Friday, November 06, 2009

Homeowner Assistance Tax Credit Expanded and Extended

President Obama signed a homeowner assistance tax credit extender into law today after the House passed the bill yesterday with overwhelming support from Congress. the legislation also extends unemployment insurance benefits and the net operating loss carryback for small businesses.

Now, not only will the first time homeowners get the credit of up to $8,000 extended until April, but existing homeowners can take advantage of a $6,500 credit to buy another primary residence. It also expands the income caps to $125,000 for individuals and $225,000 for couples. The net operating loss carryback for small businesses was also extended.

The main problem I have with this bill is that it continues the distortion of the real estate market by allowing everyone to treat real estate as being worth $8,000 more than it really is. That means that property values can remain inflated as the intention of the bill is to resuscitate the real estate market to encourage sales. Never mind that the reason that we suffered the credit market meltdown was because people who should never have been extended credit to purchase homes were given such enticing loans without any care to repayment. A real estate market correction is underway, and as prices drop, it makes the homes more affordable. Instead of allowing the prices to continue to drop - making them still more affordable, this legislation continues a worrisome trend of trying to control prices to further a political agenda, rather than allowing the market to dictate affordable and reasonable prices within various communities.

The flip side to this, and an argument for the credit, is that those selling homes may be able to get out a little easier because the credit can ease the price drop seen in many parts of the country. Still, the problem is that so many homes are underwater that it would take a far larger credit to help many sellers recover their investment (which is something government shouldn't be doing since the risk of loss was on the buyer and the bank that extended the loans, not on taxpayers).

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