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Why The $8000 First Time Home Buyer Tax Credit Could Be a Big Fat Waste of Money

It isn't a done deal yet, but here comes the newly improved first time home buyer tax credit, courtesy of President O's 2009 Stimulus Bill. Will it be a magic bullet?

Or just a stray bullet that missed the target by miles?

It is supposed to:

Get people off the fence, kind of like when the car salesman tells you "Buy today because the rebate goes away next Tuesday!"
Reduce the excess inventory of homes on the market
Give new homeowners money to spend in the economy at a time when everyone (even those that have money) refuse to spend it.

Here's a tiny little observation from someone in the trenches of the real estate business: EVERYONE who buys a house should get the credit, not just the first timers.

Could it be that first time buyers are already stimulated enough? By golly, I bet a lot of those smart first time buyers would buy a house in 2009 even WITHOUT being stimulated by a tax credit!

The following formula, which in my opinion has nothing to do with the current $7500 tax credit, is causing multiple offers on properties in California from first time buyers:

Bank owned properties selling at fire sale prices
Rates at a 3 year low
FHA financing, which offers 3.5% down payments, which can be gifted by parents.
Much more lenient credit score criteria for FHA loans
No need to deal with selling a house in order to buy
New house payment often less than the old rent payment

I guess tax credits must mean more to those of us that are older, make more money, and have had to develop tax strategies over the years to protect our hard earned money. More than once last year, I tried to explain the current $7500 tax credit to my first time buyers while glowing with enthusiasm.

Their eyes glazed over and they just didn't care.

There were much bigger reasons they were in contract to buy their first house than a tax credit. Should we believe that the new tax credit, $500 higher and without the need to pay it back, will create a first time buyer that actually cares?

That it will somehow create FAR MORE first time buyers than we already have?

What about all the rest of the potential buyers out there who do not have the distinct ADVANTAGES of the first time buyers? For these buyers, the advantages to moving MUST BE GREATER than the advantages of simply staying put.

Now that's a buyer who actually needs stimulating. He also probably needs tax relief. He has been sitting on the fence, not willing to sell because "prices are too low".

And here's something else to think about: Move up buyers have WAY MORE MONEY TO SPEND on their new house than a first time buyer. They might finally have the perfect excuse to do it with a tax credit.

The first time buyer needs stuff and will it buy anyway. The move up buyer WANTS stuff, but can get by on his old stuff. Who needs the "stimulation" more?

Message to President O: If you are cupid, trying to make Americans fall in love with buying houses, you shouldn't point your arrow towards first time buyers. They are already smitten.

Message to Realtors: Move up buyers are more than just a sale. They are also a listing. And that helps the real estate industry. Times two.

Written by Janet Guilbault, Mortgage Lending Specialist Based Out of the San Francisco Bay Area

Posted by Janet Guilbault California Mortgage Banker/Broker on 02/16/2009 01:04 PM

Comments (185)

First Time Homebuyer Tax Credit in the Mortgage / Finance Channel

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185 Comments on Why The $8000 First Time Home Buyer Tax Credit Could Be a Big Fat Waste of Money

FEB

This is a great point, if it was a general credit I think it would do some good. I am in an area where there are almost no first time buyers but the buzz that it would appy to everyone sure made a commotion. Great article.

Janet - I had many of the same thoughts myself. I have some first-time buyers who are definitely excited, but they were ALREADY going to buy a home! Additionally, I think you can offer tons of incentives, but it won't matter if people can't get approved.

Janet, I have been emailing back and forth all morning with my first time buyers who want more details about WHEN they can expect their $7500. In fact, I emailed them a link to Jason's post on this topic to lighten their intense mood :) This rebate is THE deciding factor on whether they go ahead and write an offer this week or wait a few more months. I can explain all the other reasons they should NOT wait until I'm blue in the face, but they are banking on getting this money as relief from the large expense of getting in the door of a new home. This would be the second transaction this month with first time buyers hopping off the fence and buying as a result of this rebate. It's working.

Yes, we'd all like for everyone to get the deal, but how do we as a nation pay for that??

I think the money could have been better spent trying to get lenders to make loans. What many buyers need, first time and otherwise, is financing they qualify for and can afford. This means most specifically for first time buyers but also thosewho want to move up but have no equity is more availability of lower down payment options. For years people been told they no longer need a down payment to buy a home, then in the past year or two the rules changed dramatically. I am not saying we need to return to 100% financing option ARMs, but something easier then we have now. Plus, i have never been a fan of using the tax code to 'incentivize' people - it is inefficient and often ends up getting the wrong people to act or people to act for the wrong reason.

Yes, I agree that it may encourage them to buy, but how does it help them qualify or come up with a down payment? Good post!

When I told buyers about the potential of getting $15,000 there was great excitement! The $7,500 tax credit (loan) didn;tg stir up that much enthusiasm.

The $8,000 is a definate plus, the fact that they don't have to repay it is more inviting to them but what if they already filed their tax return for 2008 - do they have to wait until they file the 2009 taxes in early 2010 to get the money? If so, there is no instant savings which may make the enthusiasm fizzle quickly!

I'm also not convinced that this is going to drive scores of new buyers into the market. Affordability is the key to them...not tax credits. Still...eliminating the recapture was a good thing.

I agree. It does seem like a waste. I do though prefer the $8,000 over the $15,000. $15K is just way too much. We "all" will be paying this all back ten fold, so really it will be costing us more in the end.

Initially, the proposed $15K was for ALL buyers, but the members of Congress that know far more than we mere mortals will ever know, decided to reduce the credit and make it for 1st time home buyers only. Their reasoning, to reduce the overall cost of the plan. I guess that made much more sense than removing all of the pork that was not only left in, but added to, before it passed.

I agree - it's not what we need. You would think they would have asked REALTORS what should be done!

I too am afraid this is an almost complete waste of $$. Your points and thoughts are sound. I have thought the same and have shared the same feelings. The % of people it will get into the market versus the % that we will now have to give $8000 doesn't seem to add up. Maybe congress can start getting the media to sell good news instead of doom and gloom. That would certainly help our country's markets and real estate.

Much more lenient credit score criteria for FHA loans

What? My lender tells me the minimum FHA credit score will be increased as of the open of business tomorrow to 620. That's a move UP not down.

I think this new $8,000. tax credit will also be a failure.... like the rest of the "stimulus" bill.

Love your point of view... and agree with it... Thanks for taking the time to compose a great post. I will reblog it.

Great post - I actually had the same thought - why not extend it to ALL buyers - seems to make way more sense -

Why don't more people know that $7500 is just a loan and has to be paid back. Too many people think they will get $7500 and not have to pay it back!

Given the huge amount of money the federal government is going to have to borrow, interest rates will have to go up. It could very well be that increasing interest rates will negate the benefit from the credit. That's going to impact all homebuyers, not just first time buyers.

Hi Janet - I agree that it wont be much help. It appears to be a token effort that allows them to claim that they did something. Have you seen anything that explains how they define a first time buyer?

In Missouri, there's a program through MHDC that will lend the buyers the tax credit to use as a down payment and closing costs (6% of the price of the home or $6750 max.). When the buyer receives their tax refund they pay off the loan to MHDC. It's a great program for 1st time buyers to get money they need for a down payment and closing costs.

Will the buyers get off the fence and make a purchase this year? I don't see why they would wait when there is $8000 in free money just for making a purchase now rather than later. Interest rates are low and there are some great prices on houses right now! It seems to me like there's never been a better time to buy their first home.

Janet.... You make some very good points. Question for you, would you have said that the $15,000 would have been better than the $8,000? Or nothing at all. Not sure, but in many markets, even the $7,500 got people to buy and yes, they did care. I have many homeowners that are happy, even with the $7,500. Many markets are different. Maybe Californians have a lot of money and this doesn't help them?

I will agree that even this small tax break will hurt us as Americans, because we will have to pay it back. Yet you make a good argument that this could help even those that aren't first time homebuyers. But I am confused about this statement that you made. "And here's something else to think about: Move up buyers have WAY MORE MONEY TO SPEND on their new house than a first time buyer. They might finally have the perfect excuse to do it with a tax credit."

Not in those states and markets such as Florida, Michigan, Ohio, and parts of California. Many people are way under water, even after putting 10% to 20% down. So I am just trying to piece all of this together. thanks

Jeff Belonger

National Credit Fixers - The $7500 was increased to $8000, and no longer has to be paid back, as long as the buyers remain in the home for 3 years or more. However, it is still only for first-time buyers.

I'm not sure why they decided not to expand it for all buyers, since that would have had a lot more impact on the housing market. They cited the fact that the cost would be an additional $20 billion or so, but that was mentioned in the face of passing a stimulus package of $787 billion! It seems silly to me not to just make the expansion, as that was a drop in the bucket compared to the overall bill.

Hi Janet - Being one of the instructors for our local HUD approved ABC's of Homebuying course, and an advocate for not only affordable housing but also for bringing back Oregon's CashAdvantage program, I am thrilledto see people receive this proposed $8,000 true tax credit - vs. the previous zero interest 20 yr $7,500 loan. I'm thrilled they are proposing to allow the State housing finance agencies front the money so first time home buyers can actually USE it right out the gate. Does this "fix" the entire housing industry crises? No way. Is there always some other group who wants their own "fix"? Absolutely! Does $8,000 go a lot further in Southern Oregon than it would in California? Sure does! But, I do believe that the proposed changes upping the first time home buyer credit to 10% of the sales price or $8,000 and making it a credit vs. a loan will bring more buyers in to the market, get more inventory off the market, and eventually lead to freeing up the move-up buyers. I expect to get even busier through the rest of 2009!

I thought that parents could not gift the money for FHA financing. Can you explain the rule about this Janet? Thanks so much.

Your point is spot on, it would loosen up the market in spades if the credit applied to everyone. I have to say my first time home buyers are happy about it even though there's no immediate gratification. It's just a litle icing on the cake. Unless someone out there has an inside line to PBO or Congress, we're going to take what we can get.

Janet - While we do have multiple offer situations in my area, they tend to be by investors on investment grade properties. Deals do exist, but our price appreciation level is generally +/-3% depending on the neighborhood. Because they are not getting the 'great deals' that the media keeps saying they should be, many first-time homebuyers are sitting on the fence. This tax-credit will help move them. Indirectly, the credit helps current home-owners as well because it gets their homes sold. That being said, if the credits were given to everyone, the market stimulation would certainly have been greater.

BTW, the Senate passed an amendment to give all 2009 homebuyers a $15,000 tax credit that did not have to be repaid. This was cut during the House/Senate negotiations as part of the compromise to keep the 3 needed Republican Senators on board. Your note should be to them.

I know this will stimulate some people int ot buying that probably shoudn't

Janet,It's a good point ,however it will not be a waist if it's not used! meaning unless a 1st timer buys they can't use the credit.If they buy they will help clear all the low end housing that's causing a slow market and some of forclsures that are driving values down. People that are not 1st timer's already have the benifit of interest deductions,1st timer's do not.

I put a question about the $7500 "tax credit" to Ray Perryman of the Perryman Group and Mark Doutzer, Chief Economicst for the Texas A&M real estate center asking what they thought about it. Both were very lukewarm as to how much it would help the real estate industry. This was back in September. Fast forward to today.. I imagine they would still shake their heads as they did in September and say it's a marginal plan at best. I don't doubt it will get some buyers off the fence, but i do doubt it will push masses of first time buyers to get out there and buy, which is what we need to get things rolling again.

Janet, I lke the positive statements you made but I just keep thinking that none of it matters if there are no jobs or if folks feel as though they have no job security. I know personally of 4 people who lost their jobs in the last month, all of them breadwinners for their families.

Janet, let's hope it does help move some first time homebuyers off the fence. I too whish it had been available for more than just first timers.

I also agree with Barb that if you are insecure in your job it will not matter.

Jay

Janet, back in the mid 1990's, Congress created a $5000 tax credit for people buying a home in the District of Columbia. At that time, DC was a mess, and people were moving out in droves. Part of the problem was Mayor Barry, and they were taking his authority away, one city agency at a time. And, it did the trick, even though the income caps were very low - about $75,000 for a single person.

The main beneficiaries were younger buyers who would probably have rented otherwise. It stimulated the market for condos, which was dead at that time. And it had a strong trickle up effect as people who could finally sell their condos started to move up to small houses, and the small house people bought bigger ones.

DC was bankrupt and in shambles. Crime was scary, we had pot holes that we called cocaine holes, and people had been leaving for the Maryland and Virginia Suburbs in droves. The tide had clearly turned within about a year of the credit. The market turned around and the tax base rebuilt itself.

I wish they had put in the $15K and I'm still not sure what they did with income caps - I think the caps are there but I'm having trouble digging it out of all the information that's out there.

At any rate, I'm a whole lot more optimistic about the incentives, having seen them work total magic on DC.

Hi Janet -- I admire your perspective, and I think you have your pulse right on the current market, so I tend to agree with you. Much more will need to be done to really shake up the housing market and I think the administration knows this.

Hello Janet, thanks for another well-written blog. I do see the truth in your ponderings. I can't say this credit has been a significantly influential factor in the purchasing decision.

Fantastic post! I am working with three first time home buyers and they think the tax credit is "nice" but they aren't JUMPING UP & DOWN (like I would be!). I do think that they have enough incentive with the interest rates, the foreclosures, etc, etc. I would have preferred a $4,000 tax credit for everyone.

I'll do what I can with it and right now it's one of the few things we have going.

However, since it doesn't havep with acquisition costs, the benefits will not be extended to many buyers in my area.

Acquisision costs is what's stopping our first time buyers.

The $7500 credit did not work mainly because buyers didn't want to have to pay it back. The $8,000 might be a different story. Time will tell. If those buyers purchase, that will free up the present home owners to move, meaning more home sales. It could have a domino effect, but that will probably take awhile.

Many 2008 buyers are going to be upset that they have to pay it back, but 2009 buyers don't. I'm concerned that current sellers aren't going to budge on the listing price now.

Patricia: Thank you for that insight as to how the tax credit worked in DC. And how the benefits transcended just the real estate market!

If there were not so many foreclosures already on the market (and many more yet to come?) I think that our nation could also have a tickle up happy ending...where people who need to sell finally can sell due to the buyers in the market taking advantage of the credit.

The actual question is how many MORE first time buyers come into the market than would have ANYWAY?

My point is this: Do you think there would be more SPIN if the credit was worded like this:

Every person who sells their owner occupied house and buys another house to replace it within the next eighteen months gets the $8000 credit (as well as anyone who is a first time buyer).

Ya think that would get a few MORE people going?

When a current homeowner buys a house they move out of one into another - that didn't reduce inventory. When a renter or someone living with family (mostly first time buyers) buys a house, the inventory is reduced by 1.

Jeff B.: You make a good point: there are people underwater who cannot sell or move anyway.

However, there is a vast number of people that have been forgotten in the crisis...those that CAN sell (because they do have equity) and those who WANT to move (but haven't because of reasons stated in the post)

Example: the person who wants to retire to a different place or get a smaller home. The person who wants a bigger house because of a growing family but is waiting for prices to bottom out.

These people have money to spend and wish they felt confident enough to move. A tax incentive would help unclog this part of the market.

I think it should be extended to all buyers as well, however the first time homebuyers are the foundation to real estate cycle. Get them to buy then the move up buyers can buy, then more move up buyers can buy.

If the $8k could be used towards their down payment and closing costs, then we would see more frenzy!

Paul: You got me on that one. Inventory remained the same but something else happened that helped the economy. 2 Realtors and a mortgage broker got paid. 2 people moved into new houses and went out and bought stuff for the houses. In California, more property tax revenue is then taken in by the state. Termite inspectors got paid. Title people got paid. ETC, ETC.

Kristal: Your concern is valid. If I bought my house last year and had to pay back the tax, but everyone this year does now, I would probably call FOUL.

Do you mean sellers won't budge because they think there will be a shortage of houses because of the credit?

Don't think that's gonna happen, but sure would be nice!

Lenn: What do you mean by acquisition cost? That houses are still priced too high in your area for first time buyers?

Kerry: I think I would have far preferred a lower credit over a broader range of buyers as well.

Vicki: I am thinking a tax credit is too far removed for a young buyer to make the connection. I think that's why Pam in above comment is correct: if it could be used as an immediate credit to closing costs or to down payment, then you would see a frenzy.

Ah Chris O: That is my point. I wish there was something that would really shake things up. I don't think this will.

Jay: Well, no one is feeling very secure at this point about anything. But we can't fix everything for everybody. This incentive will not work by offering security. It works by getting people who were waiting to buy to buy NOW. It is what rebates are to the car industry.

Barb: Job loss will also need to be dealt with by President O. But a healthier real estate market should help that.

MaryAnn: Masses of buyer to help our market need to come from all buyers. Not just first time buyers. Otherwise top of the market goes stagnant.

Magdi: But first time buyers will have the interest deduction when they buy, as well as the tax credit.

Tom: You are probably correct. Some people will jump on the bandwagon that should be renters. But its gonna be a whole lot harder with the tight guidelines and all the jumping through hoops just to get a mortgage.

This was an excellent post! I agree with you on many of the points, housing help "could" have been redirected into other areas. I have gone back and fourth with the idea of being able to "apply" your credit to your down payment and take the remainder (if there is any) as a credit. Allowing the lenders to take the money from the "stimulus" so buyers can see first hand how attainable it is.

We seem to like "immediate gratification" and even allowing a lesser amount of "instant" money may be a nice option. Oh well, lets see what this $8k sparks this year!

Great post.

Erik: Does the credit help sellers when so many first time buyers are only buying bank owned (REO) properties? I know a lot of buyers who will only buy foreclosures, will not even consider buying anything else.....I think the $15,000 credit was way too big. I do not object to the amount of $8,000...only that it will not create the frenzy or impact to lauch the market to a better place.

Lynn: I think many buyers would agree with you...it is the icing on the cake. The cake is already sitting there and they are definately eating it up, tax credit or no.

Given that the $8000 tax credit isn't even law yet, I think it may be premature to dismiss its effectiveness.

The $15,000 credit that was the Senate version wasn't refundable, it was only good up to your tax liability, though it had a provision that it could be evenly divided over two years. But even if split across two years, only those making a pretty significant income would have been able to take advantage of the full $15K.

Since the $8K credit IS refundable and it doesn't have to be paid back, it's a completely different beast the either the existing $7.5K "credit" or the proposd (but dead) $15K credit.

Obviously more people would have been able to take advantage if the first time buyer restriction was lifted. But a "move up" buyer does nothing to help reduce listing inventories as they also have to sell their existing home. First time buyers (more accurately, those who haven't owned a home in 3 years) will reduce inventory. In addition, whena first time buyer buys, there is seller who gets to move -- and who often buys.

I'm no fan of government intervention in free markets, and Lord knows this stimulus bill -- the one no one read before they voted on it -- is jammed full of pork. But to dismiss its effectiveness before it has even had a chance to work seems premature.

Michael W. Funds to close on an FHA loan may be gifted by a family member to 100% of required funds to close.

Karen: I very much hope you are correct! Perhaps there will be a tipping point where first time buyers actually "get" how much money this really is, and what an amazing gift they are getting. Right now, I see alot of first time homebuyers out there who just are not excited or "stimulated" about this.

Let's hope this changes.

Are you saying that they will be able to use the tax credit for a down payment? This I did not know.

Jason C. Thank you for that clarification. They did axe the credit for everyone, and I think that is a shame. Should be across the board and you would see a huge frenzy of people start to sell houses.

AND buy houses.

Too bad. But then again, you never know what they will dream up next if this doesn't work. Stay tuned, right?

Michelle: I would absolutley agree that there is has never been a sweeter time for a first time buyer. And they just sweetened the pot. This is an opportunity not to be missed.

George:

To be eligible, buyers cannot have owned a home for the past three years.
The new home has to be used as a primary residence.
The credit phases out as income rises above $75,000 for singles and $150,000 for couples, and disappears entirely at $95,000 and $170,000, respectively.
To apply for the credit, just claim it on your return. No other forms or papers have to be filed.

Dan: I agree, rates will go up as a result of having to pay for all of this. I guess higher rates would be a small price to pay for an economy back on track. The trick is, if the economy may not have the strength to handle higher rates. Can you say relapse or backfire?

National Credit Fixers...that was correct for the old tax credit, new one will not need to be paid back as Jason explained in an earlier comment.

Tammy: It may not seem very lenient to approve someone with a 620 score, but believe me, in today's lending world where subprime just does not exist, that is a way lower score than most banks will accept.

BYW: FHA will allow lower scores than this. But some of the FHA lenders will not.

Donna: They definately do not seem like they understand what needs to happen to make things sizzle. Maybe they do need to come over and real some stuff at ActiveRain! It might give them a better understanding of the market.

Roger: We may be mere mortals, but they are politicians who still think their pet projects get them elected. Oh wait. They're right.

Bridget: We could use some instant fizzle right now, too!

Kristi: If they cannot qualify, then they should not buy. It is okay to be a renter. Too many people who really couldn't qualify got us into the mess we are in.

i have never been a fan of using the tax code to 'incentivize' people - it is inefficient and often ends up getting the wrong people to act or people to act for the wrong reason.

Amen, Paul. I agree. And I bet everyone could think of many examples of how tweaking taxes has backfired.

Jennifer B. I am thrilled that this is bringing you business. If that was the deciding factor on why your buyers got into the market, then maybe I am wrong about this.

Question for you: Why did they wait up until now to buy? What were they waiting for and why didn't the old tax credit work for them?

Jason: Remember what I have said in other posts: Every mortgage applicant is viewed as a potential foreclosure. Banks have been stung hard, and I don't see guidelines getting any looser.

I am hoping this tax credit will not bring in people who really cannot afford a house, or think they can keep it a few years then "give it back to the bank".

That just won't solve anything.

Hi Janet,

This is a great post!

Can you share it with the Real Estate and Taxes Group?

Brian.....I know, if everyone got this tax credit you would see a huge boost in business. I really hope this tax credit elevates our sick real estate market. Maybe they think this is the ticket to get rid of foreclosures and the rest of the market be damned.

Janet - While I definitely agree that move up buyers need to be stimulated just as much as the first time buyer, I personally believe that this credit whether it's $7,500 or $8,000 will definitely get more first time buyers off the fence and into the market. Would they have bought anyway? Maybe, maybe not. But, I am seeing a surge in my first time buyer business because of the credits. Granted, many have no clue as to how it works but if explained to them properly, it is possible to generate motivation.

On that note though, I explain the credit a little differently. I explain it in such a way that I don't necessariy get the "eyes glazed over and they just didn't care" look. Many first time buyers don't understand the tax advantages of homeownership until you sit down with them and "do the math" and let them see the numbers.

When explaining tax credits to them and how it can benefit them now, I explain to them how they can tweak their W2 deductions and withholding so that they are taking home more money every paycheck and that will allow them to put aside a little more every payday and in a couple of months, they have their down payment. I, of course, advise them to talk to their tax specialist to find out exactly just how much they can tweak their W2's so that they don't claim too much and withhold too little.

I've actually been using this process for awhile about educating my clients on how to come up with their down payments and or closing costs to buy a home. As long as they get professional advice from a tax specialist, it is the best way to take immediate advantage of any kind of credit and/or deduction.

Hit the nail on the head.

What should have been in the so called Stimulus package was a 10% tax savings across the board for ALL homebuyers. If that had happened then we all would be out selling real estate instead of sitting here trying to forget about what a disaster has just happened to our country!!!!

The disaster happened over the last 8 years. Now people are trying to fix it.

Move up buyers have WAY MORE MONEY TO SPEND on their new house than a first time buyer.

Many potential move up buyers, who purchased their homes in the past 5 years, would lose money on the sale of their current homes. Their incentive is to stay put until the market turns around.

Janet - I totall agree. The tax credit should have been available to ALL buyers. It being taken out was a disgrace. This should have been the first item to be included in the bill not the last item to be wiped away.... Excellent post... I agree 110 percent !

Well, it's pretty useless, but people are going to have to get off the fence anyway. That's the first thing I blogged when I heard then numbers. People need to get off the fence and just buy what they need. Our government is useless, and politicians are not going to fix anything. They've already proven the only thing they can do is make things worse.

The tax credit will possibly assist the first time buyer who can qualify for the loan.

I list and sell in retirement communities. Obviously a first time buyer will not be purchasing a home to live in an adult 55+ retirement community. It is unfortunate since most retirees I know are veterans of either Korea, WWII or Viet Nam.

Janet I always enjoy reading your blogs. If you get a second check out my blog: http://activerain.com/blogsview/936688/Tax-Credit-Will-it-Stimulate-the-Economy-or-is-it-a-Temporary-Fix. I think that the tax credit is overall worthless. Yes there will be a few that take advantage of the money but it does little to solve our issues.

Ok, here is a stupid question. Do they have to pay it back? I am getting different messages.

Thanks for the post. A lot of interesting comments here

The $8,000 tax credit is better than the $15,000 that they were considering. And I like the fact that it does not have to be paid back. I do however agree with you that first time homebuyers are out there buying anyway. They seem to be the only one's buying right now (other than investors buying the short sales, forclosures and fixer uppers). For first time homebuyers there has never been a better time and finally, they seem to be catching on.

First time buyers isn't all that is needed to right this ship. With cheap house prices and cheap mortgage interest rates, the first time buyers were already engaged. This will help bring some fence sitters into the market. This market needs more than a few first time homebuyers that were on the fence.

I feel the exact same way with my Phoenix buyers. We are facing very similar issues in this market. Is it really the young buyers that we need to coerce right now into buying a home? And has it really ever been? I think that first-time excitement is pretty much consistent across the board. We need the other consumers in the market to be enticed to buy, especially those with financial backing.

I concur that it's a mistake not to include all homebuyers in the $8000 tax credit. It will be interesting to know how many first time homebuyers purchase a home in 2009 vs. 2008.

I believe tha the 2008 stimulus required 4% down to qualify for and no one wanted it anyway. Most of my clients will be using the FHA 3.5% so let's see if the package is any easier to qualify for. I think most of them will be excited and it will give them time to decided how to use it while they wait for their refund on their 2009 taxes. A Forced savings plan.

Nelya: It is a little confusing. The new version for 2009 will not require repayment. The old version does require repayment. My understanding is that those that got the credit of $7500 last year will still need to pay it back.

Marilyn: As someone who is beginning to see "CASH IN" refinances, I will tell you this: IF this bill would have included everyone, there would be people willing to pay their negative equity to move and to take advantage of a once in a lifetime opportunity.

People pay negative equity on cars all the time, think it is normal, and want to move on.

Besides that, whose to say their house won't be worth EVEN LESS if they continue to fence sit?

Donne: You are right! I probably didn't do a very good job of explaining the tax credit to my clients. I don't seem to have the same lead time with my mortgage clients. They are there, in contract, all excited, and the last thing they want to hear about is the TAX angles of home ownership.

They would rather talk about what color they are painting the bedroom. LOL

you are right a lot of buyers could care less. Also, by extending it until the end of the year you buyers an extra 6 months to sit on the fence. By their calculation prices should go down by another 30%.

Janet, Great points!! You should think about politics. You would make a welcomed addition to President O's staff. At least you wouldn't be swayed by the bank lobbyist whispering in his ear.

FEB

I think it would be helpful to everyone and agree that not many 1st time homebuyers need this incentive to buy a house. I honestly wouldn't have taken the old take credit of $7500 since it had to be paid back at some point. I would rather not have taken it at all. I like that the new one doesn't have to be paid back.

I also agree that if it had been extended to ALL buyers, more people that are waiting for their current home's value to go back up a bit would be more willing to sell now and buy that house they really want which would really help stimulate things.

Janet- this is true... much more needs to be done! Interesting thoughts on the tax credit... I am praying this all does not end up being a huge waste of funds.

let's hope all this works out for the good but only time will tell

I've been saying the tax credit to new home buyers was directed at the wrong group. Give it to everyone those with money to move up or buy a second home like here in Fla will see a benefit. Anyway nice post

Hey Janet,

What are we going to need for the upcoming Commercial Real Estate collapse?

Good post, I had much the same to say about the $15k tax credit that almost passed

http://activerain.com/blogsview/923102/The-15k-Tax-Credit-How-Many-Homebuyers-will-Qualify

Drew

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The $7500 credit really did very little. This will do something, however, if the credit were for all primary dwelling home buyers, the impact would have been much better. This work in the mid-70s and would have worked again.

Oh well, have to take what we can get. I just don't know where the $800 Billion went. Oh right, we had to save money for the train between LA and Vegas. We can't live without that.

Hey Bob! Was the LA to SF train part of the stimulus package? I thought we Californians were paying for that.

Anyway, confession: I would LOVE to get on that train and zoom down to LA! I might even buy a condo down there to be near the kids and play around on the beaches (which are actually WARM instead of foggy and mostly cold)

There was a tax credit in the 70's that worked? I would like to know more about that.

Drew: I read your post and commented. Wow, you have the credentials to die for, and you are a very good writer.

Paul F.: I never thought about that. You should post on the subject of the commercial real estate collapse. Would love to know more.

Jim: I am glad you agree with me. I almost added in this post that people should get the credit for second homes. Why? because like a first time home buyer this is wiping out inventory since no one has to sell a house to do this.

There are also huge numbers of babyboomers who would love the excuse of a tax credit to go buy their eventual retirement house NOW while prices are low.

Randall: The tax credit WILL sell more houses. But you have to remember that any kind of incentive is incremental: meaning how many MORE houses did it sell than would have sold ANYWAY? It you look at it this way, the incentive could be very expensive.

JB: I hope it is not a waste of "our" money either.

Libby: I disagree with you. The old tax credit was a FREE loan. There would be no reason not to take it if you are a first time buyer.

I know lots of people dismissed it, but my gosh. FREE interest is still something for nothing.

Rick: I am laughing! No politics for me. My blogging voice is much stronger and more sassy than the real Janet. It is like a monster lives inside of me.

Michael: So maybe we will have a nice little run of business at the end of the year? NOPE, I don't think so. In the car business rebates got so common that no one ever believed they would go away. And they never did!

Dear Editor who posted an invitation to write:

Thank you. For now, I only write for my subscribers within ActiveRain, although I receive invitations such as yours frequently.

As a prospective buyer -

The bottom line is that if starter homes are not selling at their current prices, and I calculate (based on their prices 5 years ago) that they are still overpriced by $25,000 or $30,000, then it really does not do any good to offer me a rebate for $8,000.

As an American -

Why not subsidize something productive, like BUSINESS ownership or investment? When you subsize homeownership, because it functions as an investment, you drive up its cost. Where is it written that more expensive housing is a GOOD thing? It is, of course, a good thing for people who already own houses! Which is why we need FTHB programs, not programs for all homebuyers. FTHB/Renters are already at an inherent disadvantage thanks to the IRS.

Col Swindle: I agree with you. I would have far preferred to have had an incentive for small business.

If FTHB were not at a disadvantage, what motivation would they have to buy?

I think it depends on what the incentive is trying to achieve, Orson. Is it trying to jump start the economy, or is it trying to get more people to buy houses?

PS Incentives will also cause the price of houses to go up due to increased demand.

BY THE WAY - Here's a good reason that this program doesn't make any sense.

If a FTHB is using an existing federally-funded program, they cannot claim this $8,000!

As a FTHB, I already have access to a sweet 100% financing program from my city, subsidized by HUD - so I am forced to choose between the $8,000, or the existing FTHB programs - I cannot choose both!

If I could combine the two, it is possible that would push me off the fence..or at least push other FTHB's off the fence in more sane markets.

Janet,

You ask, "If FTHB were not at a disadvantage, what motivation would they have to buy?"

I'm not sure if I understand you, but I'd say, if the mortgage interest dedution(s) did not exist, prices would be lower, and that would be a slight motivation for renters to pull the trigger. I don't think this is politically feasible, though. I'd settle for a removal of the interest deduction for second homes; as a FTHB, not only do I have to compete with $500k earners buying starter homes as investments, but also as tax shelters, leveraging their existing tax shelter!

You say, "I think it depends on what the incentive is trying to achieve, Orson. Is it trying to jump start the economy, or is it trying to get more people to buy houses?"

I am of the opinion that our economy needs aid in a speedy and orderly deleveraging. Prices need to fall, and then conservative people like me will unload our savings into a nice little home, without fear that I will lose $50,000 in a game of hot potato.

Other people seem to be of the opinion that rapid deleveraging is BAD, and that we should instead attempt to prop up home prices with taxpayer monies. These people typically own homes already.

Janet: I believe anything that jump starts our sick economy is a start. The bottom line is alot of our favorite realtors are struggling mightily. If we can sell this $8000 tax credit, it may help perk up home sales. Obviously, the proof is always in the pudding but every little bit helps!

Paul

Janet - I wanted to respond to the situation that the Col refers to above. Although the Col. doesn't mention what state he is from, I suspect that most state mortgage revenue bond programs are very similar.

Here in CA, we have CalHFA, which provides low-medium first-time homebuyers with 100% financed, 30yr FRM as well as additional dpa for a total of 102% financing for those who qualify. CalHFA was chartered as the State's affordable housing bank to make low interest rate loans through the sale of tax-exempt bonds. A self-supporting State agency, bonds are repaid by revenues generated through mortgage loans, not taxpayer dollars. However, this program is administered by employees of a CA state agency and with the current state of our state budget, CalHFA has been temporarily suspended until our legislators approve a new budget.

Unfortunately though, the tax credit is probably going to be funded by a similar bond program and or a similar state agency, therefore, making CalHFA borrowers ineligible for the tax credit because this would be equated to double dipping. From here on forward, low-medium income first timers here in CA need to determine the better option for them: CalHFA or the tax credit. This can be determined by discussing with their tax specialist which one is more beneficial

Janet - I just wanted to add one more thing. When discussing with a prospect and/or client about the advantages of the CalHFA program, I will sit down with them and "do the math" for them so that they can see for themselves the benefits of the program.

However, in determining how the tax credit can benefit them, I always strongly suggest that they speak with their tax specialist. If they don't have one, I have sources I can refer them to. I am not a tax specialist and try to stay away from giving tax advice as much as possible.

Orson Swindle said "As a FTHB, I already have access to a sweet 100% financing program from my city, subsidized by HUD - so I am forced to choose between the $8,000, or the existing FTHB programs - I cannot choose both!"

Orson, Yes, you can. The $8000 does not help you in buying the house - you have to do that with existing programs. You get to pick that $8000 up when you file your tax return --- after your purchase.

Not if he chooses to use a HUD approved state mortgage revenue bond program (MRB). Once again, I don't know what state the Col. hails from but here in CA, HUD MRB borrowers are not eligible for the 8k tax credit.

Move up buyers and investors would have been much better use of the money.

I must agree that move up buyers would be far more likely to buy with an expanded tax credit than first time buyers, but I do think in our experience that the first time buyers also benefit from the tax credit, for the reasons you say: they have less income, less ready cash, and so the tax credit will help push them over the edge of buying... but then, the move up buyers would also feel the stimulation and would benefit as well.

Great post.

I am guessing he is from Southern Cal. Hey, Orson, why don't you tell us so we can accurately answer your questions?

I am in North Carolina.

The restriction is that the credit cannot be combined with tax-exempt mortgage financing. Sorry for the confusion, that's what I was thinking of. The results, as they pertain to me, remain the same, though; I cannot use the City+HUD funded program along with this credit.

About 75% of our clientelle is made up of first time home buyers and not a single one seems motivated by this tax incentive. They'll take the money, but it is not the catalyst. I agree that this is a terrible mistake. They should have kept the tax credit across the board.

Why are you so cynical about the $8,000 tax credit? Please put your optimistic think cap on. Even if you think it is a waste to you does not sell it. But if you are optimistic person you will consider it as another tool in getting first home buyers involve in the American dream. Life is not perfect and everything is not always going to meet our standard of thinking. Look guys, all I am saying is there is good in everything if chose to find it. President is not during this for people to love him. Now go do the right thing by your buyers and explain the benefit the credit, you will be SURPRISED!!!

How many agents are having issues with buyers who are on the fence? These buyers are confused: they think the bottom has not hit; they are worried about jobs; they fear their friends and family will consider them crazy for entering into a new home; and YET--THEY ARE OUT LOOKING AT HOMES BECAUSE THEY WANT TO BUY. AND MOST OF THEM ARE QUALIFIED TO BUY. WHAT THE MARKET SLOW-DOWN DID WAS GET RID OF TONS OF PROSPECTIVE BUYERS WHO HAD NO BUSINESS BUYING BUT GOT CAUGHT UP IN FANCY FINANCING.

So, I could not disagree more with the comment that the funds are wasteful. For the thousands of on-the fence buyers, this is an incentive that will attract them. It's a much improved program considering how awful the $7500 program was.

The new tax credit is GREAT! We are in a trickle-up business. What happens at the bottom has a great affect on the middle of the market--and many of earn our bread and butter in these two sectors of the market.

Think about this: a first time buyer finances via FHA and therefore needs 3.5% downpayment. They ask the seller for concessions of up to 6%. If the house needs some work, the buyer will get a streamline FHA. And several months later, the same buyer files their taxes, get the tax credit; and then has even more money- to use for more repairs; reduce their mortgage; or pay debt. (Naturally, I am not suggesting fancy financing for folks who cannot afford it). We are finding more educated buyers who looking for homes priced less than what they qualify for. These buyers have stable jobs in government; medical and education industries.

Having been in the industry for over 30 years, I know well that in any market, people buy and sell homes for the same basic reasons that have always have. This tax credit will bring new buyers to the market- especially when we consider that rates are low; inventory is high; and, unlike the commercial business, there is plenty of mortgage money availalbe.

I conducted an open house last Sunday and every single guest wanted to discuss the tax credit. So in my market, I really have some high hope for the program--but we all need to lay-out reasons why this might be a good deal for them. Buyers want to hear good news.

Well said John. If I were renting with the idea that I'd buy in the next couple years I don't seen any logic that leads me to ignore $8000.

That is the same case here in CA and it is because the tax credit and the MRB programs will probably be from the same money pool; same goes for most city programs, which are just a little different than the state programs. Once again, it's a matter of these borrowers being allowed to double dip, which they can't; it's one or the other.

‘(d) Exceptions- No credit under subsection (a) shall be allowed to any taxpayer for any taxable year with respect to the purchase of a residence if--

‘(1) a credit under section 1400C (relating to first-time homebuyer in the District of Columbia) is allowable to the taxpayer (or the taxpayer's spouse) for such taxable year or any prior taxable year,

‘(2) the residence is financed by the proceeds of a qualified mortgage issue the interest on which is exempt from tax under section 103

This aforementioned "Section 103" outlines the law that enables my municipality to offer the program; without that tax benefit, obviously my municipality would not be participating in the program.

Janet, getting back to your example, what happens the day those rebates expire on the car lot? I'll give you some hints...

prices drop
sales slow

That is why I think that trying to fight the market isn't a good idea. It is a band-aid for a serious wound. We need to fix the basis of the economy and then housing will come back as it should.

I agree completely with the original post. My proposal of a few weeks ago was a tax deduction of 10 % of the purchase price with a limit of $ 50,000 for existing houses and 15 % for new construction.

My reasonning was as follows: The first time home buyers are for a part the ones that caused the problems. Many of the foreclosure houses are the cheap ones that should be teared down and replaced.They are often on large lots and could make place for nice new homes.this gives work to builders and other suppliers.A tax credit od $ 8000 will not make this happen.

The first time home buyers are the ones that are now renting and also have very limited income.

If they buy a house there is no money left for anything else and the total amount of money spend stays the same.If anything happens like ,job loss or sickness they will be renters again very soon.

The more affluent buyer who buys his second or third home however, will spend more from their income or savings.This will increase the total spending ,and that is what we need in this recession.

The tax deduction should be for every income level and for any type of home buyer as long as they had the money and income to act. Because of the progressive tax system the " rich " will still be punished to make the socialists happy.

This stimulus bill was intended, according me, to get jobs ,not another way to spread the wealth

I can't believe the negativity. If this does not stimulate any activity, what did you lose?

Lane: Oh yeah, then sales get so slow at the car lot that a new bigger rebate is announced. And car buyers and car sellers become hopelessly hooked on this ridiculous cycle of addiction.!

Eventually no one even pays attention to rebates.

Over at my leasing company, someone was happily explaining to a client that due to a change in rebates, they would be getting an extra $1500 rebate!

Guess what the customer said?

"If I wait till December, the car will be free."

Col, if you dig a little further and asked the program administrators of your city program why they are not participating in the tax credit, you may find it's because the funds for the city program and the funds for the tax credit are coming from the same state agency and/or the same pool of money.

I did that and that's how I found out that here in CA the money for both programs will probably be coming from the same source, which means to allow MRB borrowers the tax credit would be allowing them to "double dip" into the state coffers.

Very well said!

Janet -

you make some good points in this post. I agree that this incentive would be much more powerful if it was designed as a carrot to consumers who had experience with homeownership and a clear understanding of how taxation works. first time buyers may not be the most movable sector in this regard.

and i think we all feel the same frustration when the idea of a 15k non-repayable credit - not restricted to first time buyers - was dangled before us for a while there.

yes. it could have been better. But what if the bigger credit was never on the table? Isn't this better than nothing? better than what we already had?

They will try many programs and initiatives to help this market find its bottom and recover. some will work, some will bust, and there will be a whole lot of inbetween, better than nothing incentives.

So as it stands, the onus is on the professionals within the real estate and mortgage industry to educate buyers on the value of this incentive, and make the most of it...

This tax credit will have very little effect on FTHBs. Unless they do the following. Adjust their withholding to create $8000 more in take home over the next year, bank that money, and use it towards a downpayment (5% on a 160K house). The house would most likely be purchased in December 2009.

I'm not a fan of using the tax code to target one class of people over the other either. I agree, there is no difference between a FTHB and a young family moving up to a larger house. I don't believe that there is any additional incentive that a FTHB needs beyond the fact that home prices have fallen as far as they have.

Giving money to the banks so that they will lend? Didn't work in November, won't work now. Until the government stops talking about allowing judges (or other 3rd parties) arbitrarilly reduce the principal amount of mortgages, banks and lenders will be very wary on who they lend to. How often will those judges rule in favor of the banks? Who gets into a game where the rules can change midstream?

The real issue is with consumer confidence. That is a strange number that relies on nothing but the consumers belief that things are okay, and that they will be able to pay their bills, and have a job. Tax credits for a small percentage of Americans won't do anything to help that along, but the government has to be seen to be doing something. Even if it is only rearranging the deck chairs on the Titanic. Forget the fact that it is small businesses that create over 70% of all new jobs. Unfortunately they have no lobby, no special interest groups to speak for them, therefore, no bail outs and no tax cuts for them.

What a great blog and so much truth. We were just discussing this in our sales meeting today. Thanks for the insight.

AMEN MICHAEL!!! BRAVO!!! This is exactly what I propose to my ftb to do if they want to take advantage of the credit now. Actually, I've been proposing this to all my ftb for years. However, this conversation must be followed up with a conversation with a tax specialist so that the borrower doesn't get into any tax trouble.

I beg to disagree with you. I do have a couple of buyers right now for whom the first time home buyer tax credit is definitely a factor for them to want to buy NOW. It obviously is not the only one, it just adds up to many other factors we all know are contributing to making this the best buyer's market in years. Let's show a little enthousiasm and not put down the stimulus package even before it is signed. Let's stay positive!

Lots of interesting points here. I do think many first time homebuyers will take advantage of this credit and will see the advantages of buying now.

Donne,

The administrators of the city program are not even aware that the credit is not allowed in conjunction with their program.

In fact, they've been giving me wrong information for months. It was only when I saw a peer of mine ask, "Hey, the IRS said I didn't qualify!" that I decided to check into it myself.

And the "state" is not a player in this scheme. There is city money, there is federal money, and there is my future earned money.

Michael Loab,

Are you not aware of the mortgage interest deduction? Do you not think that this benefits existing homeowners at the expense of future homeowners?

Here's another question for the commentariat:

How much do you think the $15,000 tax credit would've helped first time buyers?

How many first time buyers do y'all know that earn $100,000/year, enough to maximize the credit?

In my view the $15,000 tax credit provided an extremely regressive benefit. Sure, it would've helped real estate professionals; but the idea that it would've stimulated the economy is wishful thinking, and that's why it got scrapped. Go find an economist that thinks the credit was a good idea (Lawrence Yun doesn't count.).

I like the incentive for 1st timers...to a degree. For those buyers who have the purchasing power to buy, they will get some tax benefits. That is better than nothing. The joke about the whole thing is that it does virtually nothing to stimulate the economy and that is what the "experts" in Congress are trying to do. I've heard several reasonable and rational ideas to help stimulate the economy and our Congress comes up with 1st time home buyer tax credit.

The more things "CHANGE", the more things stay the same.

Thanks for the post. You generated some major interest.

Amen!

Janet,

While I totally agree that the tax credit should be across the board, I am glad to see at least something was done! I think the President made the first step in the right direction. Is it going to solve all the housing issues?No, but it will spark interest in people.

As a Realtor I know buyers focus in on money, how much can I save, etc...as a lender, you should be promoting this stimulous and not dissing it...Rome was't built in a day...give the guy time...I am sure they will tweek the system further.

Col,

I'm very aware of the mortgage interest deduction. It is a benefit to ALL homeowners who have a mortgage, and the deduction drops each year on a 30 yr fixed. Not sure how it benefits current homeowners at the cost of future homeowners.

That is like saying taking a tax credit for my kids is at the cost of kids yet to be born. If what you are saying is that there should be no tax deductions at all because what you take harms those that don't, great. I agree, we should be on a flat tax / consumption tax system.

Prior to 1987 or so all consumer based interest was tax deductible (credit card interest). Now they're talking about making interest on car loans deductible, hoping to inject interest in car buying again. After that I'm sure the makers of big screen TV's, cell phones and Ipods will cry the blues as well. Benefiting those that consume over those that save (interest and dividends will be taxed, probably at higher cap gains tax rate). Which is part of the overall problem in the first place.

But you're in luck, they're talking about taking the mtg interest deduction away.

Janet, I agree! I just wrote an activerain blog in similar vein. I have found 1st time buyers are happy to have the credit, but in no way made the offer based on this. I also believe the $8,000. credit would be more beneficial to buyers and seller-buyers further up the food chain as an incentive to move-up.

John

Mike Loeb,

Do you work for a bank/lender? you received all this money from the taxpayers and now you are refusing to give it out! Banks are hording the cash for what? Lend it dammit..I had a buyer with a 720 FICO score refused!!! Are you kidding me?

The government should shut off any and all bans from any bailout money that fail to lend to people, period. These fat cats sit in their offices and have no clue about what real people are experiencing out there. They crawl to Congress looking for cash...they should have let them go bankrupt, period!

The credit can only help. You are right in that they are morons who should of made the credit apply to everyone.

Generally speaking I am 100% sure that USA is a tax parities! The majority of people are in the 25% tax bracket that includes social security, and sales taxes are approximately around 6-7% vs other countries like in Europe that income taxes starts with almost 45% and the sales taxes are about 19%. So my friends let us not always complain about taxes. Naturally the European streets, bridges and medical system is fare better than ours. Some way some one has to pay for all the goodies OR?

I would suggest if I may let us focus on our real challenges like In Missouri MO and Kansas KS where I sell real estate, indeed we have also lots of real estate for sale, bank owned properties, reo properties and short sales that make the real estate market look very attractive to all potential buyers and real estate investors. Let us all try to make things happen instead of complaining about the our new president, give him a chance!

Thanks you

Timo Yannopoulos
www.asktimo.com

Every time I tell a new buyer about the tax credit like you say the eyes glaze over and they could care less. How about if we give them something they do care about like a lower interest rate? It seems that is what gets people excited.

Hi Janet and everyone who's commented on this,

Look at the mess that the auto industry is in right now.... anyone remember GMAC offering 0% loans?... sure it stimulated the purchase of vehicles... but look at the mess all the auto makers are in... anyone lining up to put $64,000 on a New GMC Suburban in our group? The dealers of cars have lots that are full...so they're hurting... What effect did "Employee Pricing" or "0% Interest" have?

Has nyone ever heard of the Tulip Bulb Craze of Holland? Read the history of the Netherlands... when one day people wake up and Say, "Hey, What's a House REALLY WORTH?" then will ensue the great demise of Real Estate... we can't keep buoying up the appreciation of homes. Let the market fix the market! Let the automakers fix their problems... it's quite simple... our country has become addicted to the mantra of business as usual... nothing has been "usual" for the last 10 years.

My father was able to raise 5 kids, own a home and new vehicle on $550 per month in NC back in the late 60's and early 70's... mom stayed home and was a housewife. That was the NORM for the country... not unique to my family only. Who can show me that we're on par with that today? FOLKS we're in trouble and I predict this Stimulus package is going to be our country's undoing rather than the medicine.

sorry wasn't Netherland... but Holland... want to make sure my facts are facts!

Timo,

We can save the discussion about the European Tax system and "superior" medical system for another day. Michael Moore is not the source of factual material.

Lyn,

Just how low are rates supposed to go? I purchased my first house at 12+% back in the 80's. Those were the rates of the times and houses were still being bought and sold. It is what it is.

I agree Michael, rates are already low. Just last week, I locked someone in an FHA loan for 5%. Anyways, I wanted to add an update about the 8k tax credit that the Prez just signed. Apparently, the tax credit allows state housing finance agencies to help buyers at closing by advancing the credit as a loan using proceeds from tax-exempt bonds.

This is a very good thing for MRB borrowers. Very good indeed!

Jeff

Netherlands is Holland no mater what you either ways correct

By the way Michael

I lived in Europe for about 49 Years and my kids still there so I really know what the medical is all about their, I did not quote Michael Moore at all. He may just happen to know something better that you I suppose. I am sorry but I had to answer this. Have a nice day and enjoy life.

Wow, there has been a lot of reaction to your post, Janet. I really feel bad for my first time home buyers who jumped off the fence last year and did something. The benefit is now for the people who have been waiting and waiting for more and more. I really think the most benefit to all, buyers and sellers alike would have been the steps to bring interest rates down. Buyers have been sitting on the fence waiting for the 4.5% rates they had been hearing about. Banks have been lowering home prices on their REO's to whatever it takes to sell and the other poor sellers are having to lower theirs as well or not sell. If rates were lower like the 4.5% we heard about months ago, current homeowners could refinance and free up some of their money to be put back into the economy, buyers would get off the fence as their mortgages would be less or they could buy more, and sellers would quit having to lower their prices in order to get buyers. We all would have benefited. Great post and great feedback by everyone!

Janet, As I understand it, homebuyers need not be first timers to qualify for the $8,000 deduction but the details have not been released yet (pending details from the administration). Naturally not everyone will benefit from such a deduction so their CPA should be consulted first!

I was very surprised that the $7500 tax credit did not make much difference to many of the FTHBuyers that I came across. I heard, "well, I have to pay it back", and it was not much of an incentive. The $8000 First Time Home Buyer Tax Credit...yeah, some FTHBuyers are enamored with the idea of buying a home, but many are still sitting on the fence waiting because they think a better deal (interest rate, buyer incentive, or perfect house at a lower price) is in the pipeline. I'm hoping that the $8,000 incentive is enough to bump the FTHBuyers off the fence and into the yard. Meanwhile, when the FTHBuyer buys, the move-up Buyer can move up to the mid-level home, and we can get the market moving, again. I think the $8,000 tax credit is a good thing. I wish it covered all Buyers, but it doesn't, and I'll accept whatever government incentive we can get. Let's get to work!

Wow Janet!

You struck a lot of nerves with this post. It seems to me that the opinions kind of depend upon the market the responder is working in.

I agree that the first time buyers are already excited to buy their first homes, but I think that misses the point a little bit.

My hope is that the program will CREATE first time buyers from renters who didn't think they could buy, or weren't thinking about buying, until they heard about the tax credit. I had several buyers last year who were quite happy with renting, but who were urged to come talk to me by relatives or friends with whom I had talked and explained the tax credit to them. Creating buyers out of individuals or couples who are not currently in the market is, I think, going to do a lot of good for all of us, including the move up buyers who must sell before they can buy.

I also agree that it would have been nice if the credit would have been made available to all buyers, but what is is and I, for one, intend to keep a positive attitude and make the most of what we have.

I think I got excited and talked prematurely to buyers about the $15,000 to $22,000 or so for ALL buyers which was being proposed by a couple of senators, AND talk was that buyers would be able to file it on 2008 taxes, and get it NOW. ONLY $8,000 for JUST 1st time buyers is a let down, but let's hope it helps. Buyers will have to wait and get it next year when they file taxes, I understand.

I wonder what is the Congress definition of First Time Home Buyer is?

Janet......I agree on a whole lot of that. What were they thinking about not offering it to everyone. The higher priced homes are wasting away here in Phoenix while the 1st time home buyers are buying all the reo's and rock bottom prices. Just plain nuts!

Hi Janet- One of the provisions is that the $8,000 tax credit may be funded through Housing Finance Agencies on their mortgage revenue bond programs...for us here in Oregon, that is the Oregon Bond RateAdvantage (a 4.5% 30 yr fixed) or the Oregon Bond CashAdvantage program (discontinued last year when selling the bonds to fund the program became so difficult in the current environment), where the first time home buyer could pay a 1/2% higher rate to get a 3% credit that could be used toward their down payment and/or closing costs. A great tool for the first time home buyer who was credit/income strong, but cash poor. So YES - the States have been giventhe authority to use this tax credit AT FUNDING so buyers may use these funds toward their down payment, and for our area THIS IS HUGE! I'm pretty excited about it, and can't wait to share this with the many excited first time home buyers who will be attending the ABCs of Homebuying course I teach at the college.

P.S. I was excited until two minutes ago, when this e-mail came through:

"Effective IMMEDIATELY, due to recent MI Company rating downgrades, we will no longer be accepting any "new" reservations for conventionally insured loans under the Bond Loan Program. Oregon Housing and Community Services will honor our existing active reservations only."

THis effectively takes conventional buyers out, and forces them to use FHA, even if conventional would have been better for them!

Karen - In most cases, FHA is better than conventional because the down payment is lower and the MI is lower. I wouldn't worry about the change you mentioned. Heck, in some cases, even the rate is better.

Janet- I suspect that when our CA HFA programa get back up and running (temporarily suspended until our &^%$#@* state legislators get our budget approved), we will see some changes to those ftb programs too. Hopefully, this will get a lot of our ftb off the fence and back in the market. I have several ftb clients who drop out of the market back in December when CalHFA got suspended. I am looking sooooforward to working with them again once CalHFA is back up and running.

What about Move Down Buyers? Without escaping a capital gains tax, a move down buyer could sure use the credit to offset the tax payment!?!?!?!

I personally think that people who are ready to buy will do so with or without the tax credit "stimulus" check. The check is after the fact, therefore it won't help the credit challenged or the "don't have the down payment" crowd.

That said, will we the taxpayers, really be getting much bang for the buck?

(Sorry for the hijack, Janet) Donne - The Oregon Bond loan had a low MI conventional alternative for the higher-FICO borrowers. Layer that lower MI expense with the option to make it a one-time upfront expense while PMI may still be a tax deduction AND the 4.5% interest rate offered, and this program was far better than FHA pricing for the buyers who fit this niche.

I couldn't agree more. I think they really missed the boat by not retaining the $15,000 tax credit. I am not expecting the $8,000 credit for first time home buyers to do much. It will do something, especially since it does not have to be paid back. I agree, however, first time buyers already had enough incentives to move them forwsrd. Great Post.

I agree. I will be surprised if a First-time homebuyer tax credit will stimulate the stagnant home buying market. When the original tax-credit was announced in the fall -- I used that as an opportunity to target market to first timers (direct mail, all over my website, pay-per-click, etc.) -- thinking they would at least inquire to what this FREE LOAN was all about. The result of that marketing endeavor? Very few were triggered by the credit enough to contact us. The few that did were going to buy anyway. Needless to say, not one of our first time homebuyers bought because of the credit. Sure, now the tax credit does not have to be paid back -- but will that really get the new home buyers all excited and rushing out to buy this go around?

Karen, Donne: Please. No apology required about hijacking. This is how we learn. This is a forum. This is ActiveRain at its best. I learn from both of you everytime you comment.

I am just the hostess of this humble little blog, and happy to have all of you sharing your amazing insight with me.

I wish I could answer each comment, but actually must place nose to the proverbial grindstone and sort through the mortgage madness for now.

Interesting to know about the Oregon bond loan program, Karen. Here in CA it's the opposite. FHA is the one with the lower down payment, MI and rate. For CA MRB borrowers, they are almost always better off going with FHA. Interesting how two different state MRB programs can be so different. That's why it's so important to work with someone local who knows their local market.

I thought that they revised the tax credit to a higher amount of $10,000 and to include EVERYBODY no?

I have 2 kids that should be First Time Buyers, They are both more worried about keeping thier job than a Tax Credit. A deal like Hyundai, if you can't pay because you lost your job, we'll buy it back, or maybe make your payments for up tp 12 months, would be a whole lot better. But no we couldn't take time to think it through or debate better ideas, we had to pass it now even if we know it's bad.

it's like taking drugs or drinking to feel better, why worry about tomorrow's hangover.

Janet - I loved this post. Thank you. Even I might decide to sell and buy in today's market if I could get the credit! There is a sale on real estate in most of the country, but those who want to move up because prices are low, just don't have the incentive to take the loss on their current property and try and compete with the fire sales that they would have to compete with right now.

Janet; You are soooo right on this one. My first time buyers don't care very much either. If they can buy - they go for it. The $8,000 is just a little bonus.

You are so RIGHT!!!! Another point, "Stimulating" the first time buyer, who is often in the market for bank owned properties does not affect change in the market. It may even have a negative effect. Most first timers are looking for cheaper homes (REOs), there is no move up, no next purchase by the current owner. Encouraging first timers is GREAT but in many areas the distressed properties they are buying have a negative effect on the traditional seller's home value, thus discouraging or preventing them from moving forward and stopping the real estate ripple.

Making it a real credit and not a loan is a great step. But as you said, it alone won't moivate a lot of people to buy unless they already intended to do so. It is a great added bonus and might make some people rush to buy in December of 09 rather than wait until January of 10.

That said, those that bought in December 08 aren't too thrilled with the new changes... so why wouldn't people just wait for the Stimulus II that is already being hinted at? Thats the problem with the car salesperson's discount. No one believes it will actually expire and are hoping next weeks sale is even better.

FEB

Acquisition costs:

Down Payment, appraisal, survey, Pre-paid county taxes, points or origination, loan application fee, flood search, lender processing fee, tax servicing fee, underwriting fee, pre-paid interest, hazard insurance, settlement fee, abstract fee, title examination, title insurance binder, document preparation, title insurance, delivery fee, release fee, recording fees, transfer taxes, recordation taxes, survey fee, pest inspection fee, home inspection fees

And that's just Virginia. You should see Maryland.

Bottom Line, is its a great idea, but with GM closing 14 more US plants its not going to help.

No Job means NO credit. I do not get it why GM is closing US plants nothing was said about plants in China or Mexico. These companies have cut the core out of our workforce and the effect is huge foreclosures and huge job lost.

Someone better Slap these people with a wake up call!! Closing more US plants is just the worst thing that could happen !! Tell them to close the plants in Mexico and China or start building Rickshaws

The value of the $8000 credit is not just (or even mainly) in getting first time buyers to buy.

The value is in putting the money into the economy in the hand of people with a very high marginal propensity to consume --- they (as a group) are going to spend it not save it. THAT will create jobs.

I have been saying since day one on this that they should be giving them the money to buy the house, not giving it to them a year later when they file taxes. Most first time homebuyers are strapped for cash, that's why they are on the fence. If the Gov't would just give them the money upfront, even if they had to pay it back, you would see much more stimulous than you're going to see from this.

I totally disagree with any government involvement in our industry. Greenspans low rates, Clintons "everybody must own a home" intervention, Fannie and Freddie, FHA, it never stops. Has anyone ever thought that if the government would stay out of things that we wouldn't be in this mess.

As to the latest attempt. Why does it always center around a first time buyer. To me, that is placing value on one person over another. We should all be treated the same, especially by our government. I'm sure that after it is all said and done, that the stimulus for housing will go the same way as other programs. Too big, too expensive and full of fraud.

We got into this mess because the government wants us to spend our wealth maintaining the system. Here we are starting it all over again.

Bravo Dale.

The cost of unintended consequences far out weigh the benefit of most governmental legislation and intervention. Most of what they do is try to fix problems that they create in the first place. $7500 last year that has to be paid back. $8000 this year that doesn't. Why buy? At this rate eventuallly the government will be giving homes away for free, keep waiting, the worse it gets the better the deal. That's the mentality and mindset we're creating. Today Obama will come out with a plan to stave off foreclosures.

The Hyundai program sounds great, if you lose your job we'll buy it back. Except in this case who is the WE? If I sell my home to you, and you lose your job, am I supposed to buy it back? Is the Bank supposed to buy it back? Or maybe the RE agent? Not sure how that would work. It's not working right now.

I go back to consumer confidence. If you think you'll be able to pay your bills in the long term, if you think you'll have a job for the foreseeable future, you'll buy. Not just homes, but cars, durable goods, and everything else. Not sure how $8K creates jobs, wasn't this the main purpose of this stimulus bill.

On the other hand it is true that FTBs are looking for REOs, short sales and the such which once they hit the books, will devalue other homes, making the other homes more difficult to sell. Unfortunately the FTB doesn't create foreclosures just by wanting to buy them. The foreclosures and shorts are already on the market so it is necessary to get them off the market before home prices can stabilize. Should the government get involved when your home is worth less than you purchased it for? Do we not believe in free market anymore? Your home or anything is worth what someone is willing to pay for it. Escalating home values is not guaranteed under our Constitution. We'll see what today's plans have to say about that.

I think anytime a quallified FTB gets a home it is a success story. Most of these people have been priced out of the market for a long time. You don't see this side of the coin from the gloom and doom media, whose 24/7 bombardment upon the senses of the public does not help build consumer confidence. It is not their job to build consumer confidence but it is not their job to destroy it either.

Just some random thoughts and rants.

Janet, interesting post. In SoCal if it weren't for First Time Homebuyers we wouldn't have a market so the tax credit has to help us. It's "FREE MONEY" why wouldn't someone be excited about that especially if they had made up their mind to buy anyway.

I noticed a number of comments from folks saying we should make loans easier to get. Isn't that what got us into this mess in the first place? The whole subprime debacle was based on giving someone a loan for two years and then they could get their credit fixed and refinance out. We saw how that turned out. Lousy credit is a "lifestyle" and if someone cannot manage their consumer debt how the heck will they manage a mortgage payment on top of it?

The secondary market is not going to ease the credit guidelines anytime soon. If someone is unable or unwilling to make the changes necessary to their lifestyle that will improve their credit score do you think they will be willing to make the sacrifices necessary to obtain and maintain homeownership.

If they don't qualify now, get them in a credit repair program (It's an investment in THEIR future!).

A couple of my clients were trying to decide whether to take a loan from their 401k or a withdrawal. The tax credit gives them the ability to repay that loan quickly without the tax consequences of a withdrawal.

The bank of Mom and Dad has always been a source of funds for FHA loans, now if the kids decide to repay that "gift" the tax credit will allow them to do it.

Let's not look a gift horse in the mouth (did I say that, or did my dad?) and figure out ways to motivate our clients to take advantage of the "Free Money"

Just a couple of thoughts. When I got into my first home is was through FmHA. The payments were subsidized based upon our current income. It was probably the only way we could have afforded the payments. The downpayments assistance wouldn't have helped us out. This program no longer exists. It was great to get 1st time homebuyers in a home, but once your income improved it was wise to refinance as soon as possible to get the government off your back.

Will any banks be willing to loan the $8000 up front and get paid back from the tax credit? Would this record a 2nd on the home? Can you guarantee that you will get the full tax credit back of $8000 or can you only get back as much as you paid in taxes for the year? I've heard a few things that have made me wonder about this. Can you get the tax credit back all in one year?

All good points and interesting reading....but I guess it is better than what we had! I was really hoping for the credit to be for everyone though!

I'm thinking all these first time home buyers maybe helping housing a little for now. However, I agree with the sentiment that it'd increase more home buying of those who really can't afford it and a few years down the road the mortgage foreclosures may spike perhaps even greater than current rate.

FEB

I have to believe that the writer is right on target. I've had first time buyers during the period this has been offered and none of them responded to ads and web advertising because of the deduction. I generally in favor of expanding it to all buyers.

What we all need is less taxes. I really don't think the extra $500.00 will motivate anyone, BUT a tax credit for ANY buyer would. We also need to get a fire lit under the banks that take 6 months to answer on a short sale.

FEB

I'm hearing a lot of bad experiences about short sales. I'm in the middle of my first one from the listing agent side. Getting the lender more information than they ask for seems to be the key.

AND ALSO PATIENCE.

Not a RE agent but you are right. Short sales are tough, mostly it is a wait and see game. Banks are not known for moving at lightening speed. I find that most short sale problems arise from the fact that most owners believe that the banks will take just about anything for the houses these days. Not so.

The first step is to get the financial hardship package requirements list from the bank and have the package filled out completely. As always there will be some pushback when the short seller is asked for their financial info. "I didn't have to supply this information when I bought the house." Yeah.. and that's why we're all in this situation. A lot of the time is spent by the bank going through that package and making sure that people are not "gaming the system".

I just had a short sale where the seller was required to bring $10K to the table regardless of the price of the house.

FEB

We're seeing multiple offers here in Florida again. This was before this credit came along..

FEB

That's a good thing (seeing multiple offers), being a FL resident myself. The trick for buyers is to find quality shorts and foreclosures. Not always easy to accomplish as many times the insides will be litteraly destroyed. Missing appliances is the least of the worries.

It would be nice to have some recourse against those who wrecked the plumbing, drywall, rip out the copper piping, take a sledge hammer to the toilets and every stud and every piece of tile, take out the a/c units and water heaters, before leaving. Is destroying your own property against the law? Is it really your property since there is a clause in the mortgage about proper maintenance.

But alas we protect these people at every turn, silly to start forcing personal responsibility upon them now.

We will soon be entering the greatest period of prosperity in our country since ... since ... well, since Bill Clinton was President!

Seriously, this tax credit is going to go a long way toward reducing existing inventory, and it will have a domino effect. First time homebuyers trigger sales up the housing food chain, although because many of the homes they will purchase are vacant, so the effect won't be nearly as dramatic.

I'm afraid, however, without this kind of a creative stimulus, the doldrums of this recession would be with us for many years instead of just a couple. Don't look for a dramatic turnaround, but the stimulus will help usher in a great period of prosperity in the United States.

The middle class and "servant" class has been neglected so much in this country that we were beginning to look like a third world country, comprised mostly of haves and have nots.

There do seem to be a large number of cynics posting here, but as the word gets out about the benefits of the Homeowner Affordabilty and Stabilty Act of 2009, we're going to see many more buyers than we might otherwise have had, which at this moment in time, should help accomplish the very objective it was intended to accomplish, cynics notwithstanding.

I couldn't agree more Andrew. We couldn't both be overly optimistic could we?

But I don't expect 8 years of shear stupidity to be overcome overnight.

FEB

Lots of good points! However I would agree with Jason Crouch that no matter how many incentives you offer to some buyers, they still cannot qualify if they have lost part of their income, their assets, some that have already lost a home thru foreclosure (they still need a new place to live...) I think there is a much bigger group of people that need help and stimulus to get off the fence - the once that need the REAL help and cannot climb the fence on their own!!!!!!!!

Wonderful post and comments--I guess we'll have to wait and see how it plays out. Based on an open house I held price is driving the first time buyer's interest, not the $8000, but it is a sweet little bonus.

JUN

I'm a first time home buyer... But I'm not dumb enough to buy in this horrible market... Better than 2007... yes... Still HORRID by historic standards. You are the same IDIOT realtor that tried to convince me to buy a 3bed/2bath condo in Tarzana, CA in January 2009.... Had I listened to cheerleader realtors like you I'd have lost my $30K downpayment already... Because it dropped from $360K to $330K in 3 months!

When prices come down to 2001 levels.. I'll consider entering this market. Some parts of the Valley are getting close... But Westside has a long way to fall... There's been 30 condo/home sales in all of the Santa Monica, CA in 2009... Banks aren't letting anyone get a $750K loan for a starter home in Santa Monica... without 20% down and another 20-40% in savings. The banks know something you realtors want to keep hidden... The FACT that housing on the Westside has a strong potential for another 30% haircut in the next few years... Especially with all the Alt-A and Option Arm expirations set to PEAK in 2011!

Why don't you reveal these facts to your first time home buyers... You are selling them into debt slavery for the rest of their lives by buying now. I'll wait till 2010.. or even 2011 when the interest rates rise to 8-9% and home sellers will be forced to cut their prices drastically... THEN i'll just refinance when rates settle down in 10 years...

Everyone keeps preaching that low interest rates and falling house prices means a great time to buy... Get in before the interest rates go up... If interest rates go up... home prices will be forced to go down... It all evens out until unemployment and california isn't bankrupt anymore.... I'll wait til CA can pay government employees be for I buy "stock" in this state.

First time home buyer posting Jun 2 aka "realtors sucks":

I can certainly understand the frustrations expressed here. But a few questions to ponder -

1- do you think you can time the market well enough to nail it at the absolute bottom?
2- have you run an analysis comparing your stated objective above (buy at bottom on 8-9% interest and refinance in 10 years) to the alternative (lockign in 4-5% interest today, albeit potentially at a higher price tag)? I'd love to see you support your theory with math as being a more cost effective one.

3- where are you going to live between now and 2010-2011? Isn't a big part of the concept about buying a place to live? in other words, you have considerations beyond just the investment aspects of the deal. I admit, those are important, but don't overlook the big picture.

Good luck!

It sure seems you you have it all figured out. As long as you have a place to live you are correct ,you shouldn't even think of buying a home.

A lot of people got the wrong idea of why they should buy a house. First and foremost, If you need a place to live, to me and most Americans, buying is better then renting.

If you are an investor your buying reasons and motives are based on the odds of turning a profit.
The majority of Homeowners now in trouble thought they could mix the 2 reasons. You may be able to mix them sometimes but houses were never meant to be ATM Machines.

Not ALL REALTORS SUCK! some of us are honest hard working people who enjoy helping people find suitable homes that meet thier needs. If you ever come to Metro Atlanta I welcome you to check us out and see for yourself.

And Good Luck out there on the Left Coast.

Sounds like a lot of anger there. Probably angry that the specific area you want to live in CA hasn't fallen to the levels you want them to. Maybe even angry with the general state of California as a whole. Not sure why you're taking it out on a single RE agent.

RE agents sell a commodity. They can't hypothesize about what will happen in a year or 2, where the rates will be, when the bottom will be the bottom.

Your statements about banks not giving $750K for starter homes sound pretty much off the cuff and unsubstantiated. But if it were my wallet, I wouldn't lend $750K for a starter home either. I guess I'm not cut out for California. You seem to have issues with 20% down and some reserves you also have issues with programs that helped people get into houses with less.

You state that we are forcing people into debt slavery for the rest of their lives by buying now. If you can afford the house and the payments on a 30 year mtg, its a 30 year term. Under your plan, buy in a year, and refinance 10 years down the road you're putting yourself into a term of 40 years. Who is better off?

Sounds like a lot of sour grapes.

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