Monday, August 24, 2009

Comment on First-time Homebuyer Tax Credit

by Bill McBride on 8/24/2009 01:52:00 PM

A few comments on the first-time homebuyer tax credit:

  • A couple of details:
  • The tax credit is up to 10% of the purchase price, or $8 thousand maximum.

  • "First-time" homebuyers are defined as anyone who hasn't owned a primarily residence for the last 3 years (not really "first-time").
  • The tax credit can be used as the downpayment, see Kenneth Harney's: How buyers can use tax credit for down payment

  • This has led to a frenzy of first-time home buying. Even though the program ends on November 30th, the buyer must close escrow before then - so the program will boost traffic through September and maybe into October.

  • Existing home sales are reported in the month following the close of escrow. So the program should have a positive impact on reported numbers throughout most of the year.

  • The odds are very high that the tax credit will be extended. My understanding is the NAR and NAHB are pulling out all the stops and the extension of this credit is their #1 priority. Also, since housing is the top economic priority for the Obama Administration, I think we will see an extension at the same size ($8K), maybe for another 6 months. This extension will probably not be a high priority until October. However, just like with the cash-for-clunkers program, I think the impact will wane over time.

  • Anecdote: I've spoken with two younger guys (30 ish) who told me they had no down payment, but edit: were looking to buy a house NOW. They are using the tax credit and FHA to buy. I think that conversation is happening in many places.

  • This suggests existing home sales will decline - perhaps significantly - after the frenzy subsides.

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