The federal Homebuyer Tax Credit should be extended, argues Washington Treasurer James McIntire. The credit has helped to boost Washington's economy and will also help shore up state revenues, which took a hit as housing sales cooled.
LAST winter, Congress approved an $8,000 tax credit for first-time homebuyers. As a front-page Seattle Times story illustrated, the tax credit has “helped fuel a surge in home sales, nationally and locally” ["First-time buyers ignite home sales +14.3%," page one, Oct. 6].
It helped sustain a market that is essential for the broader economy through the worst economic recession since the Great Depression. The tax credit is set to expire at the end of November. However, with the market still struggling, it would be wise to extend it.
Extending the tax credit would help continue the recovery in Washington’s housing market. The state’s chief economist, Arun Raha, estimates that the tax credit has prompted 7,000 purchases by first-time homebuyers — purchases that otherwise would not have occurred.
That’s good news for homebuyers, but the benefits don’t end there. Every 1,000 home sales generate $112.4 million of economic activity with $71.9 million of it directly from home-sale preparation and the actual real-estate transaction. In addition, more than 700 new jobs are created. This is not a balance-sheet bailout, it’s real help for our neighbors and communities.
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Congress is contemplating new policies to help renew this nation’s economic vitality. I encourage our delegation to bear in mind the demonstrable benefits achieved through the first-time homebuyer tax-credit and consider additional, though not open-ended, investment in this successful program.
One reason for the tangible success and economic impact of the tax credit is that it focuses on first-time buyers, whose purchases spark a surge of home buying that ripples across the economy and into the future. Most of their purchases are homes that someone else has been waiting to sell so that they, in turn, can purchase another house.
The Washington Center for Real Estate Research at Washington State University estimates that 65 percent of those who sell their home to first-time buyers subsequently buy another house in the state. The people from whom they bought their home also purchase a new residence, and so on.
The work of the tax credit is not finished. The number of housing transactions is up, but most of them are in the lower end of pricing. So while sales are inching up, the tax collections associated with those sales are not. The state and Washington communities depend upon the real-estate excise tax to pay for everything from schools to prisons and health programs. Part of the big hole in the state budget last year was due to a plunge in revenue from the real-estate excise tax between 2008 and 2007.
Returning to customary levels of tax revenue means continuing to bring consumers back to the market — not just at the bottom of the price range, but at the median and above. I encourage Congress to extend the first-time buyer tax credit. It will take another year for the ripple effects of the first-time buyer tax credit to reach the midrange of the housing market. We need to sustain this stimulus. Now is not the time to shut it down.
The economic tsunami that began in 2008 submerged most housing markets in red ink, foreclosures and a glut of unsold homes. Washington’s is one of the few markets that is beginning to emerge from the deluge, thanks in great part to the $8,000 federal tax credit. An extension of the tax credit would provide a strong incentive for jittery consumers who have been reluctant to return to the housing market. This lifeboat could help keep our hopes for a strong and sustained economic recovery afloat.
James McIntire is Washington state treasurer.