The "first-time home buyer" credit and the U.S. housing industry
The housing industry, although it is a small part of the economy, is very closely associated with the conditions of the entire economy of the United States. Since the fall of the United States housing market in the second quarter of 2008, the government has been attempting to regain stability of the economy with specific programs. They have offered stimulus packages to taxpayers in an effort to increase spending and trigger an economic rise, but more specifically have offered a “first-time home buyer tax credit” beginning in January of 2009. The stimulus packages seemed to artificially help the economy, but the purchase of houses could promote a permanent increase. New homes trigger purchases of other durable goods, like appliances and furniture, as well as services to maintain and repair the home. The purchase of a new home is not only an investment for the consumer, but is also a constant resource for many other businesses.
The “first-time home buyer” credit is offered for taxpayers who have not purchased a home within the past 3 years and have income of less than $125,000 ($225, 000 for married filing jointly). The house can be new or a resale, but must have the sale completed by November of 2009. The credit amount is 10% of the purchase price, with a maximum value of $8,000. In November of 2009, the credit was extended until April of 2010. The 2009 surveys completed by the National Association of Realtors (NAR) reported the highest percentage of first-time home buyers ever at 47%, which increased significantly from 41% in 2008.
One of the reasons for instability of the United States housing market is because of the subprime lending industry. Homeowners with less than favorable credit ratings or insufficient down payments or collateral were able to purchase homes more expensive than they normally would have been able to afford. After the high variance in the interest rates over the past 5 years, lenders and buyers have been sufficiently intimidated by the uneasy market. Both sides of the equation require a decent length of stability in order for the trust to be rebuilt. The NAR survey showed that 96% of buyers chose a mortgage, which will increase consumer trust in the lending industry as long as a healthy relationship is maintained.
In 2009, the typical home was purchased for $156,000, which is $9,000 less than the average purchase price in 2008. This means that the average credit was $1,560, which is considerably less than the allowed $8,000. The United States government was most likely able to offer an extension on the credit because the cost was much lower than budgeted. Although the cost of the program should not increase, they should not make another extension. After the initial subsidy and artificial stability, the housing industry needs to be left alone so the dust may settle.
Although the NAR survey suggests success of the “first-time home buyer” credit program, there were some problems that were exposed as well. Home buyers often reduce their spending in other areas in order to purchase a home, which this year was 30% luxury goods, 38% entertainment, and 30% clothing. A decrease in their spending is expected, however these other industries may have suffered more than necessary because of the government incentives in the housing market. The survey also revealed that 12% of buyers found that financing their first home was more difficult than expected, which may discourage them from purchasing other expensive items which require loans. Another 13% of successful buyers said they had experienced cancelled or terminated purchase agreements, with 8% rejected by a lender. The overall confidence that buyers have with the financing industry can strongly affect their willingness to borrow money and recommend borrowing money in the future.
The “first-time home buyer” credit seems to have made a positive influence on the suffering housing industry. The extension into 2010 was necessary, but there should be no reason to make another extension. All the new home owners will hopefully be able to increase their spending within the next couple years, and with the economy leveling out should be able to maintain their mortgage payments. It will be at least another year or two until the economy will regain its footing and begin to function positively without any support from the government, but due to the success of the credit the housing industry should be self-sufficient.
The “first-time home buyer” credit is offered for taxpayers who have not purchased a home within the past 3 years and have income of less than $125,000 ($225, 000 for married filing jointly). The house can be new or a resale, but must have the sale completed by November of 2009. The credit amount is 10% of the purchase price, with a maximum value of $8,000. In November of 2009, the credit was extended until April of 2010. The 2009 surveys completed by the National Association of Realtors (NAR) reported the highest percentage of first-time home buyers ever at 47%, which increased significantly from 41% in 2008.
One of the reasons for instability of the United States housing market is because of the subprime lending industry. Homeowners with less than favorable credit ratings or insufficient down payments or collateral were able to purchase homes more expensive than they normally would have been able to afford. After the high variance in the interest rates over the past 5 years, lenders and buyers have been sufficiently intimidated by the uneasy market. Both sides of the equation require a decent length of stability in order for the trust to be rebuilt. The NAR survey showed that 96% of buyers chose a mortgage, which will increase consumer trust in the lending industry as long as a healthy relationship is maintained.
In 2009, the typical home was purchased for $156,000, which is $9,000 less than the average purchase price in 2008. This means that the average credit was $1,560, which is considerably less than the allowed $8,000. The United States government was most likely able to offer an extension on the credit because the cost was much lower than budgeted. Although the cost of the program should not increase, they should not make another extension. After the initial subsidy and artificial stability, the housing industry needs to be left alone so the dust may settle.
Although the NAR survey suggests success of the “first-time home buyer” credit program, there were some problems that were exposed as well. Home buyers often reduce their spending in other areas in order to purchase a home, which this year was 30% luxury goods, 38% entertainment, and 30% clothing. A decrease in their spending is expected, however these other industries may have suffered more than necessary because of the government incentives in the housing market. The survey also revealed that 12% of buyers found that financing their first home was more difficult than expected, which may discourage them from purchasing other expensive items which require loans. Another 13% of successful buyers said they had experienced cancelled or terminated purchase agreements, with 8% rejected by a lender. The overall confidence that buyers have with the financing industry can strongly affect their willingness to borrow money and recommend borrowing money in the future.
The “first-time home buyer” credit seems to have made a positive influence on the suffering housing industry. The extension into 2010 was necessary, but there should be no reason to make another extension. All the new home owners will hopefully be able to increase their spending within the next couple years, and with the economy leveling out should be able to maintain their mortgage payments. It will be at least another year or two until the economy will regain its footing and begin to function positively without any support from the government, but due to the success of the credit the housing industry should be self-sufficient.
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