Mortgage calculatorKaren Roach/Getty Images/iStockphoto
Across the border, many Americans are scrambling to buy a house by November 30, 2009. That's when an $8,000 tax credit for first-time home buyers expires. You may have heard about the popular credit, which was introduced earlier this year as part of the U.S. Government's economic stimulus program. It has already benefited 1.4 million families, according to the IRS, and given a much-needed boost to the U.S. housing sector in the past few months.
You may not know that we have a similar program for first-time home buyers in Canada. I certainly didn't, until finance writer Linda Leatherdale mentioned it to me the other day. Our credit was included in the federal budget announced this past February. It has not received as much attention, or had the same impact, as the U.S. version. Perhaps that is because our credit is paltry in comparison.
The $8,000 tax credit in the U.S., available to buyers that have not owned a home in three years, reduces a taxpayer's bill on a dollar for dollar basis. The full $8,000 credit will even be paid to first-time home buyers if they owe no tax or the credit is more than the tax owed. It is a cash-back deal designed to encourage not only the purchase of a home, but the appliances and consumer goods that go in it.
Our first-time home buyers' tax credit is in the amount of $5,000, available to buyers that have not owned a home in four years. But the credit is calculated by multiplying the lowest personal income tax rate for the year (15 per cent in 2009) by $5,000. For 2009, that amounts to a credit of $750. It's certainly not much of an incentive to get us running to open houses, unlike the U.S. credit.
"The refund has had a tremendously positive impact," James Liptak, president of the California Association of Realtors, recently told the San Francisco Chronicle. "Home prices are down considerably, and one of the big things that has made people jump into the market is the credit."
Our first-time home buyers' program was intended to inject a similar boost to the economy. And, despite the anemic tax credit, the Canadian housing sector has shown strength over the past several months, with home sales and prices rising. But no one is attributing the rebound to the tax credit. The lower interest rate environment gets thanks for that. The U.S. government's $8,000 credit has helped support the purchase of hundreds of thousands of homes. I wonder how what a similar program would do for first-time home buyers here.