A little over a year ago, my husband and I signed the paperwork to close on our first house. We had hurried up our house-hunting process to make sure that we closed before the First-Time Homebuyer tax credit was set to expire. The deadline was eventually extended, but it was still a major factor in our decision.
We immediately filed an amended tax return so that we could immediately collect the credit. Once that paper work went through, we turned around and spent a hefty chunk of the $8,000 credit on some plumbing work that was necessary to replace that part of our dream home’s plumbing that was original to its construction in 1918. While the tax credit didn’t make a world of difference in helping us to buy a house, it did make a difference in which house we were able to buy. The alternative to using the money we received as a result of the tax credit for that plumbing work was putting it on a credit card — not really a financially-savvy decision when we’d already just taken on a mortgage.
A Year Later
After a year of living in this house, I believe that the way we used the money we received as a result of being able to claim the First-Time Homebuyer Credit made sense. I know several home buyers who took the credit and immediately paid that $8,000 towards their mortgage. I know more who used it to buy furniture or to pay everyday bills, which was likely more in line with what the government wanted that money to be used towards. Personally, I see paying down the mortgage as one of the best choices available.
But the tax credit is creating some interesting — if not altogether problematic — scenarios. It’s easy to forget that you’ve claimed such a credit a year out and are still subject to its requirements. But if, for instance, a family who bought a house last year and took the credit finds themselves needing to sell their home and move (say, for a new job), they are obligated to pay back the credit. A few situations have come up where just that has happened: somewhere in the process of selling the house and completing closing, someone figures out that they need an extra $8,000 to pay Uncle Sam. It’s a bad situation at best.
The Program as a Whole
Beyond the question of how useful the First-Time Homebuyer credit was to individuals, there’s little question as to its effectiveness on a national level. It was intended to boost sales in the housing market, hopefully improving the economy as a whole. It created a short, artificial bounce in the market, but the effects were entirely temporary and the housing market continues to face an over-abundance of unsold houses.
David’s Note: I took advantage of the home buyer’s credit too, but I don’t believe any of our tax payer dollars for this initiative helped the housing market in the long run. As Thursday said, it artificially bumped up demand during those short few months, but all it did was shift the demand from later months earlier. And without new demand to keep prices up after the credit expired, housing prices dropped right back down.
For home owners like us who bought during that time, it just meant that we paid a higher price than normal if there weren’t as much demand. If we can comfortably afford the house, then this is okay on a national level. If we had to stretch a bit to pay for the mortgage, a likely scenario for many, then it meant less money for daddy to buy his gadgets, less money for mommy to buy shoes, and less money for the kids to go to Disneyland – in other words, there is less money for a typical household to put back into the economy.
It does, however, benefit the people who were smart enough to sell their house during that time, as they got out safely, or at the very least, less scratched.
So… Did you take advantage of the home buyer’s tax credit, and what did you think about it?