Will $8000 tax credit motivate home buyers in chicago? (Hamilton: real estate market, foreclosures)

[lincolnparker]

How many of you are on the fence, but are ready to buy because of the tax credit?

[quadrokeith]

I'll be buying this year. I was going to buy this year regardless of the legislation though. The tax credit will definitely be a help, I may even slide up the price range a little bit... but not much. If this crisis has taught me anything, it is to live within your means.

[hamiltonra25]

Yea this is a nice break for people who HAVE BEEN ABLE TO AFFORD homes. The problem with buying a home is typically the down payment. Before the subprime crisis you needed 20%. If you purchase a 200k condo you need 40k. Most people dont have that lying around. Now you could do PMI private mortgage insurance, but even at that a typical down payment requirement floats around 5-10%. In the long run its tough to come up with the downstroke. So i dont think this will help the housing market

[Lookout Kid]

Originally Posted by hamiltonra25

Yea this is a nice break for people who HAVE BEEN ABLE TO AFFORD homes. The problem with buying a home is typically the down payment. Before the subprime crisis you needed 20%. If you purchase a 200k condo you need 40k. Most people dont have that lying around. Now you could do PMI private mortgage insurance, but even at that a typical down payment requirement floats around 5-10%. In the long run its tough to come up with the downstroke. So i dont think this will help the housing market

People have been coming up with down payments for years. I don't know anyone who put down less than 5-10%. Down payments aren't what's driving the housing slump.

But back to the original post, the credit is for first-time buyers only, so it does little to help me! Although it may make it easier for me to sell my place since I'm in a sort of "starter buidling".

[ajolotl]

If the system were basically healthy and just needed a little kick in the butt to get over a psychological hurdle, then I'd say it would help a lot. I don't think that is the case, though. Deeper problems need to be worked out that will take time. When the job market is healthier and people are confident of their ability to pay long term, foreclosures have been dealt with and returned to a more normal level, people are convinced that home values are no longer adjusting downward, lending flows a little more easily, etc. then the roots of the problem will have been addressed and things will improve. I see this measure as minor in comparison.

[hamiltonra25]

Originally Posted by Lookout Kid

People have been coming up with down payments for years. I don't know anyone who put down less than 5-10%. Down payments aren't what's driving the housing slump.

But back to the original post, the credit is for first-time buyers only, so it does little to help me! Although it may make it easier for me to sell my place since I'm in a sort of "starter buidling".

Thats what got us into this economic crisis. Believe me im a finance major in my senior year and this is ALL we talk about. People didnt pay a dime for their down payment, lied about how much they made, and the bank didnt do any background checks, these are called LIAR loans (literally) and the banks lost everything because they had no down payment to help soften the blow when the house went into foreclosure. Maybe you hang around more affluent people and they always had that. But this is what got the US and World for that matter into this situation.

[sgresident]

I think that the lack of down payment money is what got us into this situation in the first place. people did not have a vested interest in keeping up their payments. nothing to really lose. just the same as renting! I think this tax credit will really help those who have been waiting for just the right time/right price. I wish that I could be a first time buyer!

[hamiltonra25]

It was pretty much a perfect storm that has been brewing for many years. Housing Boom created overvalued home prices. All these homes were being built and people wanted to get their hands on it. Meanwhile investors have been by traunches (100s of mortgages bundled up) and getting great returns on their investments because people were paying their mortgage payments. Then the mortgage payments stopped, investment companies (AIG, Goldman, Lehman) lost all their money because the mortgages were worth nothing, and they had paid all that money to the banks, who kept lending it out. Then you toss in people have 100% loan to value ratio, and we have been asking for this.

[JohnCU]

The Chicago real estate market is still far from bottomed out. Unless you must buy now, you will save more than the amount of the tax credit by waiting until next year.

[Humboldt1]

Hamiltonra25,

LIAR loans are actually called stated income loans. I used to have one back in 2006 when I originally did my loan (since refinanced at 5.25% back in early 08). I did this loan because I had rental income coming in that was not accounted for because the bank was looking for 2 year leases (I had 1 year leases). Either way, I did the loan, got out of it and now have a property that is surely worth less than I paid for it in July 06.

True, lots of abuses were going on, and even when I did my loan back in 2006 it was common to call them liar loans.

I put 20% down on both of my properties and pay on time and am not hurt except when I run a PFS and see my real estate net worth has gone down even though I continue to reduce principal on my loans.

Back in 2005-2006, some were calling for huge declines such as Roubini. Most, however, were not, originally calling for a "soft landing".

Please as a student, don't do the "I told you so" argument. For those of us who have invested in declining assets (i.e. housing) there may have been signs that things were too good to last, but few saw it. It is always easier to forecast after the fact.

Professors, for the most part, have little to any real life experiences outside of the classroom. The knowledge you gain out in the real world will be infinitely more valuable that the knowledge that some bookworm professor read from some other bookwarm professor/analyst.

I agree with many of the other posters that the Chicago real estate market is far from bottom. We may decline for the next 1-2 years. The same can be true of the commercial real estate market, which an architectural firm client of mine this morning described as "worse than slow."