Tax Credit May Dampen the Home Building Industry

Following the announcement on Wednesday regarding the new home building tax credit of $8,000, real estate analysts and home builders expressed disappointment and predicted slow growth for the home building industry.

The original $15,000 credit value for first time home buyers was seen as the potential igniter of the new home construction market. According to the National Association of Home Builders, they were actually expecting an increase in property sales by around 500,000, and that new jobs of up to 250,000 would be created.

The new home building tax credit will apply only to first-time home buyers who sill start construction before the end of November this year. This further discourages buyers, and as Chairman Ken Rosen of the Fisher Center for Real Estate and Urban Economics say, this move by the government will only be able to help uplift the home building industry by a very few notches. The original amount of $15,000 could have shot up the number of home sales, but it was scrapped.

The Home Builders Association of Northern California, as represented by its chief executive officer Joseph Perkins, agrees that the new tax credit of $8,000 has a very insignificant effect on the housing market, especially to high-end places such as the Bay Area.

However, the National Association of Realtors said last Thursday that the approved tax credit can actually create 200,000 sales this year. This can also help lower the borrowing cost, according to Robert Kleinhenz, deputy chief economist of the California Association of Realtors. This is after Freddie Mac, Fannie Mae and the Federal Housing Administration increased mortgages in expensive areas, as an effect of the new tax credit.

The recovery package is generally seen as lacking in potential to help the home building industry, as well as the whole housing industry, to regain momentum and get running again. For instance, the proposal to lower mortgage rates to about 4 percent was not approved. A proposal from consumer groups aimed at protecting homeowners facing foreclosures never made it to the final versions of the bill in both the Senate and the House.

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