Today's post might be a little boring (maybe they all are, I dunno) but sometimes I have to do some business.....or bidness as a friend used to say.
Chances are you have read recently about the bill before Congress to extend the First-Time Home Buyers Credit. Part of the American Recovery and Reinvestment Act of 2009, this opportunity may be gone very soon.
The $8,000 tax credit is available for homes purchased on or after January 1, 2009 and before December 1, 2009, and is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.
Some people have said that stimulus money given out since the beginning of the year has caused problems in the economy. As a full-time Realtor for the last ten years, I can assure you that the $8,000 first-time homebuyer tax credit has definitely been a success. Homebuyer interest and housing sales increased almost as soon the availability of this program became news. Today's lower prices and interest rates appeal to consumers, but it's been the tax credit that has attracted people to open houses and to homeownership. Demand from first-time homebuyers helped drive a 9.4% increase in sales of existing homes from August to September according to the National Association of Realtors, continuing a trend of increasing sales in five out of the last six months.
This tax incentive is a true tax credit. The $8,000 home buyer tax credit is tangible cash, not a deduction from taxable income. This is not a loan and does not have to be repaid as long as you live in the house for the next three years.
A ‘first-time home buyer’ is defined as someone who has not owned a home in the last three years. There are other restrictions in the qualifications such as income caps, and the home must be your principal residence.
I explain to people that this program has had a ‘trickle up’ effect. Home owners in the lower-priced market have been able to sell to buyers eligible for this credit which has given those sellers the opportunity to move up into more expensive homes. In my business in 2009, 40% of my transactions have involved buyers who qualify for and intend to apply for this credit. Some of those people were:
A woman in her mid-50’s getting back into home ownership after being divorced several years earlier. Her mortgage and condo fees were less than what she had been paying for rent.
A 42-year-old electrician who was buying his first home after having recovered from credit problems.
A young couple and their two-year-old daughter who have been living with extended family whose own home was facing foreclosure.
A couple in their late 50’s who had sold their home years earlier and planned to move South but who bought a two-family house with their son who has 4 children. The grandparents were already helping with the childcare so now three generations are living under one roof and will split the tax credit.
These are just four of many transactions I’ve been part of where the tax credit will be applied for. As the November 30th deadline looms I have seen a slump in my buyers’ activity. It’s close to being too late to enter into a sales agreement with any hope of closing by that date.
Uncertainty about the future of the credit will dampen consumer demand nationwide. There’s a strong lobby in Washington among realtors, lenders and builders urging Congress to extend this opportunity. The progress that has been made in the recovery of the real estate market could grind to a halt unless Congress acts now to extend the credit through 2010. Let’s hope they are listening!