Extending the Tax Credit Would Motivate 18 Percent of First-Time Buyers

Written by: Steve Cook   Thu, September 24, 2009 Beyond Today’s News, Crisis Programs, Housing Crisis

If Congress extends the $8,000 tax credit for first-time home buyers another year, about 18 percent of prospective first-time buyers, or 334,000 buyers, say taking advantage of the credit would be the primary reason they would buy a home next year, according to a new study released today by Zillow.com.

About 25 percent of first-time buyers said the credit would be a “significant influence” on their decisions and 27 percent said the credit would have “some” influence on any home buying decision. Thirty-one percent said it would have no influence on their decision at all.

Zillow said that, if the credit were extended, a total of 1.86 million first-time homebuyers would purchase homes between Dec. 1, 2009 and Nov. 30, 2010. The cost to the government in lost tax revenues will be $14.86 billion, or $44,491 per transaction.

“Although nearly two million first-time homebuyers may receive the tax credit if it is extended for another year, the incremental impact of the credit is far smaller,” said Zillow Chief Economist Stan Humphries. “These numbers suggest that extending the credit might bring an additional 334,000 homebuyers who would not otherwise purchase a home into the market. While 334,000 may seem like a small number relative to the total number of homebuyers who would claim the credit, their addition to the market next year could make the difference between a robust annual increase in home sales next year and a flat or negative change in home sales relative to this year.

The current $8,000 first-time homebuyer tax credit is set to expire on Nov. 30, 2009. Homebuyers who do not currently own a primary residence and have not owned one for the past three years can be eligible for the credit.

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