$15,000 Tax Credit Conundrum
By: Katie Curnutte, Zillow PR Manager | February 5, 2009
My Seattle apartment building was buzzing last night when news of a possible $15,000 tax credit for homebuyers broke. Most of the residents, including my husband and I, are in a particular demographic: late 20s or early 30s, married and professional. Some have babies and almost all have dogs. And we’re all thinking about how great it would be to be able to put away the pooper scoopers and have our own backyards.
Homeownership is on most of our minds, and this news created a whole lot of questions. I’m sure we’re not the only ones – Zillow’s January traffic was through the roof — proof that many people are sitting on the sidelines. Being on the PR team of Zillow and dealing with so much housing market data, I have some big-picture questions. But mostly, I want to know how this will affect me.
My colleague, Diane has done a great job answering some of these questions already. The $15,000 tax credit will replace the current $7,500 interest-free loan given to first-time buyers, and this one doesn’t have to be repaid.
But I’m curious about a few other things. One, what do lenders think of this? Mortgage rates are up a little bit from a couple weeks ago, but generally, they’re still very low. And, lending standards are still really strict. Understandable after the high foreclosure rates in so many markets across the country (check out our Q4 Real Estate Market Reports for more details), but will any of that change if this new tax credit is enacted? Will lower down payments be more acceptable to lenders if they know a $15,000 tax credit will be coming along?
My big question, which I’m sure many others are asking, is: Should this tax credit change our plans? My husband and I planned on waiting a couple years and socking away as much money as humanly possible before buying anything. My husband works as an independent contractor, so we’re both painfully aware of how shaky the job market is at the moment. We’re thinking conservatively when it comes to homeownership. But now I can’t help but feel we’ll be missing the boat if we don’t buy in 2009.
My bigger worry is that many others will feel this way, and will jump into homeownership before they’re really ready. Even if a borrower has a great credit score and down payment, lenders can’t predict what will happen to that person’s job. I think most borrowers under normal conditions would hesitate to buy if they thought there was a chance they could get laid off. But is a limited-edition $15,000 tax credit enough to calm those qualms and entice people into the market? Great in the short term, but what about the long term?
I’d love to hear thoughts on both what this means for consumers and for the housing market in the long term.
More recent blog posts about the $ 15000 homebuyer tax credit:
$ 15000 tax credit - 3 most frequently asked questions
What Does The $15,000 Tax Credit Mean To You?
$ 15000 Tax Credit on Everyone’s Minds
More Details on $15,000 Tax Credit — It Does Not Have to be Repaid
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- Categories: Real Estate, Real Estate Industry
Comments
25 Comments so far
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Jennifer on February 5, 2009 11:37 pm
This latest government-sponsored folly will do absolutely nothing to address the problem.
Houses are still over-priced by 30% or more in coastal markets.
How is $15,000 (which is a 3% “discount”) going to make a difference? If (when) $500,000 properties decline in value another 30%, that’s a $150,000 discount. Much more compelling than $15,000.
We’re nowhere near the bottom, see the latest from The Economist:
http://www.economist.com/finance/displaystory.cfm?story_id=13062194
We’re in the 1st inning, with a long way to go, while politicians fiddle with silly gimmicks…
Jennifer on February 5, 2009 11:38 pm
This latest government-sponsored folly will do absolutely nothing to address the problem.
Houses are still over-priced by 30% or more in coastal markets.
How is $15,000 (which is a 3% “discount”) going to make a difference? If (when) $500,000 properties decline in value another 30%, that’s a $150,000 discount. Much more compelling than $15,000.
We’re nowhere near the bottom, see the latest from The Economist:
————————————————
Move over, subprime
Decay is spreading to the upper floors of America’s mortgage market
economist.com/finance/displaystory.cfm?story_id=13062194
————————————————
We’re in the 1st inning, with a long way to go, while politicians fiddle with silly gimmicks…
Kevin on February 6, 2009 6:56 am
Sounds like I live in a bizarro world compared to the first commenter but our modest property appreciated in value by 22% (according to zillow)over the last year and we had an unsolicited offer in January for 38% more than last January’s value in December and turned it down because we didn’t think it was worth the hassle to move. The tax credit proposal made us reconsider.
I don’t know how the transaction helps the overall economy, but we have seen a nice increase in pay along with property appreciation, but we have been sitting on the sidelines like everyone else just because we normally are very conservative in our finances (might be why we are in good shape?). The new law might make us take action.
DebtFree on February 6, 2009 8:49 am
Kevin, we all live in the same world:
cbsnews.com/video/watch/?id=4668112n
Gregg on February 6, 2009 9:39 am
Personally this is icing on cake for us. We have been house-hunting since October 2008, getting a good sense of what is out there for the money.
A few weeks ago we listed by condo and have had a decent amount of traffic from showings but no bites as of yet. I’m thinking with this 15k credit may slow things down until a decision has been made, but when and if it does, will result in alot of folks that are on the fence to make a move.
In my case I’d take the opportunity to find something that is a bit dated (such as an estate sale) and make improvements with a portion of the credit and save the rest. My thought that is once I make some improvements and reappraise I’ll have enough equity to remove PMI.
Gregg on February 6, 2009 9:43 am
In addition the 15k will stimulate the economy in addition to the housing market. Home furnishings, small improvements, etc will help alot of areas.
Christine on February 6, 2009 10:32 am
What I’m wondering is, when will this credit be in effect? We’re currently looking for a home, hoping to close next month… But now we’re doubting whether or not to put in an offer. What if we close on a house, only to have this $15K credit go into effect the next week? I would kick myself. So instead, we’re playing the waiting game.
Dr. Dave 'Wheels' Royal on February 6, 2009 11:41 am
How can anyone take Zillow seriously. In my old Northern California neighborhood, it lists the home I sold a year ago (for $470k), as valued at $300.
And if you look at homes for sale directly across the street, on a bigger lot, with an in-law unit (mine did not) and more square footage, listing at $237, you can see that in that neighborhood, Zillow estimates are more than $60k inflated.
So, Zillow is being ultra-conservative, just don’t rely too much on what they publish, it’s even gloomier then they portray.
Dr. Dave ‘Glad I sold and am renting’ Royal
Maxwell on February 6, 2009 12:43 pm
I think this tax credit will do very little to stimulate home purchases unfortunately. Home sellers are just going to use it as an excuse to hold a high selling price or refuse to negotiate a deal.
Never mind the fact that home prices today are 400% higher than what our parents paid for housing, not to mention increased health care, higher ed debt, and higher taxes. That is of course, after adjusting for inflation.
Sheldon McGee on February 6, 2009 1:33 pm
My question is: How does this affect people that already purchased houses and qualified for the $7500 loan?
Personally, I kinda like the idea that it would be an interest free loan instead of a giveaway. It would encourage people to get into houses and help they pay for some home improvement but they don’t get to keep it of they sell and they gotta slowly give it back. But I’m no economist so I have no idea what *could* work and what *won’t* work.
Caitlin on February 6, 2009 1:37 pm
To Christine…We are in the same boat (hoping to close next month on a house) and as I understand it the credit would go into effect with the passage of the stimulus bill but would be retroactive to properties sold after Jan. 1st this year. If the Senate version passes the credit would apply to any purchase completed between Jan. 1, 2009 the end of Aug. 2009. So it doesn’t matter when you close, but I would wait to file your tax return until the bill passes. At the very least, you’ll wind up with an interest free loan for $7500.
http://money.cnn.com/2009/01/29/real_estate/tax_credit_near/index.htm?postversion=2009012917
DebtFree on February 6, 2009 2:36 pm
Agreed Maxwell. Perhaps in areas where houses cost $150,000 this will motivate people, but where tiny Cape style homes cost over $600,000 this $15K will do absolutely nothing.
The whole notion that housing needs government intervention to keep prices at Bubble Peak levels doesn’t even make sense, and is impossible anyway.
This is analogous to people demanding their Cisco stock return to Internet Bubble highs, because they lost money:
finance.yahoo.com/q/bc?s=CSCO&t=my&l=off&z=l&q=l&c=
It’s just plain silly.
m on February 6, 2009 3:41 pm
I think rather than give new home owners the $15,000 it should go to all home owners that have outstanding mortgages (cut $15,000 from what’s owed or a $7500 tax break each of the next 2 years) that didn’t get any “free money in the last year or so). Heck it was us that contributed to the strong growth of the housing market and it was us that had to buy when things were high.
Rich Rosa on February 6, 2009 4:00 pm
The $15K tax credit isn’t single-handedly going to turn around the real estate market, but many potential home buyers will take advantage of free money. If you qualify, can afford a home and don’t want to rent anymore, why wouldn’t you. It’s a no brainer.
Christine on February 6, 2009 4:14 pm
To Caitlin - Thanks for your reply. I did a little research, too, and the article you quote is outdated (refers to the House bill). The Senate bill changed the housing credit from $7,500 to $15,000, removed the first-time home-buyer qualification, AND changed the dates of access - in this bill, it’s only available for one year AFTER the bill is enacted. But Obama hopes to have a stimulus package passed within the next two weeks, so you should be okay to close next month, and you’ll likely end up with SOMETHING… Good luck!
Kim on February 6, 2009 9:24 pm
Another give-away. I resent MY wallet is being raided to give home buyers an opportunity to buy a home. I’m a super responsible renter who would like to buy something but as a previous writer said, the prices in the Bay Area of California have barely budged from their 150% to 200% profits that home SELLERS still demand. I don’t get ANY tax credits for being a renter. Zip. Now I’ll have to sit by and watch others get homes with MY money, while I struggle to save a 20% down payment. And you better believe it, the sellers will jack up their prices now or refuse to negotiate on the current unrealistic prices. Of course, realtors are licking their chops.
Jennifer on February 6, 2009 11:59 pm
Rich wrote: “If you qualify, can afford a home and don’t want to rent anymore, why wouldn’t you. It’s a no brainer.”
Actually, if you look at MLS Listings you will see a great many homes both “for rent” and “for sale”.
What I see time and again, is that renting the exact same house is $1,000+ cheaper each month than buying. (That takes all the associated costs into account: mortgage interest, utilities, taxes, etc).
So in the current market, why throw away money on a mortgage? Additionally, today UBS published a report stating that prices in the alegedly immune NY City area will decline another 30%. There is nowhere to hide, this is a global financial meltdown.
Each month I throw a ton of money into the bank, and sit by while irrational “owners” hold out for prices that only existed because there were 0% down loans and ARMs available. Those loans, and many of the lenders who offered them, are gone. Leaving the “owners” sitting in a state of denial.
Buying today makes zero sense — the problem is not about $15,000, it’s about homes over-valued by 30% and more.
$ 15000 Tax Credit on Everyone’s Minds | Mortgages Unzipped on February 7, 2009 5:30 am
[...] colleague, Katie Curnutte, wonders how this what lenders think of this? Mortgage rates are up a little bit from a couple weeks ago, but generally, they’re [...]
MDA on February 7, 2009 10:37 am
Now’s the time to buy. The economy will turn around. I’m going to use some of the credit to buy a John Deere lawn tractor and a Pottery Barn King size bed. I’m not alone. I know lots of people who’ve been waiting on the sidelines and they’re jumping in too. This along with the $1000/yr tax cut for couples and the other stimulus measures will turn this economy around. Affordability is greatly improved and sellers are desperate. Best buying opportunity in 10 years when the $15k bonus and low mortgage rates are factored in. The naysayers are ignoring the facts because they want to buy and can’t and hope prices fall further (this is you, isn’t it Jennifer). They’ll still be renting in 5 years. Go sign a contract before the rush starts.
MDA on February 7, 2009 10:50 am
Oh, and another thing, the 15k bonus is gonna make sellers more fleible because they know that they’ll get the same bonus when they buy the house they want. They’ll be desperate to sell in 2009 because they won’t get the credit if they buy in 2010. This is going to be a bonanza. Enjoy the 1% money market yields on your savings, renters/haters; I’m gonna shop for that bed now with Uncle Sam’s cash.
$ 15000 tax credit - 3 most frequently asked questions | Zillow® Blog on February 7, 2009 2:19 pm
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Jennifer on February 7, 2009 11:43 pm
MDA is apparently cribbing notes from realtor shill David Lereah (”Now is the time to buy”).
Now is definitely not the time to buy. We’re ready with a 75% downpayment in our target neighborhood, and therefore “can” buy at any time. But we don’t like to lose money.
And if renting the same house, same school system, same commute saves us $1,000 each month, that’s $60,000 more in the bank over 5 years. Throwing away money on a mortgage is silly.
My statements that home prices will fall further are not based on “hope,” but facts. The 60 Minutes piece posted earlier in this thread is a good source of such facts:
cbsnews.com/video/watch/?id=4668112n
We’re nowhere near the bottom. Not even close, as the piece explains.
As for “1% money market yields” have a look at DollarSavingsDirect.com which offered 4% until last month, and now offers 3.2%. (Best to spread out across multiple banks to ensure FDIC insurance.) It’s a good feeling to live off interest.
Lastly, needing a government handout to buy a bed and lawn tractor? That would suggest these things are unaffordable at your income level.
dolessgetmore on February 8, 2009 9:26 am
does anyone know if the same or similar income restriction do/will exist for the $15k credit as did for the $7.5k loan??
7.5k loan began being phased out if you make more than $75k filing single…$150k married+joint file
i haven’t seen any mention of income restrictions for the $15k credit…hoping that is accurate…
George on February 9, 2009 10:30 am
I’m all for “stimulus” but to me this package just seems like a replacement for the exotic 0% down, or 80-20s that homebuyers can no longer get do to the tighter credit standards of today?
I did like the $7500 for first time homebuyers… at least this helped first timers overcome that hump, or help get them out of a arm and into a more conviential loan. PLUS they would learn something by having to repay it.
I understand that the strawberry picker in Cali that bought a 700K house on 18K of salary isn’t going to qualify on this one though… so maybe it isn’t as bad.
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