Much thought and discussion went into the enactment and extension of the first-time homebuyer tax credit, and it clearly impacted the market, both while it was in effect, and after it expired. It moved sales for last year into the first half, and the immediate drop in activity and sales beginning last July proved that it motivated people to buy before it ran out.
Although I have my issues with that credit, both in terms of policy and in practice, there is no question that it made a difference while it was in effect, and that the market responded. It is also clear that the jump start that the government must have hoped that it would give to real estate did not occur, as sales fell off as soon as it was over. In retrospect, I think that the government was right in thinking that we needed that kind of stimulus, and I think we need to try again. After all, cash for clunkers helped the auto industry, the TARP money helped the financial industry, and real estate is still lagging. It is hard to imagine any real recovery taking place without our industry improving.
My problem with the first-time homebuyer credit was that it aimed at exactly the people who would buy in any type of market: those forming households; and renters with no homes to sell. One of the main problems with the current market is that it is stopped up, because sellers who can sell refuse to do so, because they feel that they are losing equity, even though that perceived equity may have been phantom gains.
In order to give an incentive for those who can to sell now, and to buy something else, I propose that the government offer a one-time tax credit for sellers who will lose equity when they sell, on the same terms and up to the same amount as the first-time credit. So, for example, someone who paid $200,000 for her house and now is selling for $180,000 could deduct up to $8000 on her tax bill this year. I believe that the market may now be ready for the jump start that such a program could provide, and that it would help even more than the last incentive, since it would both produce a supply of homes for others to buy, and sales for developers and other sellers when those people buy a new place to live. It's time for bold action, and helping the housing industry would be good for everyone.
