First Time Home Buyer Tax Credit Update
If you missed your chance to reap the benefits of the first-time homebuyer tax credit this past year, you will get one more shot. The Senate passed a bill on Thursday 98 to 0 that will extend the original first time homebuyer tax credit for another seven months and expand the bill to benefit some current homeowners looking to buy a new home. The bill should reach the House floor by next Thursday and then require the signature of the President.
So what does this new bill consist of? Well, for starters, contrary to many of the proposed bills, this bill does not increase the amount of tax credit. It remains $8000 for first time homebuyers. However this time around, if you are currently a homeowner that has owned your home for at least five consecutive years, you are eligible to receive a $6500 tax credit if you buy a new primary home. In other words, if you are buying a 2nd home you will not get a tax credit, but if you looking to move and buy a new primary residence, you might be eligible.
Who is eligible? Obviously first time homebuyers, and as previously mentioned, folks that have owned a home for at least five consecutive years. But the bill limits the purchase price of the home to $800,000 and there are income caps, which disqualify any individual who makes more that $125,000 annually and couples who make more than $225,000. In addition, this tax credit offer won’t last as long the second time around. One must sign a contract by April 30 2010, and close on the home by June 30th to qualify. And if you think they will probably end up extending the offer even further, think again.
According to Dina ElBoghdady of the Washington Post reported that Sen. Johnny Isakson (R-GA), “a longtime advocate of the tax credit, praised passage of the bill in his chamber but said the extension would be the last one. “Tax credits like this only work by creating the sense of urgency to take advantage of them”. So if you are considering buying a home and are eligible for the tax credit, you better get a move on.
But will this extension of the tax credit really stimulate more home sales? Stephen Ohlemacher of the Associated Press reported that there are those like Senator Kit Bond (R-MO) who question its effectiveness. “For the vast majority of cases, the homebuyer tax credit amounted to a free gift since it did not affect their decision to purchase a home,” Bond said. “And for the small minority of buyers whose decision was directly caused by the credit, this raises the question of whether we are subsidizing buyers who may not have been able to afford buying a home in the first place”. Though there may be plenty of truth to that statement, it seems that at this point there is nothing else that can be done to at least try and stimulate home buying. And the 98-0 vote in favor of the bill confirms that our Senators don’t think there is anything else that can be done either.
November 5th, 2009 at 4:20 pm
this is kind of scary from the article:
“this raises the question of whether we are subsidizing buyers who may not have been able to afford buying a home in the first place”
1st, it seems to me we were subsidizing the SELLERS, (and the banks holding that paper) not the buyers. without the credit, the prices would have had to fall to what buyers were able to pay.
with regards to the new plan, it *could* have some opportunity for looting for those currently underwater.
e.g. you buy your second home with the credit and put your first home you bought in 2004 or 2005 on the market.
then when your fist home doesn’t sell at the inflated price you need to get ‘whole’ from your mortgage, you stop paying your mortgage and eventually walk away.
there are 100 variations on this theme, but it’s all pretty much the same deal — free money from the govt, new house at lower price point, walk away from old albatross, taxpayer picks up that tab too. nice.
uruguay real estate´s last blog ..Uruguay Houses
November 5th, 2009 at 4:56 pm
I have to agree with just about everything your saying. It’s really a matter of getting consumer confidence back so people can go out and start to purchase. Once unemployment comes down a bit more we should be heading in the right direction. I think we are 12-18 months away from really being out of this thing!
November 6th, 2009 at 6:12 pm
With our current thinking… I don’t think buyers will have only one more shot. With National Unemployment now hitting over 10% (”official” stats and not real stats)… once April rolls around we’ll have Homebuilders and the NAR lobbying for an even bigger expansion… or an extension at the least. Fresh ideas to keep home prices artificially high are running low right now.
Unless of course the new Fannie Mae Landlord program takes all of the homes off of the market and manipulates the supply… or possibly spending our way out of debt working for the first time in history.
The only big question I have… who is going to bail out the U.S.?
November 6th, 2009 at 6:20 pm
I think there is a fine line between artificial stimulus and the economy starting to get back on track. The best analogy I can think of is training wheels on a kids bicycle. Take them off to early and the kid falls flat on his face, take them off too late and your wasting a lot of money that isn’t needed.
November 7th, 2009 at 8:27 pm
I know that quite a few of our clients were influenced to purchase because of the credit. I think the expansion to include existing home buyers may help boost sales.
Charles@Las Vegas Homes´s last blog ..First Time Home Buyer Tax Credit Extended
November 8th, 2009 at 9:37 pm
Prices are down 200K around here. Why give people another 8K discount?
I think that 8K should go to homowners who bought before or are loosing their homes to help them keep them.
November 8th, 2009 at 9:40 pm
Also, giving incentives only seems to get buyers to jump the gun before they are ready to purchase. Thus getting them in the hole quicker.
Just like the cars program got people who cant afford a car payment out buying cars that they will have to give back later. Then they will be out cause there clunker is gone.
November 9th, 2009 at 2:02 pm
San Diego Kitchen Remodeling, I would think you would be in favor of the home buyer tax credit based on the business you appear to be in. If you can stimulate the real estate market it should only help you in your business??? The construction industry was really lobbying for this tax credit to be extended. I would think it would only help your business.
November 10th, 2009 at 4:18 am
Amazing to see 98-0 support! But it is real estate that will help lead the way out of recession. Liberalizing the credit by making it available to not just first time home buyers will be really helpful!! I enjoy your blog.
November 10th, 2009 at 2:46 pm
I do think the extension will get some buyers and sellers off the fence, and get these people to spend money once they get into their new home on. We just got a call from someone who, upon hearing about the move-up buyer credit, now wants to sell and buy another home. I agree that this will be the last extension, especially since next year is a major election year and many politicians are getting heat back home from too much government spending. Increased activity is very welcome here in Cleveland, especially during the winter months, which are usually slow.
November 10th, 2009 at 2:51 pm
Thank you to everyone and all of the newcomers! Please continue to participate in our real estate discussions.
November 11th, 2009 at 7:53 pm
Not as good as I expected for me. I could do it since I’m a first buyer, but I’ll wait a couple of months to make my decision, December spending is pretty close.
November 12th, 2009 at 12:17 am
Here in singapore it is very hot market now. the interest rates are very less and property market is going rocket high, it may happen to singapore also. who knows?
Html to Image´s last blog ..Asp .Net FileUpload and Image Handler
November 12th, 2009 at 1:30 pm
I wish they would have upped the credit for existing home owners. I just don’t think $6500 is enough to entice people to get into the market. Great insightful post however, thanks!
Lisa Udy@Real Estate Cache Valley Utah´s last blog ..Tax Credits For Energy Effecient Home Projects
November 14th, 2009 at 2:26 am
Ive heard about a $15,000 tax credit next year, wouldnt that help
November 15th, 2009 at 2:59 am
I don’t like this idea in general because it just perpetuates bad loans and owners that will probably default. However, I like the caps and limitations that they have put on this initiative. Thanks for sharing this info.
November 17th, 2009 at 7:15 am
Wow. You get tax credits for first time buyers. I wish we got that in the UK, my daughter is looking to buy her first home and it is costing me a pretty penny! That said, we do get free health care, so I suppose it balances out.
November 18th, 2009 at 3:08 pm
Logically the bigger the total value market the more important it is. So it is nice to hear that the real estate market is getting an update.
Also seeing as the situation is very similar in every country, getting your first apartment or house is very hard.