Federal Tax Credits 2008 - 2009 Part I - 2009/2010 Part 2
First, there was the 2008 Housing & Economic Recovery Act $7,500 "tax credit" that is, in fact, an interest free loan that must be re-paid over a 15-year period. This program was effective April 8, 2008 and ended December 31, 2008. Then came the 2009 American Recovery & Reinvestment Act $8,000 tax credit. What I call a "just kidding" moment. If you closed on your home on December 31, 2008, you have to pay your tax credit back, but if you closed on January 1, 2009 you don't have to ... plus you get an extra $500. And then, adding insult to injury, the extended and expanded tax credits of the 2009 Homeownership & Business Assistance Act threw a cold bucket of water on a real estate market just regaining a faint pulse. Great news for long term homeowners and the expanded $6,500 tax credit that benefits them, as long as they close after November 6, 2009 (too bad for you if it was even one day before that). I've had clients who felt ripped off both times. Every extension, every revision of these tax credit programs, creates an undercurrent of discontent for those home buyers who could have benefited from the newest version, but closed one day too late, or early, as the case may be.
Utah's Contribution: HomeRun Grant edition 1 and 2:
The original HomeRun Grant was a brainstorm. It provided a $6,000 ARRA funded incentive to buyers to purchase a newly constructed home, one that was already completed, and gave builders an opportunity to move their spec homes and close out high cost construction loans. This program had the side benefit of quickly removing the greatest competition to existing home sales - new homes. Then came Utah's own "just kidding" moment. The introduction of HomeRun2 Grant. Only this time, it was $4,000 and the home could be at any stage of construction. And a buyer could already be under contract on a new build and still take advantage of the program. The end result? A significant portion of Utah's HomeRun2 Grants were consumed by home buyers already under contract to purchase a home, doing little to stimulate new sales.
In my opinion, tax credits have become subsidies distorting the real estate market. I believe that any further extension or expansion of this program, with the exception of those benefits due our military, will be counterproductive. I say it's time to help homeowners. Figure out how to give them $8,000 so that they don't have to sell as a short sale. There are a lot of well loved homes in excellent condition that would make ideal homes for new buyers, creating move up buyers for other homes, that can't be sold now because the sellers are upside down in their mortgages. A short sale may benefit a new buyer, but it eliminates another (for two years at least). Why not consider helping sellers with a monetized tax credit so that they can sell their home at market value, stop or minimize short sales and foreclosures eroding property values, get buyers into "non-distressed" homes and turn that seller into another buyer, thus propelling the market forward.
Where do we go on April 30th next year?