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Posts Tagged ‘tax credit’
Thursday, November 5th, 2009
 The US House of Representatives The new homebuyer’s tax credit extension that we have discussed extensively in the past week was passed by the House of Representatives today. Now that the bill has been passed by Congress, it will go to President Obama for his signature. The bill passed by a vote of 403-12 after it unanimously passed in the Senate. The bill is expected to be signed into law by the President tomorrow.
For more posts on this topic, please see:
Breaking News: Deal Announced to Extend New Homebuyer’s Tax Credit Through April 2010
Reflecting on the Impact of an Extended Tax Credit
Tags: bill, Congress, House of Representatives, law, new homebuyer's tax credit, Senate, tax credit
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Monday, November 2nd, 2009
 Last week a bi-partisan deal was announced in the Senate that will likely pave the way for the new homebuyer’s tax credit to be extended through April 2010. The deal also includes plans for a significant expansion of the tax credit, raising the income requirements to $125,000 per individual and $225,000 per couple from $75,000 per individual and $150,000 per couple. This expansion means that many more individuals will be eligible for the tax credit than were previously. Finally, the deal added a $6,500 tax credit will be available to homeowners wishing to move out of their current home into a more expensive one.
I have been thinking about the deal all weekend, and I worry about its effects. While the goal of the credit is to strengthen the market and help bring home prices back up, increasing income requirements and adding a tax credit to incentivize trading up seems like it risks exacerbating the current problems in the housing market. Many of the current problems in the housing market have been created by homeowners (many first-time homeowners) taking out mortgages that were more than they could afford to pay in order to buy homes. Even when they could afford the mortgage, the recent economic problems have led many to be out of work or find their401(k)s and pensions to be less than they had expected. Consequently, the number of foreclosures and mortgage delinquencies reached all time highs in recent months.
In light of these developments, some proposed that maybe homeownership should no longer be an essential part of the American Dream. It was argued that it is a disservice to put people into homes they cannot afford. While the tax credit is not a very large sum of money, it is enough money to push individuals to act in uncertain times. A realtor in Portland, ME commented that nearly 70% of their clients were motivated by the tax credit. Yes, the housing market could use a boost, but when individuals are making a significant long-term financial decision for a short-term financial incentive, it seems like many poor choices can occur.
Reverse mortgages and refinances are available to help homeowners who find themselves over-extended, but reverse mortgages are only available to those over 62, and refinances and short pays have been extremely hard to get. To avoid another housing crisis, the government does need to stimulate the market, but putting more borrowers into homes they cannot afford does not seem to be a safe way to do so.
Tags: home, home prices, homeowner, homeowners, housing crisis, housing market, money, refinance, reverse mortgage, reverse mortgages, Senate, tax credit
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Friday, October 30th, 2009
 The Senate announced a bi-partisan deal yesterday to extend the new homebuyer’s tax credit through April 2010. The deal will extend the $8,000 tax credit, which was set to expire in weeks, on homes with values up to $800,000. While the previous tax credit only applied to homebuyers with salaries of up to $75,000/year for individual and $150,000/couples, the deal raises the requirement, so that the tax credit will now apply to homebuyers with salaries of up to $125,000/year for individuals and $225,000 for couples. This will serve to make the vast majority of homebuyers available for the tax credit. In addition, a new $6,500 tax credit will be available to home owners wishing to move out of their current homes into more expensive ones.
The extension of the tax credit is expected to cost the government $10.2 billion, which will be offset by delaying a tax-break for U.S. based international corporations from 2010 to 2017.
The extension of the tax credit (as well as the new credit for current homeowners) is expected to help the housing market and real estate industry bounce back from the housing crisis. It is hoped that the tax credit, which has been successful in the past year, will help the market return to its former strength in 2010.
Tags: homebuyer, homebuyers, homeowner, homeowners, housing market, new homebuyer's tax credit, real estate, Senate, tax credit
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Friday, October 23rd, 2009
 The government’s $8,000 tax credit to new homebuyers has been under a lot of scrutiny in recent months. The tax credit was designed to help stimulate the housing market and lead to increased home ownership. To that end, it has been extremely successful. However, abuses within the system appear to have also been quite high. While the reverse mortgage industry found itself under scrutiny for what appear to be under about a dozen complaints, the federal government has started 167 criminal investigations and 107,000 civil investigations into possible fraud. Of the 1.4 million people who claimed the over 10 billion dollars in tax credits in 2008-2009, 60% had incomes under $50,000– leading to questions as to whether they could even afford a home.
The new homebuyer tax credit has certainly had many positive effects. Of the 1.4 million home sales, 350,000 to 400,000 were estimated to be a direct result of the credit’s availability. That accounts for 25-30% of the eligible home sales. In some areas, real estate agents have reported that up to 70% of their clients were considering buying a home as a direct result of the tax credit. With sales of existing homes at their highest level in two years, many are attributing the strong numbers to the tax credit, which expires November 30. Sales increased 9.4% in September according to the National Association of Realtors.
So which is it? It seems that the tax credit likely has had a positive effect on the market. However, the rock-bottom prices and increased inventory have also likely contributed to many first-time buyers choosing to enter the market. The increase in first-time homebuyers is a good sign for the real estate industry, but it is still a disconcerting one. If 60% of the 1.4 million people who claimed the tax credit from 2008-2009 had incomes of under $50,000, could they really afford to own a home? Will we see another foreclosure crisis within the mortgage industry down the line as these homebuyers are faced with rising rates or declining incomes? The answer to these questions remains to be seen.
While the pros of the tax credit may outweigh the cons, with the damage to the real estate industry wiping out the savings of many throughout the country, if the credit is extended, it should be done so with caution. While the image of every American owning a home is a promising one, the government has an obligation to ensure that those owning homes can actually afford to do so. Otherwise, history is at risk of repeating itself.
Sources: The New York Times: Home Tax Credit Audit Shows Abuses
The New York Times: Tax Credit Lifts Home Sales to Two-Year High
The Associated Press: Northeast Home Resales Post 11 Pct Annual Increase
Tags: first-time homebuyers tax credit, foreclosure, fraud, government, home sales, homebuyer, housing market, Mortgage, mortgages, new homebuyers, real estate, reverse mortgage, reverse mortgage industry, reverse mortgages, tax credit
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Thursday, June 25th, 2009
 In a report published on Wednesday, the National Association of Realtors (NAR) proposed that Obama’s tax credit for first time buyers should be expanded across the market to all buyers. Concerns were also raised about appraisals. Lawrence Yun, the NAR’s cheif economist, cited the appraisal problem as “serious,” and characterized by buyers using appraisers who are not from their neighborhood or who are comparing their property to distresed or damaged homes. These appraisal problems are allegedly pulling down home values, and hurting the industry.
Complaints about appraisals are nothing new. However, the importance of a good appraisal is especially crucial in this economy, where there are so many distressed properties on the market that a home could be compared to. It is nonetheless true that, as we reported, have a foreclosed home within 500 ft. of a property decreases its value significantly. As the number of foreclosures increase, more properties will be affected. Nonetheless, it is also true that a home that is not in foreclosure should probably not be valued the same as a home in foreclosure. One is a distressed property, the other is not.
In terms of expanding Obama’s tax credits, the NAR proposes an interesting idea. It is true that an expanded tax credit would probably drive more buyers into the market. However, the influx of buyers would not necessarily cause the market to rebound. We have already seen an increase in home buyers, but property values still remain low and there still remains a lot of properties on the market. Introducing more potential buyers would likely not change these facts when there are still so many foreclosures dragging down property values in many areas.
Tags: appraisal, appraisals, foreclosure, foreclosures, home buyer, home buyers, market, NAR, Obama, real estate, tax credit
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Tuesday, May 5th, 2009
 The WSJ featured this photo of a bulldozer tearing down houses in Southern California. Today has been filled with mixed messages in regards to the housing market. Is it performing well or poorly? The Wall Street Journal published images of bulldozers tearing down half-finished homes in Southern California because the lender determined the cost of completing the homes would be more than they could be sold for. On the other hand, the New York Times published a front page story about how the market in Sacramento is rebounding– a potentially good sign. Sales are up 45% since last year. Sales in Las Vegas, another market hit hard when the housing bubble burst, are up 35%.
So which is it? It seems hard to tell. It is easy and addictive to follow all the housing articles published recently, but, after writing on several of them, it appears that the bottom line keeps remaining the same:
- Yes, there are a lot of foreclosures, permeating classes where they’ve never been felt before.
- Yes, many markets have been extremely hard hit by the housing crisis. Las Vegas, Phoenix, California, and Miami are four of the worst. Very few, if any, areas have emerged unscathed.
- Yes, the new $8,000 tax credit has helped buyers, leading many first-time homeowners to enter the market. Perhaps as a result, many areas have seen sales increase this past year and in the past few months.
It therefore seems safe to draw the following conclusions:
1. The nation was hit hard by the housing crisis.
2. Foreclosures still abound, as neither the economic nor the housing crisis have lifted yet. This is especially true amongst the middle-class, who in many cases took longer to feel the effects of the crisis.
3. However, foreclosures mean that prices have been pushed down in many markets, leading to a glut of new buyers who, in addition to pursuing the tax credit, can pay less in a mortgage payment than they can in their monthly rent, saving money by buying a home. This situation is especially profound in the depressed market, but leads many analysts to think that there are signs of life in the market.
What do you think? Is the housing market getting better or worse?
Tags: economic crisis, foreclosure, foreclosures, homeowners, housing, housing crisis, housing market, Las Vegas, Mortgage, real estate, real estate crash, real estate market, reverse mortgage, Sacramento, southern california, tax credit
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