The Next Tax Credit

On August 1, 2010, in Uncategorized, by David Monsour

The expiration of the first time buyer has been bittersweet for buyers, Realtors, and the real estate market as a whole. As a real estate professional my honest opinion is that it was a waste of government money and a last stitch effort to create some sort of stimulation in the real estate economy. That being said I certainly promoted it while it was available. There is no reason not to take a free $8000.00 especially if you were already considering a home purchase anyway.

As we’ve wondered a month past the tax credit contract deadline first time buyers are starting to wonder when the next credit will be available. When the first tax credit was extended and then the settlement deadline extended until the end of September buyers starting to believe that this would be some sort of eternal home buying promotion. Professionals working in the real estate field enjoyed a SMALL flurry of business but nothing that was outrageous or out of the ordinary. The second time the credit was offered it simply didn’t seem to provide the increase in volume that our government was hoping for, at least locally.


If we further analyze the tax credit it basically consolidated business for the year into a few (two) waves of home buyers. Human nature contains and element of procrastination which was evident with the tax credit as well. As we approached the deadlines the showings, negotiations, and contracts started to roll in. I think that an evaluation of the year on the whole would probably be nearly the same without the credit. We forced first time buyers into the market. Now that they’ve all bought homes our first time buyers have essentially been purged from the market prematurely in waves instead of spread out over time.

So fast forward to the rest of the year and into next year without many first time buyers…now what? Another Credit?

I’m going to say that I hope not. The actual cost per credit was about $40,000 US Government dollars of which $8000 went to the home owner. I think that is way too big of an expense to generate real estate activity. At what point does the opportunity cost of a home sale level out with $40,000? I’m not equipped or educated enough to say but I’d have to imagine we are in the red under normal economic circumstances.

So there is no credit and probably won’t be another, but look at the interest rates right now. A savvy home buyer would realize that the current rates being offered are far more valuable than any tax credit would ever be over the long run. American consumers love instant gratification, which is why the tax credit garnered so much PR via the news, TV, and so on. I’m here to tell you otherwise. While a lump of cash is nice, saving xx thousand over the life of your loan is far more valuable.

 

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