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Latest Homebuyer Tax Credit: Pay More, Get Less

Posted by: Prashant Gopal on November 4, 2009

President Obama could sign the $10.8 billion homebuyer tax credit extension and expansion plan into law as soon as next week. The Senate this evening voted 98-0 in favor of the extension. The House is expected to approve it within days.

But a new report from Goldman Sachs suggests that the six-month extension might do little for the fragile housing market and could be even less effective than the soon-to-expire credit for first-time buyers that cost taxpayers about $8.5 billion and lasted nearly a year.

The Congressional proposal would give buyers until April 30, 2010 to sign purchase contracts and another 60 days to close. And it will no longer be just for first-time buyers. Homeowners who have lived in their current home for five of the last eight years can claim $6,500, under the new law, which would only apply to houses purchased after the current tax credit expires Nov. 30. Income limits will be more generous: $125,000 a year for individuals, $225,000 a year for married couples.

But Goldman Sachs economist Alec Phillips says, in a report released to clients Nov. 3, that the expanded program won’t raise home prices and sales much and likely won’t significantly trim the supply of unsold homes.

“The extension of the current credit will probably result in some incremental first-time buying but not as much as the last one,” Phillips said in a phone interview today. “The expansion to the other population of buyers [existing homeowners] will provide a small boost to prices, but no more than 1%.”

According to Phillips’ calculations, all but about 200,000 of the 1.4 million first-time buyers who claimed the credit this year would have purchased a home even without the incentive. And the credit resulted in boosting home prices only by about 1%(Phillips assumed in his calculation that home prices rose in part because sellers built a large portion of the credit into their asking prices).

The pool of first-time buyers who still need an incentive to get off the fence is likely small because many of them have already taken advantage of the now-expiring credit. Existing homeowners who qualify for the new $6,500 credit could spur additional sales. But the supply of unsold homes will remain unchanged because most homeowners will have to sell their existing home in order to buy a new one (The credit only applies to principal residences).

This doesn’t mean that the credit is useless, only that it is inefficient. For one thing, it could stimulate the economy by giving consumers more money to spend. (Economist Simon Johnson argued in the Washington Post last week that the tax credit is both inefficent as a homebuyer incentive and as a economic stimulus).

“We were not arguing that [the expanded credit] would have no effect,” Phillips said. “Just will the effect be as great as last one?”

Reader Comments


November 4, 2009 5:56 PM

As if the source is credible at this point. Goldman Sachs is most assuredly working on cooking up a way to channel that 10.8 billion to their coffers instead.


November 4, 2009 6:53 PM

Sounds like Goldman is worried the economy will recover and they will no longer be able to borrow money from the government at 0% interest. Why does anyone listen to these bankers? THEY are the ones that got us in this mess in the first place.

Jennifer P.

November 4, 2009 7:39 PM

So, I am understaznding that #1 I owned my home from 2004-2009 #2 I sold it in July 2009 #3 bought a home in Nov 2009 #4 I will not be elligible for any credit??? Is this correct?? Do you have to currently own your house or does it allow for those that have recently sold a home and are in process of relocating and buying a new house? A little confusing to me.

Kevin Schmidt

November 4, 2009 8:18 PM

What would be the drop in home values if Congress does not extend the tax credit? It could be several percentage points. So Goldman's claim is bogus.

Apparently they don't like the little guy getting any tax breaks. Of course, when the little guy gets a tax break, that money goes immediately back into the economy, helping to increase business and create more jobs, and thus more tax income for the government.

When the upper 1% get more tax breaks and corporate welfare, that money is gone forever and contributes 100% to the deficit.


November 4, 2009 8:55 PM

Why does the government use tax credits to keep house prices high, while at the same time funding affordable home programs like Fannie Mae? Let's just clear government out of the way!


November 4, 2009 9:22 PM

So let me get this straight, I am in the Army, I just moved, due to the military changing my assignment, I sold my house early this year, I did not qualify for the tax credit last time because my house was bought 5 years before. Now that I am in the process of building a new house, going to close next week I will not qualify for either tax credit because my new house has not been owned for five years, and also because I have owned a house in the past three years. Something seems strange with all this, can someone shine some light on this. It does not seem right I would love to be able to use the money to stimulate the economy, or at least take advantage of the opportunity to do so. I was under the impression that everyone that owns a house in the past 5 years regardless of situation could qualify if it is their primary residence!! Hope someone can brighten my day and shine some light thanks


November 5, 2009 12:31 AM

As much as I hate Goldman and all their present/formaer employees, they are absolutely right on this. I'm actually amazed that they're being honest about it, because the buyer's bribe is designed explicitly to help their bottom line at the expense of potential house buyers.

How anyone can justify such an abhorrent policy of making houses unaffordable is beyond my imagination. Why is it a national emergency when gas goes to $4 a gallon, but when median houses went to 5X median income, that was a thing to be celebrated?

The fact that not even a single Senator would stand up against this attack on our nation's economic future might make me lose faith in our government's ability to even modestly act in our best interests if I had any faith to lose.


November 5, 2009 1:56 AM

I don't understand why they didn't make the expanded portion of the tax credit retroactive to January 1st of this year. I bought my home on January 31 and had lived in my previous home for 8 years. Someone who lived in a home for 2 years or who had been living in an apartment get money. Why are they discriminating against those of us who have been responsible home buyers and have been paying our taxes for some time while someone who hasnt been paying property taxes and school taxes swoops in and gets the money. Not fair.


November 5, 2009 6:40 AM

Why do couples with $250,000 income need help, or for that matter singles making $125,000.00? I think at least that provision has to go. Are we helping Goldman Sach's junior employees with that provision?


November 5, 2009 7:01 AM

Plunging housing prices, all time low interest rates, and tax credits are creating a favorable environment for renters to convert to homeowners. You may very well find that in today's market you are able to afford a larger home for the same amount of money or even less money than you are currently paying every month in rent. If you dream of having a home office, starting a family soon or expanding your family, now could be the best time to get the additional space that you need for the right amount of money. I have found a really interesting tool which has the ability to determine if a property is a good investment. It’s a smart real estate rating engine which provides lots of information & insight for making a safe real estate investment and can help produce positive cash flow for you. Look into


November 5, 2009 8:54 AM

Will this 6500 tax credit, if passed apply to all purchases in 2009? I bought and closed on 8-31-2009.


November 5, 2009 9:13 AM

Sorry Eric, not buying it. The bankers only did what Barney Frank and Chris Dodd and Billy Clinton made them do - lend money to people who could not pay it back. They did this under the guise of boosting minority home ownership and recklessly disregarded the objections of the banking community who didnt think it was a good idea to lend money to people who couldnt pay it back.

Funny thing is, the Republicans took the fall last November for a perfect storm created by the democrats, and now we have the Marxists running the country.

mike south

November 5, 2009 11:15 AM

Get the government out of business.


That is what we need, and it's all we need. Free people _will_ _figure_ _out_ _a_ _way_. The government should be keeping us free, and protecting our property from theft and fraud, and that is it.


November 5, 2009 11:43 AM

So we are fixing the results of a housing bubble where people bought more house than they could really afford by...helping people buy more house than they can really afford using money we don't have. And it was such a "success" we are extending and expanding the offer.



November 5, 2009 12:04 PM

So all the people that helped push the housing market along all year besides the first time home buyers, accepted risk now get it stuck to them over a few months...


November 5, 2009 12:26 PM

I'm not eliligible for the tax credits as I bought my house 2 years too early for the $8,ooo tax credit and three years too late for the $6,500 tax credit. But I will certainly be eligible to have to help pay it all back when taxes go up to cover it in years to come. Sounds fair to me. If someone that hasn't had their homes longer than 5 years is assumed to not need the credit just because they are thought to have bought into a risky deal or not capable of keeping payments up then they are wrong as I am paying mine just as fine as the guy thats lived in his for 5 to 8 years. So why the reward for the guy who has lived in his for 5 or more years as we ALL have to pay it back in taxes. Really screwed!!

David Lamb

November 5, 2009 1:39 PM

I'm getting the $8K tax credit, and even I think it's stupid. The people getting it DON'T NEED IT!

A person won't get it until filing taxes, so it's useless as a down payment. And you can't purchase the home unless you qualify based on your income, so it's useless on that front. So what's the point???

And now everyone's complaining (rightfully), "Well what about me? What about my situation?" Where will it end? Does the government need to buy everyone a house??? That's ABSURD. YOU are the government. If you want $8K for a house, then cut taxes! Oh wait... we're trying to not add to the deficit... I forgot...


November 5, 2009 2:02 PM

So... I bought a house this year in the midst of the Great Recession. Put 20% down and was a bit miffed that I didn't qualify for the incentive because it was only for first time home buyers (I had owned a house before but since sold it because I relocated for a job). So now, they expand it to existing home owners but only those who purchase after Dec 1st? How F'd up is that? If they are handing out free money, give it to those who actually risked their capital. I am against this credit altogether. That and cash for clunkers. The gov't deciding who gets money and who doesn't is TYRANNICAL.


November 5, 2009 2:16 PM

What makes the people who bought their homes in 2004 so special. We closed on our house on Dec. 31, 2007 and have been missing tax credits ever since. Don't we deserve a break, too?


November 5, 2009 2:56 PM

THIS IS JUST SO UNFAIR, give credit to some and not others!!! People who bough just before the bill, AHH! Not fair, and complete disrespect to people in this society.


November 5, 2009 5:37 PM

I am like so many others that have posted today. I have owned my house for over 13 years, paid my taxes faithfully. Scrimped and saved to move to a better home. Didn't qualify as a first time buyer, and now because I bought a little too soon will lose out on the $6500.00 as well. Bet i won't lose out on paying for this disaster when the taxes are raised to pay for this now 18 billion tax credit.


November 5, 2009 7:51 PM

How about those of us who have owned our home for the last 15 to 20 years and make below $65,000 and have struggled to pay yearly taxes and expenses because they love their home they own and neighborhood, where is our tax credit? What, you have to purchase a new home in order to qualify, some system we have here. If we have to suck it up then everyone else should too! Do not tell us those complaining about losing their home did not know what they make yearly
before purchasing their home and were fouled by bankers etc. in purchasing a home they could never afford to begin with! It is called COMMON SENSE!! The way we look at it these people do not have the intelligence and like to stick it to people like us who are also struggling and you know what we are told DEAL WITH IT!!!!! We suggest you DEAL WITH IT!!!! WE all make our own little hell!! To think we are all are supposed to be treated equal!! What is wrong with this picture, it is people like us that are carrying you cry baby's. Get over it, you made it this way. You do not hear the President or government bailing people like us in fact we were told you were intelligent enough to get yourself in a mess, be smart enough to bail yourself out! That applies to Wall Street, Bankers and anyone else making 6 digits and more!!!!!!!!!! Bottom line, RICH GET RICHER AND THE POOR GET POORER!!!!! No tax credit or stimulus is ever going to change this!! People wake up and smell the roses and take the blinders off!!!!!


November 6, 2009 3:39 PM

So, if we have made a offer on a new home, but haven't closed or even had an appraisal,and we have lived in our other home 10 years would we qualify?


November 6, 2009 4:15 PM

I brought my home dec.2007 why are we not able to get the tax cerdit. I did not get the 7500 interest free tax or the 8000 first time home buyer. what about our tax credit


November 9, 2009 5:22 PM

Hooray!! Another homebuyer tax credit that will take a year to receive after filing for it!! Government run programs are awesome!!!! Just wait until the public option of healthcare that is run by the government comes out. People will go in for a routine check-up and come out without an arm and bills from the government that you will have to pay for...LOL, ok I'm a little overboard but the government can't run anything in an organized or timely manner so why should getting a homebuyer tax credit check or healthcare be different.


November 11, 2009 12:15 PM

Here is my concern! I bought my home at the age of 18 in 2005. I have been there for 4 years this November. How is fair to let people that are just buying homes get $8,000 tax credit, when they haven't even really started making house payments yet? I on the other hand, will not get a thing, because I have been in my home for 4 years and this credit expires in 2010. My 5 years won't be up until 2010. I, personally think if the government is going to help 1 they should help ALL!!


November 17, 2009 1:07 AM

I bought my house in 2007 what about pepole like us tax payers work everyday where can I get in.


November 22, 2009 9:04 PM

I am also another taxpayer who doesn't qaulify for any of the credits because of buying a foreclosure a few months too early. How about those of us who lost the value of their homes because they had to sell them in early 2009 because of a divorce from a cheating husband of 34 years...the market values all screwed up because of the I lose money on the sale and then I scrimp and save to own the american dream as a single taxpayer at the age of 55...I buy a foreclosure property in July 2009 to only learn now that I cannot qualify for any of the tax credits because I owned a home with the cheating scumbag and I bought it 5 months to early to qualify for %6500 tax credit...Where is the fairness in this picture???????


November 30, 2009 3:48 PM

I do qualify for the $6,500 tax credit and I'm very happy! I could spend hours bloging about how terrible this plan is, but let's face it... those who get it are happy, those who don't are pissed off, at the government, the world or cheating spouses... Move on.


November 30, 2009 3:54 PM

it's usually the one's who don't qualify for it, that find time to complain. Try going out and doing other things to stimulate your economic status, instead of sitting in front of your computer moaning.


November 30, 2009 3:54 PM

it's usually the one's who don't qualify for it, that find time to complain. Try going out and doing other things to stimulate your ecnomic status, instead of sitting in front of your computer moaning.


December 8, 2009 4:21 PM

The stipulation that disqualifies first-time home buyers from receiving the full tax credit if they purchased in 2008 is unfair. With the new legislation anyone other than those who first took part and trusted in this program is eligible.
I am a law-abiding and taxpaying citizen and I have worked very hard to purchase my first home. I went through the full process of taking out a loan and signing a contract and it is not right that I do not qualify for this tax credit just like everyone else.
I know there are many others who also fall into this category.

I purchased in Sept of 2008. I am a single dad and get no support from ex. Kids and I have not found one program to help us. I make a single middle class income. We took the credit to pay for washer dryer etc. I see millions going to someone or some bank or some car company, but my family has not seen anything. Now my student loans have skyrocketed, my credit card companies are hitting me with more fees, my health insurance has gone up, and secretly groceries have tripled but no one says anything. This credit not being extended to those of us that first took part in the program is a disgrace and I regret having to have had to use it. The new credit is open to all home buyers. The only ones who cannot benefit from this program are those who were the first to trust it. And here is the only place I can vent… maybe 1 person will read this. Powerlinep on facebook.


December 12, 2009 10:25 AM

I'm a first home buyer.WE bought our house in 2007 so what we dont get a credit. I dont think its right and we struggle on our house payment because the damn idiots raised our mortgage insurance. I think thats retarded because we are fixed what it the point really????? I hate my mortgage company CITI they are freaking idiots they dont help u at all and i think they should make it where u can pay what u can really afford yeah I know refinance but they want $3,000 dollars screw that. Then I tried to through another bank,but then they said they couldnt fax any of my papers to them because the computers wouldnt let them bull crap. I really think people that bought there house back in 07 and up should get that its not fair for all of us and now u have these people buying house now that get tax credit and they are making just fine.


December 21, 2009 1:10 PM

We purchased our current home in August 2005 and are now relocating for a new job, but we're 6 months short of living there for 5 years. Is there any provision to allow us to get the credit since we're relocating for a job?


December 27, 2009 11:25 AM

I purchased my home in Aug. 2007 and I think it is so unfair that I'm not able to recv the credit. When I bought my home the world was a little more stable and then a few months later it was declared a MESS...I think our new pres should reconsider and give this money to every home owner that owes a home that cost less then 200k..If your home cost more then 200k and you purchased in 2008, you dont need SHIT from the Government.


January 7, 2010 11:09 PM

I'm a 45 year old divorced father of four. In January of 2006 I quit claimed all interest in the home my ex wife and I owned and lived in. Three and one half years later, I was debating whether to renew my annual lease on an affordable apartment in a convenient location. My landlord, a realtor, told me I'd be crazy NOT to take advantage of the new first time home buyer credit being offered.

I looked into it. I clearly qualified as a first time home buyer. I knew of a nice little house for sale in a neighborhood I liked. I didn't have much money for a down payment though. I heard of a local bank offering to lend downpayment money to borrowers qualifying for the first time home buyer credit. Everything was lining up! I got pre-qualified, made an offer, got it accepted, and scheduled a closing.
In June of 2009 I became a home owner. I paid $65,000 for the house. I borrowed the 10% downpayment in a balloon loan- to be paid when the tax credit came in 6 to 8 weeks. This may seem like the kind of borrowing that got the country into trouble, but the house appraised well above the purchase price, and with the $6500 credit, I'd be in a great equity position in no time!
Two months later I'd heard nothing from the IRS. I went online to check the status. It showed nothing. I called a toll-free number and was put on hold for twenty minutes! You never get those minutes of your life back!
Three months later I called again. I learned that the IRS was overwhelmed by applications for this first time home buyer credit. The Economic Stimulus was doing some stimulating. Things were backed up. The balloon loan came due. I extended it for another six weeks, (at 13%)

Four months later I got a letter from the IRS. My credit was denied. Their records showed that I'd owned a home within the three year period preceding the purchase of the qualifying home. Their records were wrong, but that didn't matter much. The letter was final. My only option, it stated, was to appeal in federal tax court!

What???? Once I settled down, I began researching. I found phone numbers that got me directly to IRS agents. (See the page: IRS contacts) I made calls and surprised a few bureaucrats. I also filled out a form to procure an IRS tax advocate.

I got them to reopen my case. I called my advocate every week. I felt like, maybe she was helping- maybe she was pacifying me to get me off the phone.

Six months later, I closed out the year with a report from the IRS. The advocate had told me nothing of the report landing in my mail box- the report informing me that A. My First Time Home Buyer Credit was denied. B. A review of my 2008 tax filing revealed an underpayment of $1600.00!

Wow! Both items were in error. Try telling the IRS that!

I've since refinanced the balloon loan into a second mortgage. Now I'm paying two loans and property taxes, and utilities, AND maintenance! Thanks Obama. You dangled a carrot. I jumped from my affordable apartment. The carrot got yanked away and here I am. The irony of a first time home buyer home going into foreclosure is rich and tragic.
Have I quit fighting? No Way!

1. I contacted my U.S. Congressional representative. I encourage anyone having trouble of this sort to do the same. After signing a release of information, the office of my congressman will be advocating for me. A file stamped: CONGRESSIONAL INTEREST might just float to the top of the pile.

2. I submitted paper copies of all documentation directly to the agent who signed the report, along with a letter summarizing my situation and itemizing the documents included.

3. I submitted paper copies of all documentation directly to the taxpayer advocate assigned to my case.

4. I started a website to arm other taxpayers and recruit their expertise.


January 15, 2010 5:02 PM

Does anyone know if the 2010 first-time homeowner tax credit is available to me if I assume someone else's mortgage?

Melida Moore

January 17, 2010 4:34 PM

I need information I bought my first-time house in November 2006. I would like to know if I eligible to get any tax-credit? I've been living there for three years.


January 20, 2010 3:35 PM



January 20, 2010 3:35 PM



January 20, 2010 3:35 PM



January 20, 2010 3:35 PM



January 24, 2010 11:02 PM

If some homeowners are eligible, then ALL homeowners should be too. I purchased my home in 2004 and I didn't get ANY credit at all. I should be able to get a credit also. It's a bougus tax credit and it should either be totally encompassing or done away with. Period!

Donna M.

February 2, 2010 9:18 PM

I myself am very disappointed and mad as Hell!!! Why does our great goverment keep the poor people poor, poor,poor.I am sick of the whole Mess.I live IN THE USA,born in New Jersey, and can not get the help my family and i need just to survive,like a little extra money forget $6500.00.You would get alot dollars if you are not born in The USA,but desided to come live here, our goverment gives money away like candy if you are not united states citizen. We all need to stop voting these crook's in office and in the White House. OH BY THE WAY I DO HAVE A JOB IF WE CAN CALL IT THAT!!!!!!!!!


February 9, 2010 6:09 PM

Okay, I'm confused I closed on my 1st house in March 2008 do I qualify?


April 16, 2010 12:16 AM

when i bought my house i had to pay $130000 in closing costs. I was told I could right this off on my taxes for next year. When I did I was told I only get a "percentage" back, not a check for $13,000 with my tax return. When you get this $8,000 tax credit do you get all $8000 back in your tax refund? I cant find anyting answering this questionon the internet.


April 16, 2010 12:16 AM

when i bought my house i had to pay $130000 in closing costs. I was told I could right this off on my taxes for next year. When I did I was told I only get a "percentage" back, not a check for $13,000 with my tax return. When you get this $8,000 tax credit do you get all $8000 back in your tax refund? I cant find anyting answering this questionon the internet.

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BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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