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Two Great Reasons for Renewing the $8,000 Tax Credit

I have seen many articles written... both on Active Rain, and in the public media... about whether or not to renew the $8,000 tax credit that expires on November 30, 2009.

Here are two reasons... and in my opinion... the best two reasons for renewing the tax credit.

First... it does what other programs cannot do. It takes a buyer who may not be able to buy... and turns them into a buyer to can buy.

With the mortgage financing qualifying guideline changes that we have seen over the last eighteen months, and the disappearance of various programs that have helped first time buyers... this segment needs to remain as active as possible, to help stimulate the overall market.

The $8,000 can make a huge difference in the monetary lives of the typical first-time buyer. With the zero-down financing all but gone... many first time buyers have good income... more than enough to qualify for the payments... but without the zero-down financing... the great majority of them do not have the required down payment and closing costs to bring to closing to enable them to buy.

While a seller can be asked to pay the buyer's closing costs (in lieu of a buyer asking them to cut their price in an offer)... there usually isn't a way for them to come up with the down payment if they cannot get a gift letter from a family member.

The current tax credit program allows the buyer to pull all of their resources (if they have them) together for the down payment... but it then allows them to re-coup that money... via the $8,000 tax credit from Uncle Sam and Aunt Samantha... and use it to build up their savings again.

Reason number two for extending the tax credit... is that if first time buyers can buy... then the sellers they buy from... can "move up" to their next home.

The move-up market in many areas of the country is quite stagnant. One of the reasons is that those folks who own a home... cannot sell it. If they could, they would "move up"... which would allow the next teir of sellers to become buyers... which would "domino" into stimulating each succeeding "move up" seller... and turn THEM into a buyer.

I do realize that there is a heavy cost in providing the $8,000 tax credit... a cost to the government... which is, of course, a cost to you and me. For that reason... I would NOT take away the "first time buyer" or the "haven't bought in three years" rule... which currently exists in the tax rebate program.

I know those folks who are buying more expensive homes... or second and third homes... could use the $8,000 too... but... I think they would benefit even more by being able to sell their home to a move-up buyer provided by the scenario I mentioned above.

One more thing. I would NOT... absolutely NOT... announce any renewal of the tax credit program until at the very earliest... December 1, 2009. I would also make it crystal clear... that because of the cost... that this would be the ONLY extension this program would receive. I would probably extend it until November 30, 2010... period !

Posted by Fort Worth Real Estate - - - Karen Anne Stone on 10/18/2009 09:38 PM

Comments (19)

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19 Comments on Two Great Reasons for Renewing the $8,000 Tax Credit

OCT

Karen Anne - you are SO right! We need to keep our fingers crossed for that extension.

It will be quite interesting to see if this passes. There are so many people keeping an eye on it, and so many different views. We shall see.

I read something in Inmon news about the credit being extended to people who both buy and sell next year. Not sure how that would work.

You are correct on both counts. Especilly the 'move-up' population. It's a cycle that really needs an infusion right now.

Hi Karen...Once the program ends it ends..Keep it going. It Lets first time home Buyers into the Market..Here that represents 60% of home sales.

Lise: It really is important for this to be renewed. The market needs a kick in the pants... and the bottom is the place to kick it.

Jean: I know there are many "views" on this... and many want it to extend to ALL buyers... but I do not think that is wise... or cost-effective. I think the first time market is the place to stimulate.

Rich: I am really "iffy" on expanding this program to a really wide degree. Maybe I might add a provision for including in the program any seller who sells using a short sale... and gets no money whatsoever out if that sale. That would be a major help.

Jennifer: I really think both of the reasons or cases I describe are extremely important. They make the entire market work. As far as the move-up market... just enabling the folks on the rung below them to be able to sell to a buyer who uses the tax credit... enables them to then become that move-up buyer who then buys from the next-up-the-ladder seller who seems so stuck right now.

Karen Anne, great points and clearly made. I've heard "through the grapevine" that the fact the extension was made for Military overseas, that that was a concession and an indicator that the extension will NOT be approved. I'm not so sure.

But, I think extending it for a whole year will be too expensive. I'd like to see it all extended through June 2010 as a compromise.

Of course, all of Crystal Balls are foggy still (dang it!) so it will be interesting to see what happens.

Fred: Sixty percent of the market is absolutely HUGE. I have seen some folks say that in their market area... the tax credit has not made a difference. They also need to remember that... "every market is different." So, in the markets where it WILL make a difference... those people will use it... and everybody wins. I do not believe in throwing money away. But... I DO believe in spending it where it will have a positive effect.

Colleen: I have read... in the public media... that the extension has already been given, and made public, for the military who have not been able to take advantage of the current program. I think that is very wise. These folks NEED to be taken care of. They need to be "given-back to..." as they have already give so much to us by their service.

June 2010 would be a compromise I would be in favor of. I just think this upcoming winter market... or lack thereof... is one that does NOT need to see this tax credit program expire.

(By the way... I like your new picture !)

ps... I'm still waiting for another video from you... :)

Hi Karen, I like the idea of the first time home buyer credit - although it hasn't really helped stimulate the recreation/2nd home market here.

If first time home buyers are only buying foreclosures /short sales- it doesn't help stimulate the move up seller/buyers either... because banks aren't moving up ---still, any incentive to stimulate the housing sector I am positive, will bring about positive change in the overall economy.

I would like to see a one time credit for all buyers, through 2010.

Firstly, the $8000 tax credit seems to have made very little difference in a market like ours - Southern California. Secondly, if $8000 is going to make the difference between someone being able to buy a home or not, aren't be back to the same problem of people buying homes they can't afford. Don't get me wrong, it is a nice "gimmick", but that's all it really is, like the "cash for clunkers" program.

Karen Anne, I just wish they would either extend it or let it die. I believe a new program that would help more people could do more for the economy and still help the first time home buyer...
Your friend in Washington State...
Paul

Mary: there are just some markets that the first-time buyer tax credit program will not be much help in. Also... it is not my impression that first time buyers are only, or even predominantly buying short sales and foreclosures. I think some will... but I also think that so many Realtors have such a negative impression of short sales and foreclosures... that they will dissuade their buyers from purchasing them. Just my thoughts...

I understand the hope for a tax credit for ALL buyers... but I think that is too much. My ideas combine a market stimulus with at least some fiscal responsibility. Again... just my thoughts...

Jane: Like I said above... the $8,000 will have varying effects in each market area... because, obviously, all markets are different.

I disagree with the argument that if the 8K is going to make that much difference... then maybe they should not be buying in the first place. The much more restrictive underwriting guidelines will take very good care of making sure that buyers who should NOT be buying... will not get approved. But the well-qualified (by credit and income) buyers cannot buy if they don't have the down payment.

I cannot remember the last time I had a first-time buyer who had $10,000 in the bank... before they bought. A very few, perhaps, but not many.

Paul: I understand... about helping "more" people. I really do. I am trying to stimulate, yet be somewhat fiscally responsible. I think the rest of the market... besides the first time buyers... will be helped just by the fact that if the first-timers are ENABLED by this program... then the positive upward momentum will eventually effect many more non-first-timers... which is the move-up market... meaning both move-up buyers and move-up sellers.

OCT

Karen - I think the 8,000 Home Tax Credit has helped some buyers think about a purchase without having to dip into too much of their savings and make it a little easier to consider Buying a Home in this market. (Rainy Day Funds can't be drained) Think this has boosted Creativity to Home Buyers Options - Toledo is offering a Toledo Downpayment Assistant Program.

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