FEATURED ARTICLE: How Fewer First-Time Home Buyers Threaten the Real Estate Market
tResource.com, explains that “more debt and other rising costs directly impact potential buyers' ability to save money for the down payment on their home. The down payment has long-been the first-time buyer's biggest challenge because they don't have the proceeds of another home sale to help fund their down payment and closing costs." Chrane – whose site allows buy- ers to search through thousands of down payment assistance pro- grams by location – adds that “it's important for buyers to research all their home financing options in ad- vance. The average down payment help found by the Urban Institute's report was more than $9,000. That can be the difference between buy- ing a home today or remaining on the sidelines for a few more years.” STEP 3 Change the tax code. The tax rules are full of special benefits for every business and industry you can name – thousands of pages filled with exceptions, preferences and carve outs. If we really want more first-time buyers, then we can achieve that result almost instantly by changing the tax code. We’ve done it before. When the housing market and much of the economy were teeter- ing on the brink of collapse, the government created special bene- fits for first time buyers. Under the Housing and Economic Recovery Act of 2008, first-time buyers could receive a benefit equal to as much as $7,500 for a married couple, $3,750 for a single filer. The term “first-time home- buyer” was defined to mean some- one who had not held title to real estate for at least three years and earned less than $150,000 for joint filers and $75,000 for singles. This was described as a “first-
time homebuyer credit” but in the fine print said the government would “re-capture” the money ad- vanced. In other words, it was really an interest-free loan that had to be repaid over 15 years. If the property was sold in less than 15 years, the balance of debt was due at closing. Sure enough, first-time buyer ac- tivity rose from 41% of the market in 2008 to 47% in 2009. This was a good result, but not good enough given the dire condition of the economy. So what did the govern- ment do? It changed the rules. Under the American Recovery and Reinvestment Act of 2009, first-time buyers – those who bought before the deadline and had not owned for at least the past three years – could now get a tax credit of as much as $8,000. Not only was the benefit size increased but, more im- portantly, the credit did not have to be paid back. (A tax “credit” means your tax bill is lowered by a certain amount, say $8,000 in this example, while a tax “deduction” reduces only a portion of your tax bill, perhaps
22% of $8,000 or $1,760.) Housing is a large portion of the overall economy. If the goal is to re-charge the economy on a wide- spread basis, then a tax credit for first-time buyers works. Buyers – and markets – in both rural areas and metro cores would be helped. Local tax collections would increase as a result of more transactions and generally higher prices. And – importantly – some of the homes currently underwater would become salable as property prices rise. Don’t believe that a new first- time tax break would energize the real estate marketplace? In 2010, fully 50% of the real estate mar- ket was represented by first-time buyers – far more than the 33% percent seen in 2018. Peter G. Miller is a nationally-syndicated newspaper columnist, the author of seven books published originally by Harper & Row (one with a co-author), and for many years a Washington-based journalist.
14 think realty housing news report
august 2019 15
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