all this industry attention to first-time buyers; their purchases allow current homeowners to sell their homes and move as well.