I want you ... to buy a home!

This past week, Sen. Johnny Isakson (R-Ga.) introduced a bill that would provide not just $8,000, but a $15,000 tax credit to any person who buys a home of any kind. 

Yes, you read that right. The home can even be investment property, or perhaps that second home in the mountains you've been dreaming about for years.

Time to Stop Dreaming and Start Buying?

Furthermore, under the proposed legislation, there are no longer any income restrictions.  That means that even the Donald Trumps of the world can add to their portfolio and receive a tax credit.  The legislation would extend the tax credit for one year from the date of enactment, and would still allow homebuyers to claim the credit on their 2009 tax return for purchases made in 2010.

On Senator Isakson's Web site, he makes the following statement:

"I believe our economic problems start with the housing market and that we must restore the housing market if we are going to restore our economy.  To draw buyers back to the market, I have introduced a proposal to invigorate housing demand and to boost the economy by expanding the first-time homebuyer tax credit passed by Congress earlier (this) year."

Isakson goes on to say that an illiquid housing market, decline in equity, and decline in net worth must be reversed, and that the recent high percentage of foreclosure and short sales is only contributing to the downward spiral of prices.

He had brought a similar bill to the Senate floor in February 2009, but the $15,000 amount and terms of the bill were reduced by a Congress under political pressure to cap their stimulus spending.

This is a very striking piece of legislation, and one that could have a major positive impact upon the housing market.  But could there be some disadvantages as well?   Let's take a look, and start with the pros.  The new legislation could:

1)   Entice more first-time homebuyers to finally enter the market.

2)   Stimulate current sellers (who have enough equity) to reduce their price, get it sold, and buy another home for the tax credit.

3)   Motivate investors to add to their portfolios.

4)   Appeal to those who have been waiting to buy second homes and vacation properties.

5)   Help buyers recoup money spent on the larger downpayments that are now required.

In addition, any legislation that boosts the real estate market will simultaneously help the nation reduce its unemployment level.  Each time just one home sells, it provides work to dozens of people who become involved in that transaction.  This includes home inspectors, appraisers, mortgage loan officers and their staff, handymen, closing attorneys and title company personnel, surveyors, home-improvement stores (and the hundreds who work in each store) and, yes, even realtors, such as myself. 

Do I have a personal axe to grind?  Absolutely!  I admit it.  In fact, it's one of the few times that I even agree with my own National Association of Realtors, which is also supporting the bill.  But I am merely one of hundreds of thousands of people who will benefit from such legislation. 

Every time I sell a home to a customer, and whenever I buy an investment property for my own portfolio, it puts food on the table for all of those people cited above and pays for an awful lot of mortgages, kids' braces and college tuition.  That, in turn, puts money into the hands of all the people who work in the banks, colleges and, of course, the orthodontist's office.  Then they spend that money on restaurants, retail stores, movies, and so on and so forth. 
 

Somebody has to pay for this terrific smile!

Now let's look at some possible criticisms of the proposed bill:

1)  It will help people who already have money, but won't do much for the poor, those who lack good credit to take advantage of the law, or those who are in danger of foreclosing on their own homes.

2)  It will cost the U.S. taxpayers (that's you and me) about $35 billion.  That's a healthy chunk of change, all right.

3)  WalletPop.com says the problem with a tax credit available to everyone is that it will simply raise the price of homes, funneling cash from the presently broke federal government and into the pockets of home sellers. 

4)  Unless the new tax credit becomes law immediately, it will reduce the number of sales for the rest of the year, as nobody would want to buy now if they could get an extra $7,000 by waiting.

I can't really agree with any of these criticisms.  Yes, it's true that it won't directly help the poor, those with bad credit or those in danger of foreclosing, but those people have already been helped ad infinitum by the taxpayers.  You and I pay will more money for our mortgages because of the high default rate.  We will also pay more for our auto loans, credit cards, etc. because of every person who ever had to do a charge-off or was delinquent on their payments.

The poor are not going to be the ones to help grow our economy again.  It's going to take the people with money to start putting it to work.  But a program like this will create real jobs for the currently unemployed, like carpenters and bricklayers, not just some made-up "bridge to nowhere" or windmill jobs.
 

First one in line for one of the new government jobs ...

Yes, that $35 billion price tag is steep, but it's nothing compared with the $3 trillion that's already been spent, much of that on pork programs that don't kick in until certain Congress-persons come up for re-election in a year or two. 

Is the Credit Worth Waiting For?

That depends. Will it raise the prices of homes?  With the massive amount of inventory that is currently available, it's doubtful.  But it would stop the rapid decline of prices that is now turning millions of homeowners upside-down in equity and preventing them from being able to move, and getting on with their lives. 

And somebody needs to tell the very short-sighted WalletPop that a great deal more wealth once belonged to the people of this country, before they were coerced into enabling a fat, greedy, spendaholic government to go broke, while mortgaging the futures of our great-grandchildren.
 

While it's true that a delay in the timetable for the law could impede current sales, by the time the law is debated and passed, we would only be a few months away from the end of the current law anyway.  And it may be advantageous for some people to buy a home now, rather than wait for the new law. 

If interest rates continue with their recent rising trend, by the time the new law kicks in, the rates on the 30-year loan could well be up in the 6%-7% range, as opposed to the current 5.5%-5.75% levels. 

At the higher rates, those buying expensive homes with intentions to remain in them for many years could pay thousands more in additional interest over the life of the loan.   They would actually do better to purchase now, rather than to wait for the higher tax credit.

So all in all, I believe that Senator Isakson's proposed legislation is a bill with the most common sense we've seen come out of Washington in a long time, and could well be the catalyst for a turnaround in the deeply troubled housing market.  The senator is to be commended for introducing this bill on two occasions, and for having the guts to stick to his guns. 

Before I finish my article this week, I'd just like to take a moment to wish all the fathers at The Tycoon Report and in our readership a very happy Father's Day this Sunday. 
 

So now it's your turn.  I have presented the arguments, both for and against the new legislation.  But what do you Tycoon readers think?  Would you take advantage of the new law?  Let's hear from you!

 

See you next week!