by Ben Meyerson and Sarah Gantz
The Senate's proposed $15,000 tax credit for homebuyers would boost the ailing housing market but do little to help low-income people who need it most, experts say.
The measure, which is part of the $827-billion economic stimulus plan that the Senate will vote on Tuesday, would offer the credit to anyone who buys a primary residence. But to take full advantage of the credit, buyers would have to earn enough to use it and spend at least $150,000 on a home.
As many as 1 million home sales could result from the tax credit, according to Mary Trupo of the National Assn. of Realtors.
"By increasing demand and decreasing inventory, it'll help to stabilize home values and result in fewer foreclosures," she said.
But low-income people will not benefit, said Linda Couch, deputy director of the National Low Income Housing Coalition. "The bill is focusing a lot more of its resources on higher income households and home ownership than it is on the lowest income people and people really teetering on the edge of homelessness."
Since the money comes as a deductible tax credit spread over two years, homebuyers must earn enough to have $7,500 in income taxes - $81,900 per year for a family of four to get the full benefit, according to the housing coalition.
See the story on the housing tax credit in Tribune newspapers and here in the Swamp.
Additionally, when the home costs less than $150,000 the deduction is only worth 10% of the house's value, meaning that those buying the cheapest homes wouldn't receive the full benefit.
Alma Jill Dizon, a Realtor from Riverside, Calif., agreed that there wasn't much in the measure for low-income Americans.
"From what I can tell, it's really going to benefit people who already have enough salary" to buy a house, said Dizon, who said she sells homes from $150,000 to more than $1 million.
Dizon said her market is dominated by older, three-bedroom, one-bath homes in need of repair. Those houses sell for about $150,000 to first-time buyers who don't have the savings to make a deposit on something larger.
"You have to owe enough in taxes in the first place" to take advantage of the rebate, said Dizon, "That's why it benefits people who earn more money and earn more on taxes."
But the tax credit could greatly help the housing market by making the more expensive homes in the area more appealing, she said. What once were multimillion-dollar homes in Riverside now are priced between $500,000 and $1 million, she said. With a tax credit, those homes -- many of which are on the brink of foreclosure -- are beginning to look more attractive to buyers.
"This isn't actually going to get a lot of people buying houses at the very bottom," Dizon said. "Who is going to start buying more houses is people in the middle and upper range. That can be good as far as staving off more trouble in those ranges, in those better neighborhoods."
But halfway across the country, in Cleveland, Realtor Ralph A. Vaneck could use a hand selling nicer homes. There, the median income is half of Riverside's - $27,007 compared to $54,099.
"The non-foreclosure market is where the major help is needed - that's the dead part of the market," said Vaneck, president of Westway Realty. Those homes are priced between $95,000 and $120,000.
People are more interested in purchasing foreclosed homes because they can get them for as little as $35,000, he said; 85% of his business comes from selling foreclosed homes.
The Senate measure expands an incentive approved last year -- a $7,500 credit for first-time homebuyers that had to be repaid later. The House's version of the economic stimulus package renewed last year's provision and eliminated the payback requirement.
But the Senate bill goes further, making the credit available to anyone buying their primary residence, and doubling the eligible amount to $15,000.
Once the Senate passes its version of the stimulus package, a conference committee will resolve differences between it and the House bill. Then both houses will be asked to vote on the compromise.
Trupo, of the Realtors' association, sees hope in whatever the housing credit turns out to be, although Realtors favor the higher amount.
"If it's $15,000, $7,500, or somewhere in the middle, there is going to be a significant impact to the market," she said.
Helping the housing market get back on its feet is in the interest of everyone, said Jerry Howard, president and CEO of the National Association of Home Builders.
"Until you stabilize house values, you won't be able to stabilize - let alone stimulate - the economy," Howard said. "This is the kind of stimulus that ought to get buyers off the sidelines and into the housing market."
Comments
Gosh...this plan wouldn't even have helped "Joe the plumber". Luckily for Joe, he has become the economic expert for the right so I'm sure he is doing better. If only Americans would understand all you need to do to succeed is pretend your something you're not.
Posted by: bill r. | February 9, 2009 8:03 AM
Isn't selling homes to people who really couldn't afford them, including "low-income people teetering on the edge of homelessness," one of the things that got us into this mess in the first place?
Posted by: DaveB | February 9, 2009 9:40 AM
Even being in the housing industry as I am, I do not see how this tax credit will spur on this industry. It might effect a few realitor agents, but it will not put the millions of construction workers back to work. It will only make the rich richer. The dem house stimulus bill will certainly help us all out, as would the pugs targeted depreciation relaxation. That is the only good thing I have heard from the pugs.
Posted by: Xcellentform | February 9, 2009 10:19 AM
"Alma Jill Dizon, a Realtor from Riverside, Calif., agreed that there wasn't much in the measure for low-income Americans."
This is so unfair! Why can't poor folk afford expensive homes. I have an idea, let's get Barney Frank to direct his buddies at Fannie Mae to lower the lending requirements so poor people can buy expensive houses and receive a full tax credit even though they pay no taxes. Govenment must ensure economic solutions from cradle to grave.
Posted by: Bushwacker | February 9, 2009 11:42 AM
DaveB....Do you think only people making over 80K can afford homes?
X...One of the problems with new home construction is there is a glut of homes on the market. Until inventory is reduced....new homes won't be charging back.
Posted by: bill r. | February 9, 2009 12:42 PM
It seems to me the way to solve the housing crisis would be for the homeowners facing foreclosure to be able to renegotiate the terms of the loan. It seems the banks would then not end up owning a home that they now have to sell at auction for about 30% of its' value. It also reduces or keeps these homes out of the "glut". Couple this with incentives (tax break) and I believe you would see a change.
ps...Bushwacker....I think you really need to get over your minorities caused the problem thinking. Greed was much more the motivator than poor people for crying out loud.
Posted by: bill r. | February 9, 2009 1:07 PM
May I also add that banks made these loans at a higher interest rate and now are recieving money basically at 0%. It would seem a win win situation for all involved.
Posted by: bill r. | February 9, 2009 1:29 PM
@bill r
1. Barney Frank and Chris Dodd blocked lending reforms that led to the housing crisis which brought down the rest of the economy. Neither of them are "minorities".
We should put the greedy bums in jail. Are Frank & Dodd "Greedy" of were they just very stupid?
PS
You should not put your faith in these fools to solve the problem for crying out loud.
Posted by: Bushwacker | February 9, 2009 1:47 PM
And, bill r., one of the reasons why there's a glut of homes on the market is that homes have been oversold. When manufacturers or government policies make it easy to buy, one of the effects is that sales are borrowed from the future. Think of the car market: Zero per cent financing, employee pricing for everyone, etc., etc.; ultimately, everyone who's going to buy has a new or nearly new car, and no one feels the need to buy, even if deals are good. The home market is the same way, and the foreclosures, largely affecting people who bought homes that they really couldn't afford, compound the problem by throwing even more homes on the market. Sales were borrowed from the future, and the future is now.
The effects ripple through the economy. Garden centers and nurseries get a lot of their business from new home construction; I see that a couple of them near where I live (far SW Chicago suburb)are for sale now. A builder that I'm acquainted with would get his light fixtures, etc. from the Home Depot; he's not going there much recently. And so it goes.
Posted by: DaveB | February 9, 2009 2:48 PM
Bushwacker.......Franks didn't even become Chairman of the House financial services committee till 1/31/2007. That is a full 2 years after the housing bubble broke. So your telling me that Franks and Dodd bloked legislation prior to 2005? Not a chance in hell. The republicans could push anything they wanted.
Dave B...So houses have been "oversold"? We just have too many houses huh? You must be right.....the reason the auto industry is hurting is we have too many cars out there. I guess we'll just have to sit and wait for more babies to be born.
Posted by: bill r. | February 9, 2009 3:47 PM
I understand that there is a glut of houses on the market right now Bill, but I was refering to the commercial market. Let's build some schools, roads, bridges, hydro plants, wind turbines, cell towers, CAT wire, and get this country up to snuff again. I do not see a recovery in residential house construction for a decade or so.
Posted by: Xcellentform | February 9, 2009 4:40 PM
X....I agree totally with that. I have to say that it seems very strange that to get those few republicans to support this....they needed to remove money for building new schools????????????
Posted by: bill r. | February 9, 2009 5:56 PM
Hey bill r
This video shows that George Bush tried to warn Congress in 2002 that this economic crisis was coming, if something was not done. But congress refused to listen, along with Barney Frank.
This video says it all .
http://www.youtube.com/watch?v=cMnSp4qEXNM&NR=1
Posted by: Mike C | February 9, 2009 7:06 PM
Posted by: Mike C | February 9, 2009 7:06 PM
Gosh...with the overwhelming majority of democrats in the house, congress, and WH.....of course that would be the dems fault. By the way...that whole report by Hume was a batch of lies later rebunked by other media news outlets.
Moreover, Baier and Hume completely omitted any mention of Frank's efforts in passing legislation providing greater oversight of Fannie and Freddie. In 2005, Frank, then the ranking Democrat on the House Financial Services Committee, worked with committee chairman Rep. Michael Oxley (R-OH) on the Federal Housing Finance Reform Act of 2005, which would have established the Federal Housing Finance Agency (FHFA) to oversee the activities of Fannie Mae and Freddie Mac.
Posted by: bill r. | February 9, 2009 8:47 PM
SEND THIS LETTER TO THE STIMULUS CONFERENCE COMMITTEE
Dear Senator <>:
I write today to thank Congress for its hard work on a much needed stimulus package and to express my concern about the $15,000 tax credit for home buyers.
Last week, Senator Isakson’s amendment to the stimulus replaced a $7,500 refundable tax credit with a $15,000 non-refundable one. The amendment is designed to encourage home purchases by higher-income households with a reduced risk of default. What the amendment fails to do is encourage purchases by those of us who are responsible and credit-worthy, but whose tax liability is nowhere near $15,000. Even the provision that allows tax payers to spread the credit evenly between two years is insufficient, as many of us have liabilities that are still only half the allowable credit. To make this incentive truly work for the American people and the American economy, the $15,000 credit must be made fully refundable to credit-worthy homebuyers at or above a certain income level.
In my own case, I work in the education field, which is not well known for its high salaries. Despite this, I have waited and saved been frugal with my spending for some years so I might purchase a home. In March, I will close on a foreclosed property in my hometown. My new home will need much work, as many foreclosures do. In most cases, the purchase of a home is the largest investment an individual will make in his or her lifetime. The spending that goes with it – spending for furnishings, improvements, renovations, maintenance, and appliances – infuses the economy with thousands of dollars per home.
Passage of the current bill will reduce my tax refund by $3,500 over the current incentive. That doesn’t make me excited to go out and spend. I could only dream of making enough money to recoup the entire credit in this bill, but what does it say to give a full $15,000 refund to someone making $122,000 a year, but less than a third of that amount to someone like me? Does that individual need the money more? Will they actually spend much of their refund? Is it sending the right message to the true middle class? I’m not sure I can answer those questions, but I know that if Congress gave $15,000 to an individual making $45,000 a year, they would put it to good use!
By making the $15,000 credit fully refundable would allow me and others like me to stimulate the economy with purchases of furniture, equipment, hardware, and create jobs in areas like maintenance, pest control, landscaping, construction, plumbing, and contracting. In my home alone, there is a laundry list of improvements that need to be made, totaling nearly $17,000. By refunding Senator Isakson’s tax credit, the entire amount would be circulated into the economy. Without it, me and homebuyers like me will likely stash what little we qualify for away.
Many see this credit as a windfall for undeserving or wealthy homebuyers. Currently, it is. By refunding the entire portion, it really becomes a windfall for the sectors of our economy that need it most. Help us to improve our lives while improving the economy by making the $15,000 homebuyer’s tax credit refundable.
Thank you for your consideration,
Posted by: chris in orlando | February 10, 2009 9:51 AM
FOR THOSE WHO BOUGHT IN JANUARY:
THE HOUSE PASSED THE BILL FOR A $7500 TAX CREDIT THAT DOESN'T NEED TO BE REPAID AND IS AFFECTIVE FOR PURCHASES OF HOMES AFTER 01/01/09.
THE SENATE CHANGED IT TO A $15,000 TAX CREDIT BUT IT IS ONLY AFFECTIVE FOR PEOPLE WHO PURCHASES AFTER IT'S SIGNED.
IF THE SENATE PASSES THERE'S TODAY, THEN THERE WILL BE A MEETING BETWEEN MEMBERS OF THE SENATE AND MEMBERS OF THE HOUSE TO WORK OUT THE DIFFERENCES BETWEEN THE 2 BILLS.
I BOUGHT IN JANUARY SO I OBVIOUSLY WANT THE $15,000 TAX CREDIT THE SENATE PROPOSED BUT WITH THE START DATE THE HOUSE PROPOSED.
YOU NEED TO MAKE YOUR VOICE HEARD AND CONTACT YOUR SENATORS AND HOUSE REPRESENTATIVE. THIS IS AMERICA SO YOUR VOICE IS YOUR POWER. E-MAIL THEM OR CALL THEM. HERE IS A CONVENIENT NUMBER. CALL AND ENTER YOU ZIP CODE AND IT WILL GET YOU IN CONTACT WITH ALL OF YOUR CONGRESSMEN. DECISIONS ARE BEING MADE, DO IT NOW. 1-866-924-NAHB (6242)
Posted by: Chris | February 10, 2009 1:06 PM
According to my understanding (gained mostly here: ) the tax credit is 10% of the purchase price of the home up to $7,500. That means that if your house cost more than $75,000 you will get the full credit. The other stipulation is the income. If you are single and make $75,000 or less you qualify fully. If you are married and make $150,000 or less then you qualify fully. From what I read in your article that is not what you are saying the qualifications are!
Posted by: Nemesis | February 10, 2009 2:56 PM
I recently sent in a comment about this article but had not done enough research to know that this article was talking about a seperate tax credit bill from the one I mentioned in my post. Please retract my post. Thanks.
Posted by: Nemesis | February 10, 2009 3:24 PM
Why do we need taxpayer-funded stimulus money to get people off the fence and "back into the housing market"?
Here's the solution:
Just let home prices across America fall until they are commensurate with real, take-home incomes.
Once that happens, the fence will be pretty much unoccupied. It may take a few years for the prices to fall and for "qualified, 25% down paying" home buyers to be found, but the housing market will recover eleventy billion times faster.
The problem is not that people are refusing to buy homes right now.
The problem is in the rear view mirror. Looking in that rear view mirror, Americans might frightfully discover that it was Realtors who drove home prices off a ramped cliff. We are hovering over a chasm, and all the printed money, stimulus checks and lies in the world won't prevent this baby from hitting rock bottom.
It will. It will.
Why postpone the inevitable?
I know. We're Americans. We want our solution like we want the Super-Size Value Meal at McDonalds. Immediate gratification.
Posted by: Markus Arelius | February 17, 2009 3:24 AM