Free Money's Not Cheap Money - A Look at the American Recovery and Reinvestment Act of 2009

Home buyers - how does a $15000 Tax Credit sound?  $15000, free money - sounds pretty good, right?

Who knows if it'll actually be there, though. 

Let's catch up to speed ... The House has passed a version of the stimulus bill, while the Senate is currently working on their own version.  They're supposed to vote on it tomorrow, February 10th, but as of this post I don't know if that'll happen.  There's some political wrangling that has to go back and forth, and once that's finished then it's voted on by both the House and the Senate ... again.

But why a stimulus in the first place, and will it even help?  Remember - I'm not a lawyer or a CPA, so if you have questions about whether this makes sense for you I'd suggest starting with them FIRST.  Then mail me.

The idea is that a tax credit of 10% of a home's purchase price, or a value no greater than $15000, could be written off on your taxes as a credit, thus stimulating buyers to invest in the housing market by purchasing either new homes or homes that are being resold.  The original stimulus bill, called the American Recovery and Reinvestment Act of 2009, said that only $7500 could be applied for as a credit, but this most recent amendment upped that to $15000.

15 grand is a lot of money.

I received some emails from first-time buyers late last week that thought it was just a first-time buyer credit, but according to the AP that's not the case.  The AP reports "The Senate has voted to award anybody buying a home this year a tax credit worth up to $15000 in hopes of jump-starting the sagging housing market.  The homebuyer tax credit offered by GOP Sen. Johnny Isakson would apply to any home purchased as a main residence and would cost taxpayers $19 billion."  So it looks as if it's a homebuyer credit and not a first-time buyer credit. 

I don't know if this makes a difference overall in the housing market across the country.  I know that the New River Valley market is not facing many of the same problems, and I hope to have my 2008 Annual Report out in the next several days.  Nevertheless, $15000 is a lot of money to just leave on the table and I think by the response I've gotten from buyers so far, and from what I'm hearing across the country, it's going to make SOME kind of a difference.  Make sure to read this report from Calculated Risk on the situation.  Jay Thompson also has a good recap.

Comments

[Phil Bailey]

15k is a lot of money and it upsets somebody like me who bought a house (not my first house so I don't qualify for that break) last fall with my hard-earned money, but may not have bought at the "right" time to get this tax credit.

I think it should be somewhat retroactive to catch the people that have, unbeknownst to them, been "stimulating" the economy the last 6 months.

[Sean Shannon]

15k? Are you kidding me? I can imagine this would strongly encourage TONS of people to buy houses this year. 15k is just crazy. We're not planning on selling our house and buying a new one for at least 2 more years, but I think I would definitely consider doing it this year for 15k! I mean think about it, that's like um 15k of free money. I would also think it would help our house to SELL because more people would be looking to buy. Maybe it's a good thing I can't get a bank to call me back about refinancing, we'll just wait a little until this whole thing shakes out!

[Jeremy Hart]

Phil - that's a good point, particularly for folks like you and your family. If we had known this was on the horizon, would that have kept you guys off the fence until the package was passed?

Sean, it's definitely going to get some people at least more interested than they were, I think. It's not REALLY free money, though - it's costing tax payers somewhere north of $270 billion (and I can't find the link for that right now, but it's somewhere in there). Nevertheless it's likely going to get some people off the fence - perhaps you?

[Phil Bailey]

Hard to say-most likely not as we got our ball rolling before all of the serious economic malaise happened. It still remains to be seen what they hammer out as the house bill doesn't have the $15k credit.

[Alexandria VA Town Homes]

I sometimes wonder if we short changed ourselves as a nation and concentrated too much on the first time home buyer.