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$200,000,000 For California Home Buyers! What the...?

By
Services for Real Estate Pros with AZ Veteran Notary Services CA BRE 01444168

Governor Schwarzenegger delivered his last State of the State address to a joint session of the California State Legislature, Wednesday January 7, 2010, and took the time to propose some pretty controversial ideas for stabilizing the economy in the Golden State.

Of particular interest to the Real Estate Industry is his proposal to allocate another $200,000,000 tax dollars to subsidize homebuyers with a tax credit that would provide up to $3,333 off of state taxes for each of the next three years.

This program is very similar to the $100,000,000 that was given away for buyers of 10,600 new homes between March and June, 2009 - when the money ran out.  Unlike last years state tax credit that limited buyers to the purchase of new homes, this year the Governor wants the program expanded to include existing inventory of homes for sale across the state.

According to the Secretary of Labor and Workforce Development, Victoria Bradshaw, "This is about helping eliminate extra housing to get construction back on tap."

What I don't understand is how that hundred million dollars helped stimulate the economy by building more new houses that can be purchased for less than half the cost of building them?  I have personally sold many newer bank owned (REO) homes in the last year for less that $50 a square foot - and I'm talking good sized homes - 2,500 sq ft - 3,000 and even 4,000 sq ft homes for $50 a foot.  So how does a $10,000 tax credit for new homes help anyone but the builder?

Administration officials said qualifying conditions of the current proposal would be similar to the credit given last year.  There are no income limits which make every homebuyer eligible who plans on living in the home.

NOT EVERYONE AGREES

My average sale in 2009 for all the homes I sold in the Hemet - San Jacinto Valley, CA was just over $114,000.  How does giving away ten-thousand tax dollars make sense for a $114,000 home that is already receiving a $8,000 Federal Tax Credit.  In the City of San Jacinto, CA, there is an additional 6% grant from the HAMP funds the city received.  So, the first time buyer of an average San Jacinto home could then receive $24,840 in tax payer assistance that does not have to be paid back.  This is a home that was sold for over $300,000 just 3 years earlier and is costing the buyer a net of under $90,000!

There is obviously some conflicting opinions as to what has caused the current economic disaster this country is experiencing . . . just as there are conflicting opinions on what we need to do to fix the problem.

Taxpayer subsidized tax credits do help those who want to buy a home.  Yet many renters feel as if they are doing the subsidizing and that the current $8,000 federal tax credit for first time homebuyers and the $6,500 available for repeat-buyers is more than sufficient to stimulate the housing market.  Especially when the low interest rates are added to the equation.

I suppose it is the same argument that was raised in November when the Federal Tax Credit was signed into law by President Obama.  Those opposed would rather see the money spent elsewhere and not subsidize other peoples consumption with tax money.

California is having it's own economic meltdown with State employees only working 4 days a week these days.  I am sure that $200 Million could make an impact in one of the departments that serves all of California - say our prisons, higher education or heck, even the Department of Real Estate (DRE).  What about the DMV?  Think they may need some money to operate a little smoother?  Without even pretending to understand the State Budget, I'm just convinced that there are places the money could be used besides the private sector - even though it is earmarked for the industry that I earn my living in.

(Personally, I would rather a few violent criminals stay behind bars than get released early because we don't have the money to keep them for their full sentence - but heck that's just me.  What do you think?)

There is a faction that believes that the money should be used to round up and deport illegal aliens who tax our system and way of life with the consumption of benefits from healthcare, overcrowding our schools and taking money from our welfare programs - while taking away jobs that should be held by taxpayers and citizens.

Of course there are the conspiracy theorists who are convinced that as soon as the proposal becomes law that home prices will become inflated as buyers will be scrambling to open escrow while the federal tax credit is still available allowing the prospective homebuyer to ‘double dip' into the tax credits and earn $18,000.

Some believe that the tax credit should be applied exclusively to bank owned homes to remove the vacancies from our neighborhoods and not encourage builders to add inventory to a very unstable market.  Although there is no doubt that building homes creates jobs the theory expressed by many is that the vacancies do more harm and bring property values down even lower in established neighborhoods where real families are losing equity with every vacant home in the neighborhood.

An argument taken up by many is to use the tax credit for small business for creating jobs - even minimum wage jobs are putting people to work.  I believe that it takes a business mind to fix the problems we have today and not a politicians looking to serve constituents and lobbyists at the same time.  Business could take the opportunity to expand their business and thereby expanding the tax base putting money back into the economy in the form of wages and taxes paid by the business.

NOT POPULAR

Well, being in the heart of the industry that stands to benefit the most from the infusion of cash should make me happy and you would thing that I would be promoting the heck out of the program and urging everyone to contact their state legislatures to hurry up and pass the new law.  But I'm not.  I guess I won't be very popular with other agents and leaders in my industry.  Sure, once it becomes law, I'll use it to sell homes in my neighborhood - but what choice do I have.

My personal belief is that there are enough homes and enough buyers.  The money is better spent with other programs that have a real need in protecting the citizens of California.  If there is some way in making the lending process easier - this I believe will do the most to stimulate housing.  Getting someone qualified and through the system and out of escrow is the challenge.  If we can do our job and sell more houses - then the economy will be better off.

Posted by

Until Next Time, Have a Blessed Day,

John Occhi, ePRO, REALTOR®
DRE Lic No: 01444168


ePro,John Occhi,www.johnocchi.com,realtor      Certified Probate Real Estate Specialist Logo Awarded to John OcchiFive Star Logo,Certification,REO,Five Star Institute     

Excellence in Real Estate,Team Log,John Occhi,www.johnocchi.com,hemet,san jacinto,CA  

This blog and the contents written here is the intellectual property of John Occhi, Temecula - Murrieta, CA REALTOR® in the South West Riverside County region of the Inland Empire of Southern California.  The views and opinions expressed are just that - views and opinions of John Occhi and those who comment.  Please note that I am not an attorney or a tax professional and any time I discuss either topic, I suggest you consult with the proper professional for relevant assistance. 


I am proud to be a full time REALTOR® who is proud to be a contributing member of the ActiveRain community.

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Comments (10)

Tim Lorenz
TIM LORENZ - Elite Home Sales Team - Mission Viejo, CA
949 874-2247

It does not make sense the housing market in our area is moving fast and we have little inventory.  Why the tax credit?

Jan 08, 2010 12:39 AM
John Occhi
AZ Veteran Notary Services - Marana, AZ
Mobile Notary Public/Certified Loan Signing Agent

Tim,

Another excellent point - we have such a limited inventory, lets motivate everyone to buy what little we have and overbid and drive the price up - since it's only funney money we are playing with...

John

Jan 08, 2010 12:52 AM
Steve, Joel & Steve A. Chain
Chain Real Estate Investments & Mortgage, Steve & Joel Chain - Cottonwood, CA

John, I'm delighted to say I don't understand everything I know about correcting the economic climate in California. lol I do know that real estate is local and some areas of the state have lower inventories than others. I did like the sound of the Governator's comments on a new jobs initiative and making California more business friendly.

Steve

Jan 08, 2010 05:00 AM
Heather Fitzgerald
REALTY WORLD-Harbert Company, Inc. - Greenwood, IN
REALTOR Greenwood Indiana Real Estate

John, scary stuff out there.  Money seems to be being thrown at everything without researching it out completely.

Jan 08, 2010 05:35 AM
Jane Peters
Home Jane Realty - Los Angeles, CA
Los Angeles real estate concierge services

Being totally apolitical, and going with the flow, I appreciate a post like this, John.  I am not sure housing is the most critical problem in California and, like you said, I am not sure why Arnie is supplementing the Federal program.  Anyone who is going to buy because of that tax break is going to buy before April.  Another $3,333 (and where did he get that figure) I doubt will make much difference.  But then what do I know!  And, by the way, you left out transportation :)

Jan 08, 2010 10:02 AM
Renée Donohue~Home Photography
Savvy Home Pix - Allegan, MI
Western Michigan Real Estate Photographer

I just saw this on someone else's blog and thought "isn't CA broke?!?!" 

Jan 08, 2010 01:24 PM
John Occhi
AZ Veteran Notary Services - Marana, AZ
Mobile Notary Public/Certified Loan Signing Agent

Steve,

I agree that California need more jobs and I personally think the money ear-marked for housing would be better spent on Job Creation...but heck, I'm just a tax-paying, Voting REALTOR - what do I know?

John

Jan 09, 2010 01:25 AM
John Occhi
AZ Veteran Notary Services - Marana, AZ
Mobile Notary Public/Certified Loan Signing Agent

Heather,

I agree with the first part - money is being thrown everywhere - the research is being done...which lobyist has the best deal for me....asks the governor and his political croonies

John

Jan 09, 2010 01:26 AM
John Occhi
AZ Veteran Notary Services - Marana, AZ
Mobile Notary Public/Certified Loan Signing Agent

Jane,

I agree, $3,333 a year for 3 years is not going to be a big deciding factor for anyone to buy a home now or ever.  If you can't negotiate that much away, then come on - get a better agent.

There were a number of other proposals that he revealed - including transprotation.  To be honest, I read and heard what he had to say - some is good and other is not - but since real estate is my career path, I choose to stay focused on what is important in my business - which is why I blog.

John

Jan 09, 2010 01:30 AM
John Occhi
AZ Veteran Notary Services - Marana, AZ
Mobile Notary Public/Certified Loan Signing Agent

Renee,

Yes California is broke - say, if I send my governor to talk to your governor do you think we could borrow a half a trillion? Maybe Interest Only for say 5 years...

John

Jan 09, 2010 01:31 AM