Cash-For-Clunkers and the First-Time Homebuyers’ Tax Credit are two crutches that have helped consumers keep the economy limping toward recovery, and although the successful auto program has come to an end, now is not the time to throw the other crutch away. The economy is not ready to walk on its own just yet.
Treasury Secretary Tim Geithner acknowledged the White House is considering extending the $8,000 first-time homebuyers tax credit, saying, “We haven’t made a judgment yet. Obviously that’s something we’re going to take a careful look at.”
Be careful for sure, Mr. Geithner, but do so in a hurry as well. The credit expires Nov. 30, and with the loan process backed up an average of 60 days, there’s a real fear that just when the real estate market has shown some positive signs, consumers won’t have the incentive to purchase right when the economy needs its continued shot in the arm – which is now.
Home buyers have been on a roll of late, and the nation needs it to continue. Here in the Bay State, July year-over-year sales of single-family homes shot up 12 percent, according to The Warren Group, publisher of Banker & Tradesman. Many of those homes were priced between $250,000 and $400,000, which our own Aglaia Pikounis blogged recently are the kind “that first-time buyers would most likely purchase.”
Confidence is spurred by good news. The country still needs a few consecutive months of increasing sales numbers under its belt before anyone will be heaving a sigh of relief. If the plug is pulled now, consumer confidence could continue to corrode, and that would most likely send home sales lower as buyers go back to sitting on the fence, waiting for “the real bottom.”
Georgia Republican Sen. John Isakson sponsored a bill in June to not only extend the tax credit but its amount, too (to $15,000), while eliminating the restrictions (like being a first-time homebuyer). Isakson’s bill failed last month by a 47-50 vote. That’s good, because each tax credit, of course, means less money coming in to the Treasury, which needs every dollar it can get nowadays.
While we can’t approve of unlimited hand-holding to the closing table, neither do we believe the fragile economy is ready to stand on its own.
Instead, the White House and Congress should extend the current credit until the economy is safely floating along and consumer confidence has been restored. New homeownership has spillover into the economy that is also greatly needed at present.
One of those additional benefits new homebuyers bring to the economy is all of the materials they buy to supplement their new purchases – from furniture to whole kitchen installations. These subsequent purchases help local governments via sales taxes, local employers and employees – be it retail or construction jobs.
No one wants to stay on a crutch for longer than necessary, but real estate professionals, lenders and small business owners should continue to call upon legislative leaders to extend the first-time homebuyers credit. It’s a good Band-Aid for now that somehow Washington got right.
