Yesterday I read a news item that stated the House and Senate are considering another tax benefit for homebuyers and homebuilders. The idea the House is considering is basically giving a tax credit of $7500 to people who have not owned a home in three years. In the Senate, the version of the bill gives buyers up to $7000 for purchasing a foreclosed home. It sounds like free money, right?

The funny thing is, if this bill were passed, it would benefit mostly the homebuilders. In markets like the San Francisco Bay Area, $7000 to $7500 is barely a drop in the bucket for a median priced home. Meanwhile, the other side of the bill is that the homebuilders can use their current losses against the gains they received during the boom years and get millions in tax rebates. So whatever will be credited to homebuyers will be pale in comparison to what the homebuilders gain.

Another fishy thing is that all of these tax credits will be funded by the government, which means that they essentially want to use tax payer money to prop up ailing homebuilders. I think this move will probably prop prices up because homebuilders will have less incentive to slash prices and move their inventory. No wonder the mouthpiece in the article who is promoting this bill is with Toll Brothers, a luxury homebuilder.

Once again, I wish the government will just leave the housing market alone and let the prices fall to an affordable level. There are enough tax benefits for homebuyers already. For example, homeowners get a tax deduction on their mortgage interest while renters do not get a deduction on their rent. Single homeowners also do not need to pay taxes on up to $250,000 on the gains of a home sale. Just recently, the government made short sales more appealing by eliminating the taxes on forgiven loans. All of these tax breaks are enticing enough to a would be home buyer, and there is no need to prod people any further into a falling market.