Now is the future of yesterday, what will today's future hold?
What is the goal of this first time home buyer tax credit or that $15,000 "everybody" home buyer tax credit?
Face it $8,000 didn't make the market take off sufficiently, so let's try $15,000 and let almost everyone qualify! I know, let's throw money at the problem!
Let's get back to the problem, the housing industry was at the center of a horrible mess which turned out affecting not only us(A) but the entire world. Enough said, we have heard all about it. Preserve neighborhoods, prevent foreclosure, short sales, Federal bailouts of toxic mortgages, blah, blah, blah.
Jump starting Seattle's first time home buyer is a great place to start, it creates a ripple up the housing pyramid. The first time home buyer tax credit and possible general tax credit under discussion sounds like it could do wonders. Yippie! Yahoo! for everyone!
Here is my real issue with any tax credit at all... Is it really going to be as effective as it could be? Could have been? Will Be?
First time home buyers will feel great getting an $8,000 tax credit, let alone a $15,000 tax credit. Move up buyers will be the recipient of a bonanza, not needed and unjustifiably.
Let's use a first time home buyer scenario of a $300,000 purchase with a required FHA 3.5% down payment. That would require the buyer to save a minimum of $10,500 (plus lender requirements). That is a lot of money for a lot of people. How nice it would be to have to save $8,000 less and still be a home buyer! That would be cool!
Unfortunately the tax credit money is not being made available for down payment purposes. After all that would be getting us back to the point of creating junk mortgages, toxic assets and put unqualified buyers into homes that they can't afford. After all they don't even have habits sufficient to save enough for a minimal down payment.
Here's a problem with kick starting a first time home buyer boom. Tell Joe Average home buyer to "Quick, save up $10,500 (and more) and you can take advantage of low interest rates and low home prices!" Like that will happen overnight!
All of the issues with allowing the tax credit to apply to the down payment would be better overcome by increasing qualifying standards, lower the ratios of income to expenses, increase credit scores, raise the insurance premium. Basically penalize the borrowers (who don't have enough saved and need to rely on a $8,000 gift) and make them buy less home. There are other ways to get people with low savings into homes while decreasing the risk of default and allowing those with poor savings habits to participate in the home ownership dream.
Alternatively the government could take the $15,000 that they would make available to a larger pool of home buyers and create an insurance pool against defaults for those first time home buyers above. Why in the world would you provide move up buyers or first time home buyers with all of this money? Especially when your goal is to get the housing market moving. Plenty of people will be rewarded, for what? It seems ill thought out and a bit crazy to me. Especially when the simple solution may be.....
- First time home buyers are buying more home for a lower price and can therefore enjoy more than they thought possible just a few years ago. They will be happy.
- Get the IRS to allow some accommodation for the credit to be used as an advance payable for the deposit.
- Provide the $8,000 tax credit to first time home buyers only.
- Do get rid of income limits.
- Use some of the proposed largess ($15,000) to buy down the interest rates on first time home buyers. Again, lowering the risk of default.
- Or, maybe move up buyers deserve something from us also.
- More people buying homes, furniture, carpet, upgrades, appliances, roofs, etc. Sounds like employment to me. Something else that we have a dire need for.
I am sure that you can think of other logical, positive, implications or thoughts, of doing things different than coming up with $15,000 for everybody!
Finally, an action which may help the ailing housing industry. Contact your Congressional representatives NOW!