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Let's increase the Home Buyer Tax Credit to $100,000...

By Lane Bailey

Real Estate Agent with Century 21 Results Realty GA RE Lic # 282060

October 03, 2009 04:40 PM

And while we are at it, why don't we expand it to cover everyone. Do you think the NAR would get behind this?

Honestly, I bet that they would see that this would be ludicrous. Not that it wouldn't be GREAT for real estate agents, we would be rolling in it. But, obviously it would cost WAY too much money, and it would destroy the real estate market... Let's examine how?

It would inflate prices...
- Sellers would KNOW that people buying were getting $100k in free money. Prices would go up by nearly that amount...
- Buyers would push prices up by competing for properties.
It would SERIOUSLY impact future sales... All of the buyers for the forseeable future would be pressing to get it done NOW.
It would throw the market WAY out of whack... Buyers would suddenyl forget that the house that they paid $300,000 for really only cost them $200,000... when the time to sell comes, they would insist on getting at least $300,000... because they couldn't LOSE money, right?
Combined with the previous point... price would CRASH right after the credit stopped... ALL of the buyers would be out of the market. With no buyers, anyone forced to sell would have to discount at an amazing rate.

It would likely take years, if not decades for the effects to be worked out of the system.

So, can we agree that offering a $100,000 credit to buyers would NOT be in the best long term interests of the real estate industry, OR consumers.

Why is it that $15,000 or even $8000 is different? Is it because it doesn't matter? If it doesn't matter, then what help is it? And...

Is it inflating prices of entry level homes?

Is it impacting future sales?

Is it throwing the market out of whack?

Will it affect prices in a few months?

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Mark and Tana Hunt

Team Price Real Estate/Dan Price Broker - Austin, TX

Born and raised in Austin, WE KNOW THIS PLACE!

Lane, Where did all these people come from? What have you done? :)

Oct 06, 2009 03:56 PM

Kent Anderson

Coldwell Banker Resort Realty, Sandpoint, Idaho - Sandpoint, ID

from Schweitzer to the Lake

Lane - I am totally freaked out. You are hitting the nail on the head and taking no prisoners. Are you "juicing"? Great Job!

Oct 06, 2009 04:52 PM

Mark Velasco

West Shores Realty - Whittier, CA

Top Producing Broker Associate

Clever post Lane. You make some really great points. Very thought provoking.

Oct 06, 2009 05:09 PM

Jenny Durling

L.A. Property Solutions - Los Angeles, CA

For Los Angeles real estate help 213-215-4758

I've thought the credit was a bad idea all along. It seems to have created a mini-bubble in the local market. It needs to GO AWAY!

Oct 06, 2009 05:17 PM

Jim Hale

ACTIONAGENTS.NET - Eugene, OR

Eugene Oregon's Best Home Search Website

Wait a minute, Lane. Let me steal a thought from elsewhere:

Do I get this right? According to Harris Interactive's survey:

18% said it would be the “primary influence” in their decision. 25% said it would be a “significant influence. 27% said it would have “some influence.

Let's see here: 18%+25%+27%=70%. Let me double check, yes, 70%!

So that means that extending tax credit would definitely influence two-thirds, or 70%, of prospective first-time homebuyers on their decision to purchase a home in 2010.

I guess there will always be people out there seeing the glass 70% empty instead of seeing it 70% full.

So, Lane: Which Sara-at-Zillow one-third of all first-time buyers are we talking about here? A 2009 one-third or a 2010 one-third who say it won't affect their decisions?

Oct 06, 2009 05:47 PM

Jim Hale

ACTIONAGENTS.NET - Eugene, OR

Eugene Oregon's Best Home Search Website

Lane -

I've looked at the Zillow report you cite.

The numbers you mention are not Zillow's number for the sales that have been "created" by the credit.

The numbers are Zillow estimates for the 12 months ending in November 30, 2010, if the credit is extended:

1.86 million "first-time" buyers.

338,000 extra buyers from the credit.

Let's see:

NAR is forecasting a 5% increase in home sales in the year ending November 30, 2010. That's a net increase of 215,000 sales - purchases by all types of buyers (on a current year base of 4.3 million).

Zillow says 334,000 from the credit or 7.5% of total sales.

This insignificant increase in sales you criticize so vehemently turns out to not be so insignificant at all -- it exceeds NAR's (always rosy) predicted increase.

That's a fact not lost on Zillow. Here's their chief economist, Stan Humphries:

“While 334,000 may seem like a small number relative to the total number of home buyers who would claim the credit, their addition to the market next year could make the difference between a robust annual increase in home sales next year and a flat or negative change in home sales relative to this year.”

Oct 06, 2009 07:01 PM

Matthew Share

Maximum One Greater Atlanta Realtors - Marietta, GA

All things considered, I recognize that there are pros and cons to having a tax credit in place. Yes, it is borrowing from our future. Yes, it costs the tax payers including myself a tremendous amount of money. Yes, it is a manipulation of the market which could have bad long term effects. However, the state that the housing market has gotten into has created drastic times that call for drastic measures to help clean up the mess. The hope and idea is that by the time the "borrowed" demand reduces future demand, the market will not be as flooded with foreclosures any more and will be better able to sustain the weakened future demand. With that said, I think the government made some MAJOR mistakes in the way this was handled including:

1. Going from a 7,500 credit that had to be repaid to an 8K credit that doesn't have to be repaid and now announcing the possibility that we might see as high as a 15K credit in the very near future has lead many buyers that would have taken advantage of the existing credit stay on the sidelines to wait for the better plan that is coming. The call to action has been minimized. Now, if the extension doesn't pass, we missed out on an opportunity to get some more foreclosures out of inventory. They should have picked a plan and stuck to it.

2. Increasing to 15K does not make sense. It will double the cost of the program to tax payers and will not likely generate any additional sales for which 8K wouldn't have also been enough motivation. it's overkill. It will also make those who took advantage of the 8K feel like they made a bad decision.

Both of the previous tax credit programs started out as 15K programs and, in the end a compromise of 8K was reached. I think NAR is getting behind asking for 15K because they know that way they will actually get 8K again. If they ask for 8, their fear is that they'd get only 4K, etc.

While I agree that there are definitely negative long term implications of these tax credit programs, I do believe that it is acting as a tourniquette in a way to stop the bleeding on our housing market and I don't believe that the market has recovered enough to sustain removing it yet. I would have liked to see the powers that be pick a number (i.e. 8K from the begining and stick with it) and keep their mouths shut about extending and/or expanding the program until AFTER the deadline expires or becomes very near. Then, announce an extension of the exact same program (not a better one) right after expiration of the original one - making it clear that the credit will not last forever and perhaps even setting a metric or goal at which point it will go away. For example, we will keep extending it until we get to a certain inventory levels, etc.

Oct 07, 2009 12:21 AM

Dan and Amy Schuman

Howard Hanna Real Estate Services - Solon, OH

Luxury Home Specialists

I like the idea of continuing the tax credit for at least a year. The cash for clunker program was like an adrenaline shot, a big artificial boost with little long term benefit. However, I see the tax credit more like a temporarily boost that will prop the RE market up until unemployment figures and the rest of the economy improve enough for the market to no longer need it. With all the focus being on the first time buyers, most people forget to mention that the tax credit helps move up buyers as they are selliing their homes to first timers and thus being able to buy. It is in a sense clearing up a huge log jam, at least here in Northeast Ohio.

Oct 07, 2009 12:33 AM

Sandy McAlpine

RE/MAX EXECUTIVE - Cornelius, NC

Search Lake Norman Homes For Sale - Lake Norman NC

I'm not sure the tax credit is actually "inflating" prices of homes, but I do thing that there are some homes that are not depreciating as quickly because of the demand and that would be the homes that the first timers are looking at!

Oct 07, 2009 02:45 AM

Jason Crouch

Austin Texas Homes, LLC - Austin, TX

Broker - Austin Texas Real Estate (512-796-7653)

Lane - Frankly, I haven't seen much excitement generated from the incentive/tax credit, so I don't think extending it would matter much to me. I suppose increasing it would help sales, at least in the short term, but it also might cause some damage that would be tough to overcome. That being said, nice tongue-in-cheek title for your post!

Oct 07, 2009 05:58 AM

Lyn Sims and the Blog Dog

Streamwood, Elgin IL Real Estate - RE/MAX Suburban - Bartlett, IL

I'm with Jason on this that I haven't had all the hysteria that I thought their would be. When I mention it, most buyers just shrug and go 'yeah, I guess'. What that tells me is that they think now is a good time to buy inspite of the credit. In my area, we are not seeing any type of inflating of prices, in fact I think we are lucky to be selling anything! We've got tons of inventory and high market times compared to other areas. I just did Market Updates where the average days on market was 212! Things aren't exactly flying off the market!

Oct 07, 2009 12:08 PM

Lane Bailey

Century 21 Results Realty - Suwanee, GA

Realtor & Car Guy

Kent - Does Coca-Cola count?

Jim - Since you copy/pasted both of your comments on both posts... I answered on the other one.

Matthew - If they extend it again, they are signalling that it will be extended again... and maybe even again.

Dan and Amy - And when the credit stops and sales slow again... the log jam will be back.

Lyn - I have been involved in several multiple offer situations on entry level properties... But honestly, I think that there have been a lot of 2010 sales shifted to 2009... and that the tax credit will have a smaller effect than expected if extended. And the sales that DO happen will be stolen from 2011...

Oct 07, 2009 12:30 PM

Guy E. Gimenez

The PowerHouse Group - Austin, TX

ABR, CRS, GRI - Broker & Investor (512-731-5613)

Every time I get an email from NAR requesting I contact my "representatives" in Congress regarding extending the tax credit, I immediately delete it.

Having sympathy for those losing their jobs and homes (including many in our industry) should have nothing to do with bankrupting the country or turning my grandkids (not yet born) into indentured servants for our government. Sorry, that fuzzy math just doesn't compute in the real world.

Oct 07, 2009 04:48 PM

Marte Cliff

Marte Cliff Copywriting - Priest River, ID

Your real estate writer

So many people don't seem to realize that the tax credit is coming out of their pockets - and their grand-children's pockets.

The same goes for the entire "stimulus package" and the bail-outs to the banks.

I agree with Ronald Reagan - the government IS the problem.

They need to stop all this spending and let the markets correct themselves.

Oct 07, 2009 08:20 PM

Leo Schneggenburger

Fairport, NY

My first reaction (and you can ask the Realtors in the office sitting next to me) was "Finally someone thinks like I do!". Then I read people ripping into poor Lane and insulting comments too?!! I figured I better read through these and see what I can learn. Bottom line is I still feel the same. I thought the $7500 was a reasonable approach. I thought the $8K welfare method is a bad idea which I have to tell my buyers about like a pimp.

First off, I learned in grade school that when it comes to math and other things by extension, exageration can help you to understand fine points. I also understand sarcasm. For those who want you to read about FDR then you better understand that he extended a big recession that likely would have recovered in 2-3 years into a full blown depression that ultimately took the war to get us out of. Maybe we just don't have a big enough war going? (Sarcasm).

I don't really get why dropping home VALUES is such a big deal, IF you are staying in your home LONG TERM. That is the real problem and it seems that everything the government is doing is counter to keeping people in their homes, AKA, reducing JOB LOSS. When this administration gleefully plans to "tax the rich", well when was the last time you were hired by someone with less money than you? I remember hearing about the tax the rich plan called a yacht tax. All that happened was the rich bought elsewhere and guess what? It turns out (are you sitting down?) regular Janes and Joes were actually the ones building them! And I thought rich people drove up in big cars and got dirty all day working on them. Huh? Go figure. Point being the rich tend to have more options. This includes pulling up stake (and jobs) and going elsewhere. Or never taking that chance in the first place.

How about we scrap the IRS codes and implement an equal, flat tax and NO deductions. Then EVERYONE has "skin in the game" when it comes to SPENDING. I lstened to Glenn Back yesterday and they asked someone in line in Detroit waiting for "free money" where it came from. They gave credit to Obama, etc, but when pushed could NOT say WHERE the money actually came FROM. BTW, in this area, which did not have a boom/bust cycle, the FTHB credit did tend to push prices up for the lower priced housing (was that a help for buyers?) but decidedly did NOT extend to higher priced housing. Speculation is that many lateraled out. Perhaps Zillow can extrapolate some numbers on that? It DID bring people into the market who were NOT ready financially to buy but to take advantage of it, well, how many agents who were helped by this also saw people asking for maximum concessions? I think those people would have been better seved waiting until they were ready in a year but I don't think that is NAR's goal. I also think that the real engine for whatever sales this year has been the increadibly low interest rates. If they go away it won't matter much what incentive there is to buy. People won't be able to qualify like they can now.

To recap, forget the government vote payback plans, I mean "stimulus" plans. CUT spending. CUT programs. ENCOURAGE investment in business so that long term JOBS (the only way out of this mess) are CREATED.

Oct 08, 2009 03:24 AM

Jim McCormack

Nashville Short Sale Specialist - Jim McCormack - Edge Advantage Realty, LLC - 615-796-6898 - Murfreesboro, TN

Nashville Short Sale REALTOR - Stop Foreclosure

YES! You got it. All this government intervention (i.e. expanding FHA lending, the tax credit, bank bailouts, etc.) is just distorting the market. The expanded FHA is just helping to inflate prices by expanding financing to buyers who really should be renters. The tax credit is allowing people with little to money to buy homes who really should not be buyers. Both of these government "stimulus programs" artificially inflate housing prices by creating additional home buyers. The bank bailouts, on the other hand, are allowing banks to be difficult in dealing with on short sales and loan modifications. If the banks did not receive the bailout monies they would be cutting short sale deals and offering loan modifications much more rapidly since both of those make business sense. Also, the banks are holding back on selling their REO's because they are hoping that the government will buy the defaulted loans for more than the real estate is worth. In short all of these government actions are distorting the market.

The real problem is what will happen when these government "stimulus programs" end. My view is that the real estate market will have a mini free fall. The tax credit is going to end soon (even if it is extended for a while) and when it does end there will be less buyers. The FHA has already found out the consequences of expanding their lending programs. FHA loan defaults are now at record levels with 1 in 6 FHA loans in default. There is currently a bill before Congress which is proposing to raise the minimum FHA down payment to 5% as well as eliminating some financed closing costs. The FHA is going broker and it will be forced to cut back lending. When that happens even more buyers will leave the market. The bank bailouts are going to end soon. When they do, the banks are going to dump a large number of foreclosures on the market further dropping real estate prices.

In short, these government "stimulus programs" are doing nothing but propping up prices in the short term with the trade off being more pain in the future. I have been saying for a while now that you can't solve a problem caused by too much debt/leverage with more debt/leverage. It is like trying to solve a hangover with more binge drinking - you might feel better in the short term, but you will feel much worse when you eventually stop drinking. In our case the "alcohol" is actually debt/leverage. I say stop drinking now before there is permanent damage!

Oct 08, 2009 04:45 AM

Lane Bailey

Century 21 Results Realty - Suwanee, GA

Realtor & Car Guy

James - The permanent damage could be soon...

Oct 08, 2009 03:44 PM

Anonymous

NAR_Sucks

Come on, let's keep stealing from our kids, they are too young to know any better, hell we paid money to raise them, let's make them pay our future taxes, it's only fair. Let's keep pumping up prices so realtors can make some more money again. Go NAR Team, Go!

Oct 29, 2009 05:30 PM

#141

Shelly Whitworth

MorSystems.com - Carmel, CA

Alexander Gonta, are we in a recession, because inflation seems to be heading our way. Your post indicates an either/or ~ Perhaps too much money was printed for a recession and now the value is decreasing? Not good for rates.

Nov 02, 2009 05:01 AM

Lane Bailey

Century 21 Results Realty - Suwanee, GA

Realtor & Car Guy

NAR Sucks - It isn't just real estate agents that think this is a good idea... Those Congress Critters seem to think so, too... Of course, we aren't the headliners on the debt marquee lately, but it doesn't help to put our hands in the trough, either.

Nov 04, 2009 01:37 PM

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Let's increase the Home Buyer Tax Credit to $100,000...

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