I am about to say something that is loaded with controversy in the real estate industry.
I do NOT think the $22,500 tax credit put forward by the NAHB and NAR is a good idea!
The National Association of Home Builders (NAHB) and the National Association of Realtors® (NAR) are both solidly behind a plan to give away a $22,500 tax credit to ALL buyers of new or existing homes. They want to do this in order to spur home buying and "restart" the stalled real estate market.
Currently, there is a $7,500 First Time Home Buyers Tax Credit (FTHB Tax Credit) that requires repayment without interest over a 15 year period. I would venure a guess that the repayment requirement is going to disappear in the next few weeks... but that is a different beast.
Both the NAHB and the NAR are pushing for the larger credit, extended to ALL buyers, not just those narrowly defined as FTHBs. Failing the larger credit, they would like to see the $7500 made available to all buyers.
But, here is the problem...
We are coming off of a housing bubble. In many markets, there are just too many houses. In some markets, there are a lot of buyers that are upside-down in mortgages. In other markets, there are many sellers that are unrealistic about their pricing because they want to sell for more than they paid two years ago.
The $22,500 tax credit could fix much of that... obviously those that are $100,000 under are NOT going to be helped. But...
When does it end?
If that type of package is put into the market, it is going to push up prices. Basically, sellers will know that buyers have extra money to play with... and they will price and/or negotiate accordingly. And buyers will let it happen because there WILL be a rush to market for buyers taking advantage of the plan.
But the increase in prices is false. It isn't because the market decided real estate was valuable again... it would be because there was free money to play with. It might not push prices up to the max of the tax credit, but it would certainly lead to false price inflation.
And then... when the tax credit stops... there would be continued downward pressure on prices. And there would be HUNDREDS OF THOUSANDS of buyers that would want to get the inflated price for their homes... forget that $22,500 was given to them, they would want the price that "they paid."
We would be back in close to the same situation we are now.
Obviously, the passage of that type of "housing stimulus" would be good for me personally/financially. But I don't think it is right, because in the loang run it wouldn't fix the problem... (people buying homes they can't really afford)... it would be a band-aid and we would have to find a new solution to help the new people that would be damaged by the policy.
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I'd love to hear from you...
Lane - I haven't really heard much about this. Off the cuff, I tend to agree with you on this one. Seems a lot of the ideas in regards to a "stimulus" are nothing more than band-aids. We are beyond a flesh wound; I think we are talking more about stitches these days.
But Lane, you make too much sense. Since when did common sense fit into anything the NAR would ask for to get their membership back up? Talk about a special interest group! I don't even support Dick's proposal that the $7500 15 year same as cash loan be turned into a government gift. Now I see why their are so many ultra left liberals in the NAR. It's a give away to get away. "If we can get congress to support this our membership's commissions will go back up and they will renew their membership and join for another year." Nothing against individual members of the NAR ... I were one once upon a time.
Jason - I'll make you a conservative, libertarian wacko soon. And I think that bone will be sticking out of flesh soon.
Ken - I'm not going to beat them up too much on this... their job is to look out for "our interests". I think they are being short-sighted. They are putting money this year in front of what is good for our kids. That is what a union will always do. But... I don't have it in me to sell my kids down the river to make an extra buck. it will cost them $50 for me to get $1.
And the NAR's primary goal is to have more members. That is where their power comes from. That, I don't like at all.
Lane,
I agree that this is a short sighted solution as if everything that is supposed to "help" the housing market. It is not much different than the solution of lower credit requirements so people could qualify for a mortgage or not requiring downpayments because people could afford to put money down.
And btw I would love for you to make a conservative, libetarian wacko out of Jason. He's too smart to be on the other side.
Michelle
Jason is not on the other side. He just likes to make people reaaly think about what they stand for. He is chief troublemaker, but I love him.
Lane: I agree with you on this. I would like to see the interest rates for jumbos to come down, on par with conforming regulkar 30 year mortages. In my part of Massachusetts, a "regular" house is at least $500K. Would be nice to see the NAR working on this.
Michelle - Jason is a smart guy. He'll come around.
Nicholas - Ditto.
Scott - I would like to see the market push rates down. I don't think that the massive government intervention is the right way.