I "heart" the stimulus plan. Specifically, I love the $8,000 first-time homebuyer ("FTH") tax credit. I won’t bore you; if you read my columns, you know that I’ve deemed this credit "the stimulus that, gasp, actually stimulates!" because it made my real estate brokerage phone ring with buyers wanting to take advantage of it, unlike the other dozen stimulus measures that have had no obvious, direct results on the consumers I work with. (Though they might be effective at some higher, less direct level. Or not.)
If you’ve been wedged underneath a real estate-free rock for the first half of the year, let me brief you on the details of this program. Folks who (a) haven’t owned a home for the past three years, (b) earn a "modified adjusted gross income" (don’t even ask — check with your tax pro) of $75,000 or less for singles/$150,000 or less for marrieds filing jointly, and who (c) close escrow on a home purchase no later than Nov. 30, 2009, can qualify for the tax credit.
Why, you might ask, does this particular tax credit rock so singularly hard? Mostly in the ways that it is different from previous credits: It doesn’t have to be paid back (like its Bush-era predecessor), it is accessible immediately (buyers can actually file an amended 2008 return right after closing to get their dough), and it is fully refundable — eligible FTHs can actually walk away with a check from the IRS for $8,000, rather than the credit working only to offset tax liability.
I won’t continue singing the obvious praises. The FTH tax credit question I’ve been asked increasingly over the last few weeks has nothing to do with the pros and cons of the credit itself, but rather, with its duration. Inquiring minds (buyers, sellers and Realtors alike) all want to know: Will the $8,000 FTH tax credit be extended another year?
Even though I put my real estate crystal ball out to pasture a long time ago, this question intrigues me. There are really two intertwined questions latent in the issue: 1) Should the tax credit be extended? and 2) Is an extension likely?
There are scores of arguments in favor of extending the program — well, for those who agree that the goal should be to stimulate home buying. (If you think this goal is way off-base, which, believe it or not, some folks do, feel free to stop reading now — the rest of the column poses the hazard that your head will pop off.) Some might argue the tax credit should be extended for another year (or even more) or broadened to encompass move-up buyers (not just first-timers) because it has been effective: The combo meal of uber-low home prices plus the FTH credit has definitely driven buyers off the fence and into the market in the first quarter of 2009, especially in the areas hardest hit by the foreclosure crisis. In Q1, sales of existing homes were up 117 percent in Nevada, 81 percent in California, 50 percent in Arizona, and 25 percent in Florida, compared to the year before, and Virginia and Minnesota also had double-digit increases in year-over-year resales.
If it ain’t broke, and so on.
But, even though it wasn’t broke, the Department of Housing and Urban Development went right on ahead and fixed the FTH tax credit — or announced its intention to fix it anyway — a couple of weeks ago when it announced a plan to allow buyers using FHA loans to monetize the credit upfront, to be applied toward down payment in excess of the 3.5 percent minimum or toward closing costs. The catch, if you want to call it that, is that the upfront monetization logistics haven’t yet been completely worked out, so by the time the FTH tax credit becomes available for upfront use, it will be available for only five months, perhaps less, if the current deadline for the program remains in place. Just when the program gets turbocharged, if the Dec. 1 expiration is not extended, it will go away. Yes, those are tears you see streaming down my cheeks. …CONTINUED
While we’ve seen a whole lot of activity in the market lately, and things appear to be looking up, there are lots of reasons we still need and could really use the FTH tax credit going forward another year or more. While actual foreclosures seem to be slowing down, this might be an artifact of the various moratoria that were imposed during the first half of the year — we’ll see what happens during the rest of the year. Also, the adjustable-rate-mortgage reset numbers peaked last year, but there are still many hundreds of thousands scheduled to reset this year and next.
Unemployment rates aren’t increasing quite as quickly as before, but some of those out-of-work homeowners may end up facing foreclosure several months or even a year after they first lost their jobs, so we have that to watch out for. And, the banks and asset managers have been hinting that they have a "phantom" inventory of hundreds of thousands of bank-owned homes that they are holding off the market until some unspecified later date when they might be easier to unload.
Oh yeah, and interest rates are going up — a lot, and fast.
Long story short, without continued incentives for buyers to get out there and continue consuming the influx of homes that are currently and will soon be on the market, we could end up with the same old supply/demand imbalance we had in early 2008. I probably don’t have to remind you that those were dark days for real estate: stagnant listings, plummeting home values, mortified sellers, scared buyers and Realtors whom I’ll dignify by not even trying to describe with a single adjective.
Should the FTH tax credit be extended?
But will it be extended? It might — the current program reflects an extension and expansion of the 2008 FTH tax credit/loan program. It was extended before, and might very well be extended again. But, if you’re chomping at the bit waiting for the announcement, remember this: A major reason the FTH tax credit has worked so well is the urgency that was created by having a looming deadline in place. So, while I hope it will be extended, I’ll just sit here patiently waiting — and furiously helping homebuyers who want to get it while it’s a sure thing — until it is.
Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Ask her a real estate question online or visit her Web site, www.rethinkrealestate.com.
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