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Senators Isaakson and Dodd have proposed a housing incentive for ANY buyer of $10,000. If this bill would pass, I think many people would get off the fence and buy homes. We have been catering to the "first home" buyer, but these are the lower priced homes, in general. We need something to get those middle and upper income buyers to start buying homes.
Why would we want to subsidize the upper end of the market? Non-first time homebuyers already have homes (1st time being defined as last 3 yrs) and would either have to sell their existing home or carry multiple homes. Getting them to lever up to buy more is a return of speculation and will simply create another bubble. $10,000 isn't a whole lot of incentive to buy a $500k home when you either have to bring in 100k or be prepared for $3k/mon in mortgage payments. It is however incentive to buy in depressed markets for rental properties and lock out lower income people. It also benefits realtors who need volume to bulk up their income but overall it doesn't fix the housing market. It doesn't help reduce inventory or pull in on the fence buyers. People looking to upgrade their homes need the 1st time buyers to buy their smaller homes and create some liquidity.
If you're already above the 150k married bracket, odds are you already have a home (at least in most affordable markets). The current tax credit is already structured close to the edge at 75k/150k income levels. Among my friends that started working in '05 I was the only one to not have purchased a home prior to '08. I only avoided buying until this year b/c I wanted flexibility to change jobs but I paid plenty in taxes as a result of this. I've had to pour money into my 401k to get any tax deductions at all and to even qualify for the $8k. People that don't have homes at those income levels generally have terrible credit (bank won't lend to you regardless of $10k) or inconsistent income that makes borrowing difficult. I've had my job for 3 yrs, brought 20% to the table, 780 credit score w/ 10yr history, required a mortgage less than 2X my salary, and they still made me jump through hoops to close.
Personally I expect home prices to be flat for the next 2-3 yrs at best. Isakson wanted $15k(I would have loved that) for anyone wanting a home w/ the hope of supercharging the real estate market. He's taking the model that we need a return to a gold rush market to fix things which is strangely inconsistent w/ his anti-stimulus message. The kind of money he's proposing works out to a circuitous higher income tax break b/c anyone that qualifies for a luxury home could certainly afford one after housing prices have fallen as much as they have. If your credit sucks, you're not getting a starter home much less a Toll Bros McMansion even w/ $15k gov't money in your pocket.
t is however incentive to buy in depressed markets for rental properties and lock out lower income people. It also benefits realtors who need volume to bulk up their income but overall it doesn't fix the housing market. It doesn't help reduce inventory or pull in on the fence buyers. People looking to upgrade their homes need the 1st time buyers to buy their smaller homes and create some liquidity.
The incentive would be ONLY for people who would own and live in the homes, not investors. Yes, it originally started out as $15,000, which would be even better. It doesn't matter how "wealthy" the buyer is. The point is to get the economy going again. People who buy homes also buy lots of things to go in the homes, which would help businesses and people who work on/in homes. It most certainly would help to reduce inventory, as there are many $500,000 foreclosures out there, as well as homes that have sat on the market for a year or more.
The incentive would be ONLY for people who would own and live in the homes, not investors. Yes, it originally started out as $15,000, which would be even better. It doesn't matter how "wealthy" the buyer is. The point is to get the economy going again. People who buy homes also buy lots of things to go in the homes, which would help businesses and people who work on/in homes. It most certainly would help to reduce inventory, as there are many $500,000 foreclosures out there, as well as homes that have sat on the market for a year or more.
The problem you run into is there's a lack of people in this relatively wealthy bracket that don't already own homes. The tax break would be cheap to fund b/c almost no one could take advantage of it. Ask yourself how many families do you know making 150k-400k household income that don't currently own a home? Most bought homes long ago to build equity or lower their tax liability. Only my friends living in NYC or SF haven't bought homes despite making solid six figure incomes. In those markets a $15k check really can't overcome a median home price of $675k(SF). One friend bought his parents a $350k retirement home in Dallas but still can't swing a mortgage in SF on a decent place. The higher incomes, restricted supply, and credit liquidity are the only things that are going to move homes in those markets.
Of my peer level coworkers and classmates in Atlanta, all of them own homes already and most started buying when their income broke the 50-60k mark which is already above the median income for the metro. Some would love to buy upmarket homes but have to get out of their current homes which is an impossibility w/ the lack of liquidity and depressed prices that wipes out what they thought was equity. The ones that do have the income to buy multiple homes are and will likely make great income on rental properties in the future.
If you structure the credit to include current homeowners, you subsidize them to shift to their larger homes and be more willing to dump their smaller homes at a loss (no longer a loss if Uncle Sam hands you 15k). This only shifts the inventory down market vs. reducing it and then you have thousands of dumped starter homes that no one can buy b/c anybody that qualified to buy a home already bought under the initial plan.
Outside increasing the number of people that can actually qualify for a mortgage (not necessarily a good idea as evidenced by this past cycle), it's difficult to entice new "qualified" people into the market b/c so many people jumped into the ownership market during the boom. Between the people who ruined their credit buying too much, people who never should have bought in the first place, and people stuck in current homes you really only have a small pool of people left that can be enticed by tax credits and then clear underwriting hurdles to get a mortgage. Normally the bottom end of the market is taken up by fresh college grads and young families but w/ 80% unemployment on the class of '09, you're not going to see a ton of new entrants into the housing market. Maybe tie some low cost home mortgages for new college grads w/ jobs etc b/c a simple tax credit isn't going to cut it.
Mishap, you make some very well reasoned arguments and I agree with you. If you look back at history in any bad economy and housing downturn people who can buy and may want to buy stay on the sidelines because they want to see what direction the market is going before they buy even though things are relatively stable in their life (Good job etc). This will eventually create a lot of demand when the market turns and it will turn faster because of this. A decent tax incentive will help lure them into the market sooner. It may bring back the moving up to a better house buyers who will sell their house despite the downtimes so they can get a great deal on a better house and get the tax incentive. Of course the biggest driver will be when unemployment improves which is probably at least 12 months off. With or without an incentive the market will improve its just a matter of when.
I agree with you regarding the high end. I know someone who is finally looking to buy their first home and they are looking at around $400k (Seattle market) and the tax credit is not that important to them.
Johnny Isakson from an AJC article today: "For starters, it would give a booster shot to the housing market and carry the real estate business through what are traditionally its worst months, Isakson said.
Expanding the program beyond first-time home buyers also would get critical "move-up" home buyers back into the market, he said.
That could help people who are tied to their houses because they can't sell them move to new jobs or make new investments, Isakson and others said. "
I think it's clear from his comments that his goal is to boost the real estate business and not necessarily stabilize home values. He is explicitly targeting move-up buyers who will not reduce inventory and is effectively an upper income tax reduction for those looking to move up. It doesn't encourage new home ownership and instead subsidizes people to upgrade homes and allows them to dump their old homes with smaller losses bankrolled by the federal gov't.
The goal of moving the bracket to $300,000 and increasing the amount is to unlock the midrange of the market and let the gov't bailout his target constituents who have their heart set on their dream McMansion but have minimal equity in their current home left. From what I've seen most resales prices of starter/mid-priced homes are very far off what developers are selling new ones at b/c people are clinging to what they paid and this offers them an out. It may increase the # of low priced homes available but that's not exactly the current problem facing the market today.
Plenty of $500,000 on the Market and in Foreclosure
Quote:
Originally Posted by Mishap
Johnny Isakson from an AJC article today: "For starters, it would give a booster shot to the housing market and carry the real estate business through what are traditionally its worst months, Isakson said.
Expanding the program beyond first-time home buyers also would get critical "move-up" home buyers back into the market, he said.
That could help people who are tied to their houses because they can't sell them move to new jobs or make new investments, Isakson and others said. "
I think it's clear from his comments that his goal is to boost the real estate business and not necessarily stabilize home values. He is explicitly targeting move-up buyers who will not reduce inventory and is effectively an upper income tax reduction for those looking to move up. It doesn't encourage new home ownership and instead subsidizes people to upgrade homes and allows them to dump their old homes with smaller losses bankrolled by the federal gov't.
The goal of moving the bracket to $300,000 and increasing the amount is to unlock the midrange of the market and let the gov't bailout his target constituents who have their heart set on their dream McMansion but have minimal equity in their current home left. From what I've seen most resales prices of starter/mid-priced homes are very far off what developers are selling new ones at b/c people are clinging to what they paid and this offers them an out. It may increase the # of low priced homes available but that's not exactly the current problem facing the market today.
You don't seem to understand that expensive homes are in a glut also. In my own neighborhood, there are 2 homes in foreclosure. It would help our economy and the real estate market to sell all these homes, even if "rich" people buy them. Not all expensive homes are owned by people with "minimal equity." Many homes have substantial equity or are even completely paid for in full.
Just because some people have a vendetta against realtors or people who earn a good salary, that is not a reason not to help the economy. We have to get out of this mess. The problem began with the "housing bubble" and fixing housing is a big part of fixing the economy.
Absolutely, expensive homes are the hardest to sell right now. The point was that maybe the tax credit wouldn't make a big difference at that price point. As the economy improves you will see a much bigger impact. Housing starts are way down so as the economy improves inventory will get bought up and things will get better.
Lets hope we start to see unemployment turn for the better next year as some are suggesting may happen.
Quote:
Originally Posted by staywarm2
You don't seem to understand that expensive homes are in a glut also. In my own neighborhood, there are 2 homes in foreclosure. It would help our economy and the real estate market to sell all these homes, even if "rich" people buy them. Not all expensive homes are owned by people with "minimal equity." Many homes have substantial equity or are even completely paid for in full.
Just because some people have a vendetta against realtors or people who earn a good salary, that is not a reason not to help the economy. We have to get out of this mess. The problem began with the "housing bubble" and fixing housing is a big part of fixing the economy.
You don't seem to understand that expensive homes are in a glut also. In my own neighborhood, there are 2 homes in foreclosure. It would help our economy and the real estate market to sell all these homes, even if "rich" people buy them. Not all expensive homes are owned by people with "minimal equity." Many homes have substantial equity or are even completely paid for in full.
Just because some people have a vendetta against realtors or people who earn a good salary, that is not a reason not to help the economy. We have to get out of this mess. The problem began with the "housing bubble" and fixing housing is a big part of fixing the economy.
No, I realize that there's a huge glut of mid to upper level homes. People used to say that the subprime crisis wouldn't affect those homes b/c the luxury end of the market would stay strong since upper income people would still have the cash and income to buy. My parents have a 7bdr in Gwinnett they have lived in for 19 yrs that they'd love to get rid of as empty nesters but they really can't as long as the market is depressed. That said the place is paid for and they can afford to hold it until the market comes back a bit but the sheer amt of new construction has likely limited their return to ~20% increase over that nearly 20yr period even though they bought it during the last real estate crunch of '90.
I don't have any vendetta against income...I'm as much of a capitalist as anyone on this board. I can just see a difference in subsidies. There's a difference between encouraging home growth and starting another boom. Pushing people to switch houses is very different from pushing new and qualified people into homes. The current law is trying to control for a very fine line between encouraging home ownership w/o giving away too much tax revenue (we all know the fed needs it given their current deficits). I think the studies have said 1/3 of the people wouldn't have bought w/o it. Move it up market it and it stops being an actual incentive and turns into a simple tax giveaway b/c as a % it's less incentive and most of these people already have homes which once again doesn't fix the problem, it only shifts it.
No, I realize that there's a huge glut of mid to upper level homes. People used to say that the subprime crisis wouldn't affect those homes b/c the luxury end of the market would stay strong since upper income people would still have the cash and income to buy. My parents have a 7bdr in Gwinnett they have lived in for 19 yrs that they'd love to get rid of as empty nesters but they really can't as long as the market is depressed. That said the place is paid for and they can afford to hold it until the market comes back a bit but the sheer amt of new construction has likely limited their return to ~20% increase over that nearly 20yr period even though they bought it during the last real estate crunch of '90.
I don't have any vendetta against income...I'm as much of a capitalist as anyone on this board. I can just see a difference in subsidies. There's a difference between encouraging home growth and starting another boom. Pushing people to switch houses is very different from pushing new and qualified people into homes. The current law is trying to control for a very fine line between encouraging home ownership w/o giving away too much tax revenue (we all know the fed needs it given their current deficits). I think the studies have said 1/3 of the people wouldn't have bought w/o it. Move it up market it and it stops being an actual incentive and turns into a simple tax giveaway b/c as a % it's less incentive and most of these people already have homes which once again doesn't fix the problem, it only shifts it.
Who knows if these first time buyers can truly afford all the homes they have bought under the tax incentive program. We've given away a lot of money this last year. I don't see a problem with encouraging people to buy houses in the same way we encouraged people to buy cars. There is no difference. It all speeds up the economy and that's a GOOD thing right now.
Who knows if these first time buyers can truly afford all the homes they have bought under the tax incentive program. We've given away a lot of money this last year. I don't see a problem with encouraging people to buy houses in the same way we encouraged people to buy cars. There is no difference. It all speeds up the economy and that's a GOOD thing right now.
The advantage of the cars program was that it took down inventory by destroying old cars and cleared out some showrooms. It was far from perfect since it was almost a union and new dealership giveaway to churn out cars and a lot of people couldn't meet the reqs. Unless we're up for razing tons of empty homes, we're not going to clear up inventory by encouraging people to trade up like the clunkers program.
The secondary benefit of the current first time homebuyer's credit is that banks are doing serious underwriting now and the majority of the loans are conforming or FHA in the worst case. There are very few ARM's, option ARM's, or subprime products left on the market now. I bought a condo w/ 20% down, a loan amount less than 2X my annual salary, 3 yrs at my current job, 780+ credit score w/ 10 yrs history, and the bank still wanted to see all of my retirement and savings accounts (which verified well over a year of living expenses saved). I provided them 4 yrs of W2's and every account down to $1k. They also required resolution of an incorrectly double listed student loan that would be immaterial to my ability to pay my 3 figure a month mortgage.
As it is I'd be over the gross income limit for the full $8k tax credit if it weren't for my 401K contributions. I can only imagine the nightmare first time homebuyers w/o solid financials encountered trying to qualify for any loan greater than $100k. During the boom I could have easily pulled 400k on a loan w/ nothing but my W2's and credit score which is why you have so many current owners in trouble.
I'm sure with any program there are cases of fraud but I'm guessing it's still far more difficult than during the housing boom. I've read articles about fraud in FHA loans and condo builders in FL opening their own FHA shops to fill their otherwise deserted condos w/ unqualified buyers but I'm sure given how easily the fraud is discovered, it'll be made more difficult as they go.
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Tax Incentive is for Homeowners Only
