I am about to say something that is loaded with controversy in the real estate industry.

I do NOT think the $22,500 tax credit put forward by the NAHB and NAR is a good idea!

The National Association of Home Builders (NAHB) and the National Association of Realtors® (NAR) are both solidly behind a plan to give away a $22,500 tax credit to ALL buyers of new or existing homes.  They want to do this in order to spur home buying and “restart” the stalled real estate market.

Currently, there is a $7,500 First Time Home Buyers Tax Credit (FTHB Tax Credit) that requires repayment without interest over a 15 year period.  I would venure a guess that the repayment requirement is going to disappear in the next few weeks…  but that is a different beast.

Both the NAHB and the NAR are pushing for the larger credit, extended to ALL buyers, not just those narrowly defined as FTHBs.  Failing the larger credit, they would like to see the $7500 made available to all buyers.

But, here is the problem…

We are coming off of a housing bubble.  In many markets, there are just too many houses.  In some markets, there are a lot of buyers that are upside-down in mortgages.  In other markets, there are many sellers that are unrealistic about their pricing because they want to sell for more than they paid two years ago.

The $22,500 tax credit could fix much of that… obviously those that are $100,000 under are NOT going to be helped.  But…

When does it end?

If that type of package is put into the market, it is going to push up prices.  Basically, sellers will know that buyers have extra money to play with… and they will price and/or negotiate accordingly.  And buyers will let it happen because there WILL be a rush to market for buyers taking advantage of the plan.

But the increase in prices is false.  It isn’t because the market decided real estate was valuable again… it would be because there was free money to play with.  It might not push prices up to the max of the tax credit, but it would certainly lead to false price inflation.

And then… when the tax credit stops… there would be continued downward pressure on prices.  And there would be HUNDREDS OF THOUSANDS of buyers that would want to get the inflated price for their homes… forget that $22,500 was given to them, they would want the price that “they paid.”

We would be back in close to the same situation we are now.

Obviously, the passage of that type of “housing stimulus” would be good for me personally/financially.  But I don’t think it is right, because in the loang run it wouldn’t fix the problem… (people buying homes they can’t really afford)… it would be a band-aid and we would have to find a new solution to help the new people that would be damaged by the policy.

Don’t hesitate to shoot Lane a message if you have any questions, or need any help. And check out the new links for FREE Property Searching, FREE Comparative Market Analysis and FREE Market Reports. They are near the top of the page…