Katya Simmons has several difficulties that may make a home purchase difficult in South Florida. Her income limits her to a price of not more than $120,000, her savings are hot excessive, and she’s in a hurry in a tight market. Like so many other first time buyers, she’s desperately hunting for a property that she can close on before the first time home buyer tax credit expires on November 30.
Her savings will allow her to bring only 3 ½% of the mortgage as a down payment, which means she, like the majority of new home buyers, will be using an FHA loan. Unfortunately, many of the townhouse and condo developments with available homes in her price range cannot qualify for an FHA loan because their homeowner associations are in arrears. And most single family properties in South Florida are beyond her means. So the pool of properties from which she and her competition can choose is somewhat limited.
On top of that, there is a decided dearth of lower cost homes available, because the market is moving so rapidly in this price range. In fact, these lower cost homes are so popular that we are witnessing bidding wars on foreclosure and short sale properties. First time home buyers, ready to buy at prices that have dropped 30% or more from their peak in 2006, are flooding the market. All are driven by the same November 30 deadline for the home buyer tax credit that has Katya so frantic.
Home Sales Up, Home Prices Up
Across the nation, according to the Case Shiller index, home prices leaped 7.2% in July, and show no signs of significant slowing any time soon…if the home buyer tax credit of $8,000 remains in effect. In addition, the index showed a 2.4% increase in prices in May and June, if the markets of Las Vegas and Detroit are not averaged in.
The inventory of unsold homes dropped to a low of around 9 months, from a high of 29 months in 2007. This is good news for the housing industry, because when the market reaches a 7 month supply of inventory, prices typically start to stabilize. According to the National Association of Realtors, stabilized home prices will drive our economic recovery. Additional good news is that these first time buyers are helping to fill in the gaps in neighborhoods that were hit hard by neglected foreclosure and short sale homes.
Making the Tax Credit Work for Everyone
The first time home buyer credit comes back to buyers as a tax credit, which allows many of these buyers to purchase additional items for their homes. Therefore, the credit is a stimulus not only for buying a home, but for purchasing goods. As we know, consumers are the key to jumpstarting our economy. So extending the first time home buyer tax credit will serve two vital purposes.
The first is that home sales will continue to be stimulated. If the first time home buyer tax credit is raised to $15,000 as some are proposing, this will allow even more people to purchase homes. Naturally, these people will also need furniture and household items. So more spending results, and more jobs are created.
But, while bankers, homebuilders, and real estate agents like me want to push congress to extend the first time homebuyer tax credit, the Brookings Institution, among others, feels we are merely spending money we don’t have.
Putting the tax credit work for the future
There is, however, a possible solution that could make the first time home buyer tax credit worthwhile for those who need it now, and for a government that needs funds for the future. This is how it might work:
Eventually, everyone who buys a home must sell it. Unless we have another economic meltdown, most homes will adjust upward due to inflation. At the time of sale, the government could request that the original first time home buyer tax credit, plus a minor interest payment, be repaid out of the portion of the sale that is profit. If there is no profit, there will be no repayment. That way, no one will be penalized if his home value depreciates. But those people whose homes have increased in value should be able to make the necessary payment.
If we continue the first time home buyer tax credit, it gives us a continuing financial stimulus that we desperately need. In later years, the repayment of this tax credit will come back to the nation as a periodic bonus.
Written by Marc Jablon, Realty Associates
marcjablon@yahoo.com / 561 / 213 – 6139
www.marcjablonhomes.com/
Exclusive to Huliq.com
Comment and add to the story without registration, but keep the comments meaningful please. Links are not accepted.
