At first glance, it seems like a wonderful idea, to provide an incentive for first time home buyers to get a refundable tax credit for purchasing a home. But what is the logic in applying this credit to first-time buyers only?
After all, first time home-buyers are the ones most likely to default on their loans. They have little or no experience with maintaining real estate or making adjustment for increased real estate taxes or hazard insurance.
Isn't this one of the problems that got us to where we are? The simple fact that someone can buy a home and put a wad of cash in their pocket is just another invitation to disaster.
If the government really want to open the real estate market, the credit should be allowed across the board, There are many sellers right now who might be able to sell their homes if they knew they could recover a potential net loss on the selling side with a credit on the purchase of their next home.
Think of the possible foreclosures that could be avoided, and how much activity would be stimulated in the resale market. When the bottom line is improved, many would be motivated to action.
So let's not repeat the mistakes of the past. Let's put this money where it will do some good ... with experienced homeowners that might just need a little subsidy to avoid a shortfall.
If this credit were applied across the board, I believe the market would recover in six months.
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Richard - excellent point! I even wonder if the real estate professionals were consulted on this tax credit or asked for constructive input? I find many sellers that need to downsize, get some relief are too short on their home to get out without bringing a wad to the table. What a thoughtful supplement if they had access to this credit? Great thought to take us through the weekend. Love the beautiful photography!
Richard I agree. All of the tax incentives, bailouts and more have been aimed at the home buyer and home owners who seem to have the highest level of default or are the greatest risk category. A more widespread incentive might have helped more.
Richard, Your point is excellent and I think another one should have been included by the government as well. Buyers should be able to use it as a downpayment instead of getting it as a credit after the sale. Rich
Richard, the answer is out there you just need to keep digging. Beleive me it is out there.
Connie...
And don't you also think that these experienced owners would JUMP at the chance to avert a potential disaster? I think the decision to provide the credit for first time buyers was more political than practical. Thanks for the excellent comment.
Cindy...
That is exactly what I am thinking ... and I'm also thinking that leads to the greatest chance for failure! Thanks, I appreciate the comment.
Rich...
It's just common sense, isn't it? Perhaps the feeling is that the governments mores slower than the banks ... wait ... that's NOT possible!!! THX
Richard, I totally second Rich's points. I have had sellers ask me why they were left out of the picture. I cannot give them a good answer. Talk to the legislators. And talk, and talk, and talk.
YES, Richard. You are "right on". If they opened-up the Credit to all buyers, I think we would really see some great activity in the market. Maybe the next round of stimulus incentives.
Richard you are dead on with this they should open it up to everyone to get a tax credit.. I would even like it for rental property's also ..I would buy more if it worked out in my favor also...peace zane
Tony...
My guess is that it is political ... THX!
Suzanne...
I just think there are needs across the board and they should be given the same consideration! Thanks for the comment, my friend!
Tom...
It seems so obvious ... I think that it's almost silly to use the first-time buyer test. Thanks for the comment!
Richard,
I agree that the tax credit should be applied across the board to all buyers not just first-time buyers.
Are you going to be saying anything about the MID?
Richard - it's that trickle up theory, first time buyers will buy from people who will then move out and move up to more expensive homes. Might work in very good times, but not with all those REO's on the market and new homes sitting unsold. At least Georgia's HB 261, which just passed the Senate with some minor modifications and is going back to the house for approval, is for all buyers of single family homes. Not as much money but it is for all buyers.
Richard - You are correct....seems like a legislative misadventure. The logic is there - hidden deeply!
Richard,
I have asked myself that same question? Does the Government EVER make sense?
Richard: Seems odd to me too. If they offered it to everyone there would be double or triple the buyer activity as we're seeing now.
Richard,
You raise a great point for 2 reasons: (1) all sales are desired, not just ones to first-timers, and (2) first-time only means not within the last 3 years, so it may not really be the first-time at all. :)
Steve
I believe at least part of the rationale for applying the tax credit only to first time buyers is that investors helped get the housing market into this mess and there is certainly some anti-investor backlash in Washington. Additionally, more rental properties in a given neighborhood do not contribute to the stability of that neighborhood, generally speaking. I completely agree that if an investor incentive was in place we would see a macro level improvement in the housing market but I question whether that translates to an improvement at the micro level.
I also think we may see additional incentives rolled out in the future to sweeten the pot for investors, as if low mortgage rates, bargain prices, healthy cash flows and long term appreciation aren't enough incentive already.
I'm just sayin....
I was under the impression that the original plan was for $15,000 across the board, and then this got whittled away by the back and forth compromising that goes on in this ridiculous two party system where no one can agree on anything. I am not seeing a rush of first time buyers racing to the finish line to take advantage of this great tax credit. Are you?
Zane..
I don't know if this is available in your area, but here, if an investor buys 10 hud properties under 100K they can get up to 50% off the purchase price ...some restrictions apply! lol and thanks.
Don...
I would if I knew what MID was!!! lol Please help.
Big Mike...
But here in Coweta they are only buying HUD homes and foreclosures, mostly 100% USDA loans and pocketing the cash. That spells trouble in the future,
My thoughts exactly!
I asked my Representative that exact question...My answer...Current home owners already have equity in their home in which to buy the next one!
MY comment...WHAT CAVE DO YOU LIVE IN!?
Richard - that is why the trickle up theory is not working
John - requirements for investors have tightened even more than for those buying their own residences.
Gary...
I'm certain that it's a political ploy that won't strain the treasury too much ... but it's missing the mark if the intention is to spur the economy! THX
Connie...
Let me see ...um ...no! lol and thanks.
Chris Ann...
And I think that more deals would actually make it to settlement, don't you? Thanks, as always.
Richard, you certainly do have my vote on this one! Also, the income cap isn't helping a whole lot.
Richard - I have been saying the same thing for weeks! I could not agree more.
I completely agree RW. I u/s the reasoning of trying to get first time homebuyers out there incentivized to do something but what about the rest of us? Hey, you never know, we had a change from paying back the $7500 to not paying it back & going to $8K so, perhaps the rules will change again? Congrats on the feature! KM
Richard, agreed it should be across the board, entirely, without income limits. If its a tax credit make it for all HOMEBUYERS. Now, why isn't NAR campaigning for this?
since we don't know how we are going to cover the money for the first time buyers, how the heck would we cover it if EVERYONE got a tax credit? Don't get me wrong, I love the credit and it will help jump start this market..
Richard - congrats on yet another well deserved feature ... Gold Stars to you and your great thoughtful posts!
I completely agree! Unfortunately big brother is more concerned with appearance than substance.
I really think they are not doing nearly enough to educate the public about how this credit works. I am dealing with two seperate first time who knew nothing about the program!
Richard I don't think a $8,000 subsidy across the board would help in Detroit. We need a 20-$30,000 tax credit for people to cover the shortfalls.
Richard - I have thought about the alternatives of credit for first-time buyer vs. credit for any buyer. Is giving more and more money (more bailouts) the answer? I don't know. I don't think there is enough money (unless we completely bankrupt our great-grandchildren) to force an artificial recovery. Just a thought! Congratulations on your feature!
Richard: A great point indeed. This should be available to ALL home buyers
Ok, I think I'm going to be the "dissenting" opinion on here so here goes...
The credit really isn't just for 1st time home buyers. It is for anyone that has not owned a home in the previous 36 months. The incentive is there to get MORE buyers on the market - people who maybe wouldn't or couldn't buy without it. People who have been holding off from buying and perhaps were previous home owners, etc. The point is not to increase inventory, but to DECREASE inventory. Offering the credit to current home owners only brings as right back to where we started - too much inventory, too few buyers.
Would you provide some sources for your statement that 1st time buyers are more likely to default? The reason we are in "this mess" is because of the availability of credit to everyone. All too many people, who were already homeowners to begin with bought investment homes, on stated income loans. In other words, they maxed themselves out during the "good times". The majority of owner occupied defaults are from REFI's, not initial purchases. The investor owned defaults I am seeing are about 50/50 - refi's taking cash out (and now defaulting) or buying with 0 down on neg. am loans and paying I/O for the past 3-5 years. In other words, it's not really the first-time buyer with the higher default rates, it's seasoned buyers and those who refi'd for cash out, and that is why it's so harsh right now.
Your theory that offering the credit to everyone will "really" open the real estate market is interesting, but unfortunately a fallacy. As I said in #1, it would be putting us right back into the exact position we were in prior to the credit: too much inventory, too few buyers.
Here is the reality - my husband works with a lot of buyers. In the last 5 transactions he's done, 4 were previous home owners who DO qualify for the credit, 1 was a first time buyer (23yo) who put 10% down. In other words, the POINT of the credit is working... bringing in more buyers, not more sellers.
Richard -- Amen! Amen! If this credit were applied across the board, I believe the market would recover in six months........ and again...AMEN!
Wow! What an awesome post :-)
I didn't read all the comments; think I stopped at #24 or 25.
Going just a little further with this thought: why didn't the government divvy up that first $700 billion to the homeowners who were having problems, maybe all homeowners. Even with a little corruption and misuse along the way, I think overall it would have done more for the economy than going to AIG and the like.
William Feela noted:
I asked my Representative that exact question...My answer...Current home owners already have equity in their home in which to buy the next one! MY comment...WHAT CAVE DO YOU LIVE IN!?"
The cave is in Washington DC at the end of the Mall -- opposite end from the Lincoln Memorial, down past the Smithsonian Museums and the Washington monument.
I have have wondered about this as well and I agree when we open the buyer credit to all buyers we would recover sooner
I am sorry Richard, MID is the Mortgage Interest Deduction that will either be discontinued or reduced from its current level.
Yeah it would be great if the tax credit would be across the board. More business for us right?
Richard, I have had the same thought as you on this tax credit idea. It has always seemed discriminatory to me to pick on one class of buyers over another.
Richard, I agree that if the objective was to stimulate the economy/housing industry it would make more since to make the credit available to a wider range. As you mentioned first time homeowners are more likely to default which is currently one of our major problems. Another fact is that many of them don't have the credit history or scores to qualify for the financing that is available. However, as pointed out by another commentary the term "first time home buyer" can be deceptive". After 25 years as a CPA, I have found that although Congress motives are mostly intended for good, the results of their tax legislation usually falls far short of the intended purpose. For more information on the definition of first time homebuyer see my blog activerain/lauraroussel on 3/15/09.
Senator Johnny Isakson from Georgia introduced a $15,000. across the board first or second home tax credit for 2009 purchases as part of the stimulus plan. His bill was completely shut down by Democrats. They don't want "rich" people to get a tax credit, they only want to take other people's money and spread it around. But ... with that said... it's not really "first time home buyers" it's anyone who has NOT owned a house in the past three years.
Okay, done with my rant.
One thing is for certain....help for all homeowners is in need.
"If the government really want to open the real estate market, the credit should be allowed across the board, There are many sellers right now who might be able to sell their homes if they knew they could recover a potential net loss on the selling side with a credit on the purchase of their next home."
I said the exact same thing....
It would have helped get the move up buyers moving.
Right now it is just helping first time homebuyers who would have probably entered the market anyway. They are ALWAYS the biggest folks to enter the market.
Richard - and let the buyer use the $8000 as their down payment.
Interesting perspective. I am working with a home buyer who thought he was eligible for this credit, but I showed him that he wasn't. Will he reconsider a home purchase because of this? It's possible...
It seems to me is that the majority of people don't think the amount of this tax credit is large enough and it isn't fair because it just helps a small group of people.
So here's my solution.
Let's have the government give anyone who wants to buy a home something like $300,000. Let's make sure they can buy a nice one and have it all paid off so people aren't burdened with debt. Who wants to have a stupid mortgage payment?
We can also have the government give everyone $30,000 to buy a nice American car. This would help people get to work so it's really an investment in the American worker.
I also think that the minimum wage should be increased dramatically because taxes might need to be raised a little.
That should really get the economy going.
I think I read somewhere that all the money is just electrons in a computer so it shouldn't cost very much to create the money we need to get this economy cranking.
Yes we can!
General Comments:
The credit is for "First Time Homebuyers" that are defined by the legislation as any single person not owning a home in the last 35 months or either spouse of a married couple not having owned a house in the last 35 months. The argument is one of semantics.
My argument ... why not 12 months, why not 49 months? Why not zero months? What difference does it make.
And since the credit is on the BUYING side offering it to EVERYONE would NOT affect inventory.
And it could decrease the inventory of FORECLOSED properties by giving sellers the opportunity to possibly sell without a short sale or a foreclosure.
The point is NOT to bring in more buyers, it is to end the declining economy that has decreased the demand for housing. If you get the economy going, the problem will be solved.
Tim...
You know I love you man! I am not defending the use of refundable credits, all I'm saying is that if they exist, it should be across the board!
My preference would be a non-refundable credit against actual taxes paid .... but I'm not the one in charge!
Steve...
Not many are aware of the income limitations .... full credit for singles up to $75K annual income that declines and phases out at $95K. Approx. double for married couples.
Richard - When was the last time you saw the government get something right? Just curious. Ralph
I totally agree. The government missed the boat by making these incentives for first time buyers only.
Couldn't agree more! I also felt that the initial "press release" on major media did make is SEEM that the credit would be available to ALL buyers...I have had several confused (and then irritated) clients because of the confusion. Great work!
Hi Richard -- While I agree with your idea, I wonder what the cost would be if the majority of move up/down/later home sellers took advantage of this, seems to be the #s would be huge, but who knows. Great idea!
Richard - Forgot to tell you that I totally love the house photo. You're truly gifted in that department. Ralph
Richard, I agree with you that the tax credit should have been across the board and at the $15,000 level. Again, a compromise that should not have happened. But even with a 15K credit, I do not know if it would of helped the housing market. Most people are upside down way more than 15K. If they change the law to say 12 months before you are eligible, as a first time home buyer, then how many people would that effect? So many people have defaulted on their homes, they could not qualify. Also, the government wants a larger percentage of people owning homes, so first time home buyers are the perfect target.
Richard - You are so right! I've brought this up a million times. The "Stimulus Package" cannot stimulate unless it is aimed at the people who have money. 1st time homebuyers cannot impact our economy in any meaningful way.
This sounds like an excellent idea. It's a strange time we are in. Love the house picture. Was this one of your listings?
Wonderful idea! The hardest hit markets aren't the ones that focus on first time buyers so the stimulus isn't helping the overall economy by just limiting the credit to such a narrow group.
Looks like you finally hit a nerve and got the comments abundance you were looking for. I agree with you for the most part, but at least it still applies to people who have not bought a home for 3 years.
To tell the truth, I am more excited about the $3600 Georgia Tax Credit that just passed the senate. Once Purdue signs it into law, buyers only have 6 months to use it. I think it will create the urgency we need to get people off the fence and stop waiting around for interest rates to go down to 2%.
Richard very good post. It is a question which I thought I had my mind made up on, then I read the comment made by Christina in comment #34. What about those people who, thru re-fi's, now have little to no equity in their homes. Or investors.
I have no idea what the right answer is, thats for sure. I am happy I am not driving the bus, LOL.
Nice picture, great post, and worthy of that star for sure.
I agree. I also wonder why they don't reinstate the the down payment gift programs from AmeriDream and Nehemiah. Doesn't cost the taxpayers one penny! I just don't get it.
I would have really liked to have seen the tax credit go toward more than just first time home buyers myself. Even though expectations say that the majority of the people who will buy this year will be first time home buyers, extending the credit to others could have created a lot more movement in the market and started pulling investors off the fence as well.
Good food for thought. I know dozens of people that would move if they could reduce the loss on the sale of their homes.
I am sure that the original bill regarding the Home Buyer Tax Credit included all home buyers. I suppose our elected officials decided that was a little too much stimulus. IN fact I think the original bill was a $15,000.00 tax credit for all buyers of permanent residences.
That's O.K. though. I feel certian the Firts Time Home Buyer Tac Credit will get the market and all us REALTOR's moving again. The theory is the first time buyers will push the rest of the market.
I would like to see th credit requirements relaxed just a little bit to mke it possible for a first time home buyer to make a purchase. Credit requirements have tightened so much that even a "good" first time home buyer is having trouble getting financed.
Richard, All I know is that I have ready willing and able buyers ready to buy but can't because we cannot sell their back up house. One seller even said to me if he had been eligible for the credit he would be more willing to take a "hit" on his current home.
because they are democrats and heaven forbid any body get relief that doesn't fit their poor and dienfranchised motto.
Point well taken...I agree with what your blog says. There should be a credit for buyers, first time or otherwise.
Patricia Aulson/Portsmouth NH Real Estate
I'm sure the reason is that the move up the food chain in a recession normally starts at the bottom, with or without the tax credits. When a first time buyer buys a home, that frees up the next in the line to buy without a tax credit.
If we want to spend as little as possible, this is the way to do it.
As Norma stated before me the first time home buyer drives the market and uncle sugar is trying to allow the market to run it's normal course. Hmmmmm........
My opinion is they should run it across the board to help the market shake out quicker and return to normal as fast as possible.
I think tax credits for first time buyers is the same as those credit cards that offer you a low interest rate for the first few months before they raise them to 19 percent or whatever. The point is, they want to get the consumer hooked, after that it's all fresh meat.
Cynical ... who me?
Very good point Richard - seems so simple !
.... ever think of running for government ??? LOL
Amen Richard! I know SO many people (including myself) that when things started to turn, they realized they would have a tough time keeping up with their current mortgage, sold their home and rented for short term. We did buy down after a year but it would have been nice to get something out of being responsible. People buying homes gets things moving..that's for sure so let's give them the incentive!
All for one and one for all...well...at least for this topic. I agree that the government is losing some of it's steam in a bypass valve by only limiting these programs to first time buyers when many previous homeowners are FULLY capable of doing their part to stimulate the economy. Why not let the floodgates open temporarily to allow some of that stagnant water to leach!!
Richard, I totally agree. At least it is also helping non-first time buyers sell. And it's helping Realtors. If you offer 8 grand to everyone, that would be a huge amount of government spending when there has already been a huge amount as it is!!!
Interesting thought. I guess the thought process starts with the first time buyers beginning the chain that follows up the price ranges and helps everyone.
Hi Richard,
Yes...a broad based credit would certainly get things moving more quickly...and I would love to see it. But under the current credit scrutiny, I don't agree that first time buyers create a greater risk of default. And it's well documented that the first time buyer starts the dominoes falling that facilitate other transactions. So while the government didn't get it completely right, I still appreciate the effort.
Now if they could only grandfather those folks who bought last year. Repaying the $7500 really hurts in light of the current rules...
What heppens when the tax credit expires? Do homes across the board drop by $8,000? Frankly, I don't think it is a good idea to expand the tax credits.
Hi Richard,
my!, you certainly have made alot of people think about this one! I agree, the credit should go to everyone.
Richard, glad to see you are back on your game and out of your funk! This is exactly what this economy needs along with a loosening of the credit. People with 750 credit scores shouldn't be held up by the banks internal bickering.
Richard,
Like Christina I am going to also defer from the general comments. The American Recovery and Reinvestment Act of 2009 applies to homeowners who have not owned a home for three years. The tax credit is based on 10% of the purchase price up to $8,000. Additionally, the tax credit is determined by their income, so they may receive the money as a refund when they file their tax returns. This will also assist in stimulating the economy as people receive their tax refund checks. This money does not have to be repaid to the government as did the previous tax credit initiative.
More general comments...
This post isn't about the limitations or definitions of the current legislation... that has been covered ad nauseum and we are all aware of the parameters... it is about applying the credit across the board ...
If it's a good thing ... then logic says it should be expanded to all sectors of the market.
I have been writing about this concept for months. I agree that we need to provide an incentive to all buyers, but more specifically for people to invest in real estate. We need new demand into the market, not just move up buyers.
As we are seeing, not surprisingly, first time home buyers have not been responding to the $8,000 tax credit. Mortgage purchase applications are still very week. I think a lot of people have overestimated the ability of the first time home buyer to get a loan in this market as well as their motivation to do so when property values are falling 15% and 650,000 jobs are being shed every month.
I think that would have been great. There are many other incentives for first time home buyers but we also need so move-up buyers to get some of the more expensive stuff sold. The fact that the income requirement is so low doesn't make sense to me either.
Here is my 2cents-
The government folk putting this so called stimulus togther know NADA about business cycles & business in general . It's ovbvious that there are not many with Econ 101 under their belt- They do have an agenda for sure - Stimulating real estate sales or any other private business is nowhere to be found in the "Stimulus" plan- Shovel ready jobs are on the way though- as long as you are in a Union!! -- Line up comrades !