Zillow announced last week that home values have fallen for a 57th straight month. This is clearly not good news for anyone but, it has hit beneficiaries of the $8,000 tax credit for first-time homebuyers particularly hard. The Wall Street Journal, announced that the first time home buyers (that purchased as a result of the Obama tax credits) have “lost twice as much to falling house prices as they gained from the incentive”. The initiative began as an incentive for first-time buyers, then was expanded to include a $6,500 credit for existing homeowners who made a new purchase. The program ran from January 2009 until September of 2010 and, arguably artificially and temporarily improved the housing market at the cost of a faster recovery. Typical homes bought during that period have lost about $20,000 in value since that time.
To make matters worse, the IRS recently reported that it paid $26 billion in homebuyer credits during the running time of the program. However, it believes that “at least $513 million went to fraudulent claims. Common incidences of fraud included claimants that did not buy houses, claimants that filed twice and individuals who were underage or incarcerated. In desperate times, desperate people do desperate things. It is a pity that a potentially good thing (the tax credit) has turned into a financial disaster for many home owners and a source of (just what we need), more fraud).
My concern is that many home owners that purchased because of the tax credit are now financially in worse position due to falling equity levels and now the realistic potential that the Obama administration will end the mortgage interest deduction. This would mean more foreclosures and more stress on an already depressed real estate market. Our entire political process needs a complete overhaul. How about a flat tax?? Works for me and would simplify things and make tax revenues VERY predictable!!
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