Extending the $8,000 first-time homebuyer tax credit is one government stimulus policy that makes sense. Nationwide, about twenty percent of first-time home purchases during 2009 were directly related to the tax credit. Even though real estate in San Diego is particularly expensive, the tax credit has enticed thousands of home buyers who were on the fence to commit to making a purchase. The policy is succeeding where so many other stimulus measures have failed.
$8,000 First Time Homebuyer Tax Credit has stimulated sales of homes in San Diego.
Home prices have turned a corner in the past six months. Instead of double-digit declines in property values, most housing markets have seen month-to-month increases since early summer. On an annualized basis, San Diego home values are now approaching positive territory in many neighborhoods for the first time since 2005. The increases aren’t large in percentage terms, but it is a huge psychological barrier for home buyers. No one wants to buy a home while values are dropping.
San Diego home buyers have been scrambling to get into escrow on a home purchase before the end of October, anticipating expiration of the tax credit on November 30, 2009. San Diego real estate professionals get the definite impression that demand from first-time home buyers could suddenly dry up on November 1 if the tax credit is not extended.
Although $8,000 is less than three percent of the median price of most San Diego homes, $8,000 is enough to cover closing costs for most purchases. The tax credit is seen as a chance to buy a home in San Diego with little or no money down. At today’s prices, the monthly payment on many homes in San Diego is just about on par with rental rates. So with no closing costs, first-time home buyers are able to justify buying instead of renting. Add $8,000 and the purchase becomes less appealing. It is like night and day for some people who currently rent.
Today Treasury Secretary Geithner and Housing Secretary Donovan said that the Obama administration wants to see the tax credit extended for a “limited period.” An extension through April 2010 has maximum support. However, Senator Max Baucus has proposed an amendment to keep the full $8,000 tax deduction through April, then gradually phase it out by $2,000 per quarter through the end of 2010.
The Baucus amendment makes a lot of sense. With a sudden elimination of the tax credit, many home buyers will simply decide that they’ve missed their opportunity to buy. A sudden drop in demand could easily turn the modest real estate price appreciation into further declines. A gradual phase-out would soften the impact and continue to entice some first-time buyers who would otherwise continue to rent.
The Senate has also proposed a $6,500 homebuyer tax credit to existing home owners who have lived in their homes for at least 5 years. There is less need for this additional provision. $6,500 is not likely to entice current owners to sell homes in San Diego, either to move up or to downsize. Home sellers traditionally have equity in their homes when they sell. If they have equity they will use it as a downpayment on their next home. If there is no equity, then the home seller will be in short sale or foreclosure. People who go through short sales and foreclosures have damaged credit, so they are not able to turn around and buy another home. If the point is to stimulate home purchases, then any tax credits extended beyond first-time home buyers should be available to anyone who purchases a home, regardless of whether they have recently owned a home.
Overall, the Senate has the right idea. Unlike TARP, the homebuyer tax credit has made a noticeable difference. Let’s hope for smooth passage.
15 Comments to Extend Home Buyer Tax Credit!
Comments
The tax credit is one of the only things that the current administration seems to get right. Hopefully the credit will be extended, and Sam will leave the rest alone.
.-= ko@san jose ca homes for sale´s last blog ..Buying Tips For Your First Hollister Ca Home =-.
Its nice that the credit has been extended, you should right your next blog on the way people can qualify for the new existing credit. Great post!
Thank you so much for this post, really informative. It’s a good thing that the credit has been extended. This just means that many consumers will benefit from this.
I would want to add that it is extremely important to consider what effects purchasing property will have on your estate or will. Too often, this is overlooked, but it is of central importance in financial planning.
I think a lot of the press around the tax credit has been misleading- to make people think that everyone receives a check when they buy a house. Thanks for taking the legaleeze and bringing it down to earth. Even if not everyone gets a large check for buying a house- its still a good deal and people should take advantage of it!
.-= Fort Mill Homes´s last blog ..228 Munn Road, Fort Mill, SC =-.
Good to see that the proposed tax credit seems to be working. I wish we had something similar over here.
.-= Malta Real Estate´s last blog ..Jan 27, What’s On in Malta: Running out of things to do in Malta? =-.
I have to agree with you – I like the idea that the tax credit for homebuyers has been extended, and especially the fact that it has been extended for people who aren’t first home buyers, but who are moving their primary residence. It doesn’t seem that it has been ‘dropped suddenly’, however – there has been plenty of warning! There will always be a decline at the end of the stimulus.
Tax credits on the surface seem to be a good idea, but didn’t this tax credit have to be paid back. When I did research on it, I read where the “tax credit” would be deducted from any future payment for the IRS if I got a rebate.
Tax credits are a good idea. However if someone is stuck with the wrong type of mortgage or bought in at the wrong time it won’t matter how big the tax credit is.. The housing market in US is going to be very interesting in the next 36 months.
We had a tax credit for new home buyer here in Canada too, not sure if it’s still in effect or not, personally I think they should allow us to be eligible for it even if we decide to sell and buy another house.
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Thanks for your reply. Be sure to use the social bookmarking and social networking links here and we can make contact that way. All the best! Geoffrey
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Thank you. I can still go to the grocery store without being mobbed…. let’s put it that way. But I’m having a good life as a San Diego Realtor!
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