Home Buyer Tax Credits-Assistance Without Substance?

Implications: Home sales have continued to be sluggish this year, with existing home sales down nearly 24% in February compared with February 2007, according to the National Association of Realtors. New home sales fell to a 13-year low in February, according to the U.S. Commerce Department.  Federal legislation has now been introduced to ostensibly aid the hurting residential real estate market.  The measure would extend home buyer tax credits to first time purchasers,but is it merely a band aid with a very short shelf life? 

Analysis:     The bill's sponsors are Rep. Vito Fossella, R-N.Y., and Bill Pascrell, D-N.J. The temporary credit would apply only to those planning to live in the home and could only be claimed by taxpayers one time, making speculators and flippers ineligible for the perk.    But the tax benefits won't last for long; the credit would expire one year after enactment.   The short time frame is meant to press fence-sitters into making their first home purchase ASAP.  A major hurdle does exist in that the tax credit is up against tighter lending standards for these same would be home buyers.  To be eligible for the credit, home purchases would have to meet the new temporary conforming loan limits approved in the federal economic stimulus package.  The limits are now equal to 125% of the geographic area's median home price, up to $729,750.

This rush to assist the ailing residential market is very predictable given the enormity of the 2008 Presidental and U. S. Senate races.  For that reason,however,it is with caution and even some bit of pessimism that the home credit idea should be considered.  It may very well make the "wait and see" prospects move a little faster if they can meet the stiffer lender requisites,but it will offer no hope to those who cannot afford to stay in there homes presently.  It will help, somewhat, in reducing inventory levels,but it cannot erase or even mitigate the liquidity problem. 

Bottom line,liquidity from investors is all about confidence in the marketplace and home credits will not offer much to help resurrect  this most important intangible!