That "new buyer" tax credit may end up a real credit
Remember the $7,500 tax credit for new buyers? It's the one that, as columnist Ken Harney puts it, is less tax credit than an "interest-free installment loan" because it has to be repaid over 15 years. Perhaps that's why new buyers haven't been falling over themselves to use it.
But Harney reports that "Congress may be on the verge of transforming it into a true tax credit - one that never has to be paid back."
Though final details on a revised credit are still subject to negotiations between the House and Senate - and to passage of the economic stimulus package itself - there's a good chance that buyers who sought the credit in 2008, and new purchasers in 2009, will be relieved of the repayment requirement.
So, you renters thinking of buying in the near future: Does the fate of the tax credit matter to you? And you renters not planning on buying: Would the revision change your mind?
What would it take for you to buy, if you're on the fence?
And for that matter, if you've got a house you're putting off selling, what will make you decide the time is right?
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Comments
Jamie, I posted my thoughts to the new home buyer tax credit on my blog. A brief comment on your post is:
Subsidizing housing now will only make the situation that much worse once the subsidy is removed.
Posted by: Kevin | January 25, 2009 12:11 PM
He is right, ask anyone in the trying to sell a house right now what happens when financing incentives are not available.
This is not going to get me to jump because we are in an extreme buyers market where the sellers need to bow down to the buyer if they want to sell.
A tax credit of $7500 only lowers my taxes by $2100. When you consider this gimmick it is not all it is cracked up to be the choice is clear. Besides why should you buy when we all know 2009 is going to be the worst year financially for most everyone alive today. With all the current and coming layoffs (and this time it is in the 28-38% tax bracket of white collar jobs) it's better to be "mobile" in case something happens and you need to take a job in another region.
The biggest reason housing boomed was 100% financing. This is gone and not coming back. We already had a lost decade with stagnant wages. We are going to have more than that in static property values.
This was like a 10-20% subsidy that made it possible to not have to save up for a down payment.
Same issue with interest rates. Everyone is saying it is the best time to buy because interest rates are down below 5%. The opposite is actually true. This is absolutely worst time as prices are still declining and will continue to decline for the next 2-3 years.
It's better to buy when interest rates are high as prices have to adjust down to meet it. I know this is against everything you read from the REALTORS or the MSM but ask anyone buying or selling in 1980 and they will understand where I am going with this. You can refi a 12% loan in the future and get a lower payment. You can't refi a 4% loan because the appreciation gets evaporated as interest rates rise.
via Patrick.net:
It's a terrible time to buy when interest rates are low, like now. Realtors just lie outright about this fundamental fact. Prices fall as interest rates rise. Since interest rates have nowhere to go but up, you can be certain that prices will fall more. The way to win the game is to have cash on hand to buy outright at a low price when others cannot afford to pay very much because of high interest rates. To buy at a time of very low interest rates is a mistake.
When rates go from 5% to 7%, that's a 40% increase in the amount of interest a buyer has to pay. House prices must drop proportionately to compensate. The housing bust still has a very long way to go.
For example, if interest rates are 5%, then $1000 per month ($12,000 per year) pays for an interest-only loan of $240,000. If interest rates rise to 7%, then that same $1000 per month pays for an interest-only loan of only $171,428.
Posted by: Adam | January 25, 2009 4:24 PM