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The Government Housing Tax Credit

Updated on March 11, 2014

Housing Tax Credit

It seems that the housing market is finally healing after an extended depression, as buyers slowly return and prices continually stabilize in most of the nation’s markets. However, the undesirable possibility of additional drops in prices still prevails as the time draws near for the home-buyers federal tax credit to expire. The expiration of the $8 000 federal home owner tax credit which is scheduled for the middle of the year is a major source of concern for many economists, home constructors and banks alike as home sales are the typical vehicle to rescue the economy from depression.

Housing Tax Credit
Housing Tax Credit

The tax credit was approved by congress last year in order to encourage the housing industry, this benefit was due to expire on November 30. An extension of the credit was brought to 2010 though, and some buyers received an incentive offer of $6 500. In order to benefit from the credit, buyers have to sign a contract of sale before or on April 30 then close by June 30.

The housing tax credit has undoubtedly spurred the values of those securities that have the backing of residential mortgages, as a result, this has assisted to recapitalize banks and bolster the whole financial system. Even through the larger banks are making substantial amounts of money again, they will not return to complete stability while the housing market that they are dealing with remains moribund.

Economists are all in agreement concerning the decision that this tax credit has assisted to spur demand and increase home sales, however a considerable amount of debate about the number of homes that have been sold still continues. Moody’s estimated that the initial credit assisted to push sales of over 400 000 houses throughout the country. The National Association of Realtors stated that the credit resulted in 450 000 new sales. As a result of a tax credit, a total of 2 million buyers have been coaxed into home ownership. The National Association of Realtors has estimated that a mire 18% would have been prevented without the credit. In December, the sales index for the group rose by 1% from November and went up 11% from December 2008. The association said the figure for December 2009 was at number 5 for the second year.

As a result of the federal housing tax credit, many home builders have begun to see profits once again. However, the majority of industry warns that should the government home buyer tax credit be removed before a complete and sustainable recovery, the positive changes in the housing/banking sector and the economy could falter.

There is an argument that allowing the lapse of the housing tax credit will result in a slow and painful recovery of the economy. Actually, most of the recovery in the housing market, which is the financial epicenter, has been encouraged by government incentives which have had an effect on everything from the rate of bank foreclosures, home sales to fist time buyers, and mortgage rates.


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