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Impact Of Homebuyer Tax Credit Uncertain

Posted By admin || 5-Mar-2009

According to an article in the Dallas Morning News, a refundable first-time homebuyer tax credit of up to $8,000 featured in the American Recovery and Reinvestment Act may boost the nation's housing market; but we're not so sure.

The article said:

"We think this year's tax credit will certainly have a much bigger impact because it is a true tax credit which is also refundable," Yun says. "For instance, if you owe $1,000 in taxes and qualify for the first-time homebuyers tax credit, you will receive a tax refund of $7,000."

In theory this tax credit should send the houses currently glutting the housing market flying off the shelves; but there are two problems--credit availability and massive job losses. According to the unemployment figures there are at least 6 million Americans unemployed and that's just counting those receiving unemployment benefits.

Those that are jobless and looking for new work are reporting that it takes 8 months on average to find new employment which is often paying less than their previous job. The financial sector is still cautious about loaning money because they are taking serious hits by the massive amounts of foreclosures nationwide.

The combination of shrinking profits and massive foreclosures as reported by banking giants such as Bank of America and Citigroup has created an environment of fear. The banking industry is afraid of taking on new risks in the housing market and "first-time homebuyer" most often equals "risk."

The other problem is that because of massive job losses nationwide many Americans are afraid of making any new purchases especially a new home. They are afraid of two things; future job losses and the rapid devaluation of their new home because of foreclosures that are continuing to rise and trigger drops in home values.

This new tax credit will certainly entice some first-time homebuyers; but don't expect any miracles.

Categories: Economy
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