Many of the nation's builders should be practically giddy with excitement now that President George W. Bush has signed the massive housing rescue bill, especially the provision that allows first-time home buyers to take a $7,500 temporary tax credit from the purchase of a new or existing home. The National Association of Home Builders (NAHB) is clearly satisfied.

"We think that it’s an extremely important part of the bill," says Jerry M. Howard, NAHB's executive vice president and CEO. "It will get potential home buyers who have been sitting on the fence back into the game." Those individuals now have a significant financial incentive to explore opportunities available in the housing market, the association says.

To demonstrate how important this tax credit will be to the market, Howard points to the heavy traffic on the NAHB-created consumer Web site On Thursday, the site received 13,000 hits from people who are interested in the program and, ideally for builders, in buying a new home. "If that's not proof there is interest out there, I don’t know what is," Howard says.

Other builders aren't quite sure what to make of the bill. "I've read a little about the bill, and I think anything will help out at this point," says Greg Whittaker, president of Whittaker Builders in St. Charles, Mo. "But in the back of my mind, there is a concern that we're making it too easy for people to buy homes."

Will the tax credit do that? Only time will tell. When President Bush signed H.R. 3221, the Housing and Economic Recovery Act of 2008, he approved legislation allowing single or head-of-household taxpayers whose adjusted gross income is no more than $75,000 to take a $7,500 temporary tax credit. The same applies to married couples who earn $150,000 or less.

To qualify, buyers must actually close on the sale of a home on or after April 9, 2008, and before July 1, 2009.

(In an earlier version of the bill, the eligibility period expired in April 2009, but a grassroots campaign from NAHB members got the deadline extended "to enable home builders to include the credit in their sales and marketing next spring and into the early summer—the peak home buying season," the association says. "The fact that Congress extended it is very important because that's the busy buying time," Howard says. "It will take inventory off the market.")

But buyers and builders should note that this new tax incentive is not a permanent but  temporary measure. As Howard, a tax attorney by profession, says: "It is not an academically pure tax credit. This is really an interest-free loan that home buyers will have to pay back over a 15-year period." 

Still the new tax credit, at least in the short term, "will help encourage some people to step into the market who would not otherwise," says John K. McIlwain, a senior resident fellow for housing at the Washington, D.C.-based Urban Land Institute. "We had a good experience in D.C. with a $5,000 tax credit for first-time buyers in terms of encouraging people on the fence to buy. More significantly, the idea is like a toe in the water of what would actually go the furthest toward stabilizing and rebuilding the housing market over the next 10 years, and that is if the mortgage interest deduction were converted--at least for people who don't file itemized returns--into a tax credit."

But some builders believe the tax incentive may not be the right move. According to Whittaker, the runup in housing over the last five years certainly caused many builders to over-build, but the feeding frenzy also cleared the way for cheap loans to people who could not really afford to buy homes. "Sometimes, it's best to let the market determine who should buy a home," he says.

Scott Syphax, president and CEO of Nehemiah Corp of America, the Sacramento, Calif.-based nonprofit down-payment assistance (DPA) organization, also has concerns with the tax credit provision. "It is a nice additional tool to promote homeownership," Syphax says. "However, its true utility in increasing actual home purchases remains to be seen."

Many builders say tax credits are nice, but won't help everyone. "If they don't have the down payment to buy the house, it's going to be useless," says Steve Bartholomew, president of Main Street Homes in Austin, Texas. "It would have been good if they could use that money as a down payment."

The elimination of seller-funded down-payment help in the housing rescue package has been controversial, and some public builders are exploring ways of using the tax credit to provide that type of financial assistance.

But the NAHB defends the tax incentive provision and is convinced it will help drive a recovery in housing demand.

Nigel F. Maynard is a senior editor at BUILDER magazine.

Learn more about markets featured in this article: Austin, TX.