First, we can tone the excitement down a bit. This tax credit was proposed during the campaign with a few, but not many details. And any passed bill is likely to look very different.
As for the details, we do know that as Biden proposed, the amount of credit was to be $15,000. And it was proposed as a tax credit made available up-front to help with down payments, instead of after filing taxes. But not much more was released. For example, would it be restricted to first time buyers? Limited to lower income buyers? What happens if there is not $15,000 in taxes owed to get a credit against?
And why would some members of Congress oppose this credit? A tax credit for first time homebuyers sounds like a winner, right? We can think of three main reasons there might be opposition. First, this tax credit would be expensive and we already have a burgeoning deficit. Adding more government debt at this time has the potential to increase interest rates as the government will have to borrow even more.
Secondly, it has been suggested that the budgetary effect could be mitigated by eliminating tax advantages such as getting rid of 1031 tax exchanges. This benefit is a favorite of investors and would dampen another important segment of the real estate market.
Finally, the biggest argument against the tax credit is timing. The previous credits implemented by Presidents Bush and Obama during the recovery of the Great Recession came when there was not enough demand for housing. Today there is a severe shortage of inventory and plenty of demand. Does it make sense to increase demand in a market which is out of balance, which would exacerbate that imbalance? Obviously, things could change—but for now the timing could be off. But that does not preclude passing the tax credit in the future when the market evens out. Timing is everything in life.
Dave Hershman is Senior VP of Sales of Weichert Financial and the top author in the mortgage industry. Dave has published seven books, as well as hundreds of articles and is the founder of the OriginationPro Marketing System and Mortgage School – the online choice for expert mortgage learning and marketing content. His site is www.OriginationPro.com and he can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..
