With all the stimulus packages being floated out there at costs of up to $5,000 per tax payer (per program), the question comes begging about the Homebuyer Tax Credit.
"At $8,000 for each first-time homebuyer and now $6,500 for move-up buyers - how much is that going to cost the American taxpayers?" Good question. Not knowing how many people will be able to take advantage of it, we'll have to start with some guestimates.
Keep in mind, first, that about 4.5 million existing home sold in 2008 altogether and we have been on track to sell roughly the same in 2009.
For 2009, the tax credit was only for first-time buyers and up to $8,000 (10% of the sales price, not to exceed $8,000). So not everyone received the $8,000 if they purchased a house less than $80,000 - but let's go ahead and say they did for argument sake.
If the stats hold true, and that is about half of all buyers are first-timers, then there were 2.25 million buyers that qualified (assuming they didn't go beyond the income limits - which many did). But for simplicity, we'll say they all qualified.
Simple math puts the tax credits at $18 billion for 2009 that doesn't have to be paid back. For all the money that's being floated out there to stimulate the economy, this is probably the best plan in play.
Now, before all my conservative friends blow a vein behind their eyeballs that are now popping, here's what happens when a homeowner purchases a house (vs., say when someone buys a car or some other depreciating asset). They spend money on it. Lots of money.
The foreclosures/short sales that have made up most of the market for the last 2 years are mostly in paltry condition and need paint, carpet, appliances, countertops, cabinets, windows, landscaping, rot replacement, sump pumps, mold remediation, heat pumps, etc.
Unless you saw these houses, you just wouldn't understand. I'm not talking "updating" homes that would otherwise be in good living condition, but making them inhabitable altogether. In fact, regular home buyers like you and me can't even finance many of these houses because of the condition they're in.
People get into a tizzy about home flippers swooping in and making "all this money" by flipping a house. Let me tell you - without the flippers some of these houses would completely fall apart. Remember, that lenders WON'T LEND MONEY on a house without complete bathrooms, that are mold invested, lack certain appliances, etc. And the REO banks WON'T fix them up to sell them. They just let them deteriorate while they wait for a buyer.
Enter the investor/rehabber who purchases the house with either cash or off-line financing, then fixes it up to pristine condition, sells it at a fair price and moves on to the next project. They are providing a much-needed service to even make the houses salable, much less inhabitable.
Now, as the market turns around in city after city (that's what the increase in pending sales is all about across the country), we'll see an increase in sales and a use of the home buyer tax credit to fix up the housing pool.
The tax credit for home buyers has played its role and now it will go away April 30, 2010. The question for consumers is will they recognize and act on a good deal when they see it?
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