This news is just in, and it’s great news for prospective buyers of San Diego homes! The California legislature has acted again to provide a $10,000 tax credit to first-time home buyers and to purchasers of new construction. It is a powerful move to further strengthen the real estate market in the state. The $8,000 Federal tax credit to first-time home buyers and $6,500 Federal tax credit to repeat home buyers will start to expire at the end of April. Now, beginning May 1, 2010 the State of California will step in where the Feds are leaving off.
Listen to the News Report Here: California Tax Credit to New Home Buyers and First-Time Home Buyers – Public Radio Announcement
This new tax credit will also have limited funding, of just $200 Million, and it is being offered on a first-come first-served basis. So it will go fast, and when it runs out it is unlikely to be renewed. A similar amount of money was allocated to this California tax credit last year also, and the money budgeted to the program ran out within four months.
These tax credits are definitely contributing to the upward momentum in the real estate market, and creating jobs in California. New home construction has been revived. Inventories of homes for sales are shrinking, and confidence in the market is returning.
Some people say that the tax credits are “artificially” boosting the real estate market in San Diego and elsewhere. But the fact of the matter is that the intervention is stabilizing the real estate market and buying time while the general economy recovers from the current recession. As the macro economy improves, the tax credits and other supports will be lifted, because they will no longer be needed. Corporate profits are already increasing, and jobs will follow. As jobs are added, consumer spending will increase, and the demand for homes will rise along with the demand for consumer goods and services.
In San Diego the demand for entry-level homes has been strong for more than a year. Many experts are saying that we hit bottom in 2009, and the evidence tends to support that conclusion. The inventory of homes for sale is low in San Diego, and the banks have held firm to their policy of gradually releasing inventory of the foreclosed homes in San Diego. Without a major increase in the inventory of homes for sale, even the expected rise in mortgage interest rates is unlikely to put substantial downward pressure on prices.
One of my roles as a San Diego Realtor is to help my clients analyze different scenarios that affect the home buying decision. Would you be ahead of the game if home prices dropped 10% but interest rates increased by 2%? If you don’t know the answer to that question, then please ask me.
Interest rates are at historical lows, and home affordability in San Diego is the best that it’s been in decades. It is the “perfect storm” for home buyers. The tax credits to home buyers in California are like icing on top of an already delicious cake. So eat it up while you can.