Miss the Tax Credit? Some Consolations

Congress just passed an extension of the First-Time Homebuyer Tax Credit into 2010. You're eligible if you're in contract by April 30 and close by June 30 -- there are a host of other restrictions, explained clearly by my colleague Ilyce Glink in "Homebuyer Tax Credit: How to Cash In."

But there are still any number of reasons you as a homebuyer might miss the credit. You might be too rich (this happened to us in 2009, when buyers with a joint income of more than $150K were excluded -- it's since be raised to $225K) or be buying a home that's too expensive (the property has to be under $800K to qualify). It doesn't apply to second homes (such as vacation or investment properties) and you can't get it if one of you is a first-time buyer and one is not.

So do you just shake your fist at everyone who got "your" tax deduction?

I would argue no. Not only would you turn into my grandma (who used to spend hours telling me about the inequities of the tax code, covering everything from the mortgage-interest deduction to Christmas tree farms), but you'd be missing the broader point that real estate stimulus helps the market in three ways:

1) Fewer homeowners are "underwater" now than in the previous quarter. According to Stan Humphries, the chief economist of Zillow, the number of single-family homes with negative equity dropped two percentage points, from 23 percent in the second quarter of this year to 21 percent in the third quarter. The reason is flat to rising house prices -- prices that are directly supported by government stimulus. One could argue that fewer underwater homes equals fewer mortgage defaults, so that goosing the real estate market now keeps us as a nation from bailing out the banks later.

2) The credit generates additional economic activity. Now, I'm not saying that the credit is cheap; it goes to lots of people who would have bought homes anyway. Zillow's Humphries' figures that what with that "leakage" the cost to push a former non-buyer over the edge is about $44,000. However, according to the National Association of Realtors first vice president Ron Phipps, each new home sale generates approximately $63,000 in ancillary economic activity.

3) Stimulating housing creates domestic jobs. The National Association of Home Builders estimates that the extension will create 211,000 jobs -- which is helpful with unemployment in double digits for the first time in a quarter century, according to Michael E. Kanell of the Atlanta Journal-Constitution.