New Housing Credit Falls Short…In My Opinion

You can’t please all the people all the time…and who am I to second guess some of the brightest minds in the country….but I do think the House and Senate fell short in the housing credit in the recently enacted stimulus plan.

According to reports, the final bill reported out of conference contains an $8,000 tax credit for “first time” buyers. “First time” is defined as anyone who has not bought a house in the past three years. The credit will apply to all home purchases from January 1, 2009 to December 1, 2009 (so it is retroactive to the beginning of January) but it does have an income cap. The $8,000 begins to phase out for single persons after $75,000 of annual income and for couples with annual incomes of $150,000. The credit totally disappears at $95,000 for singles and $170,000 for joint returns.

Sound good? Not for real estate in Bethesda or the rest of the DC Metro Area. I don’t want to sound like the New York Times writer who suggested that it was impossible for bank executives to live on the $500,000 proposed by President Obama, but the $8,000 credit and the income limits just won’t go far in our metropolitan area. And why limit the credit to first time buyers?

I know that our legislators had to consider a lot of ways to structure a plan which would have an immediate and positive impact on the economy. But I think everyone agrees that a strong and stable housing market is key to this recovery. All of a sudden, the same people who dolled out billions to banks with no strings attached are worried about spending money to encourage people to buy houses.

At one point, the Senate bill contained a $15,000 tax credit. I don’t know if this credit was limited to first time buyers and whether it was means tested, but I’d argue that this is a “better” number. Maybe there should be a range, based on local housing markets, that goes between $8,000 and $15,000 – much like the FHA and conforming loan limits (which, in this legislation, will go back to the higher levels we saw in 2008). A similar range could apply to income limits. It actually seems quite simple to draft legislation that authorizes an $8,000 credit for buyers in areas where the FHA loan limit is $271,050 and raises incrementally to a maximum of $15,000 in areas where the FHA limit goes to $729,750. If the FHA recognizes this tremendous differential throughout the country in housing costs, why didn’t Congress?

No one asked me….but since we’re throwing so much Monopoly money around, I would have liked to have seen more go to housing incentives.