Misconception

Regarding the most recent stimulus package which is now in effect, the $8,000 tax credit for first-time home buyers is in fact a true credit. As a practical matter, it replaces the $7,500 "tax credit" which preceded it and which was actually a loan. The only caveat is that a homeowner must retain ownership of the property for three years, or the $8,000 will be recaptured. (I believe the entire $8,000 out of the proceeds of the sale will be recaptured. However, I am not certain if the amount recaptured is predicated on the amount of the capital gain on the home. In other words, is the amount recaptured capped by the gain if the gain is less than $8,000?) In addition, this credit is gradually reduced for individuals whose income is over $200,000 per year and couples whose income is over $250,000 per year. (Sources: MAR, WSJ)

As an aside, President Obama's budget calls for a reduction in the Mortgage Interest Deduction on a graduated basis for individuals whose income is over $200,000 per year and couples whose income is over $250,000 per year. (Sources: MAR, WSJ, CNBC)

Without getting too political, people should look long and hard at the economic philosophy underlying the graduated phasing out of benefits as referenced above based on income ratios. Does this comport with your economic school of thought, along with your goals and aspirations?

$15,000 Credit Update

According to Fox Business, part of the compromise regarding the stimulus package was the watering down of the $15,000 tax credit for the purchase of a primary residence. Originally, the credit was to cover the purchase of any primary residence, regardless of the number of homes one had owned in the past. However, it now appears that the credit will be applicable only to first-time buyers.

This is obviously a blow to real estate professionals including, but not necessarily limited to, real estate agents & brokers, mortgage lenders & brokers, and home builders. Weren't these stimulus packages, TARP, etc. designed to stabilize the housing market? After all, it is the general consensus that the crux of the economic distress rests with the real estate meltdown. Hmmm...

$15,000 Tax Credit

As of yesterday, February 4, Republicans were making great strides toward inserting a powerful real estate stimulus into President Obama's proposed stimulus package. According to the Associated Press, Republicans appear to have been successful in negotiating a $15,000 tax credit into the package. Specifically, the tax credit is for 10% of the value of the home, with a cap of $15,000. (The current credit is for $7,500.) Purportedly, the breadth of the credit will also be expanded to include all home buyers, as opposed to only first-time buyers. (Source: Associated Press)

In the event that this credit comes to fruition, the positive ramifications for the market should not be discounted or underestimated. I envision this credit being a tipping point for the countless people who want to sell their current homes and then purchase new homes. Many people are not selling because they fear they will not be able to afford to buy another home. For many, this tax credit could be the answer. This credit will offset a large portion of the costs associated with buying and selling. Similarly, first-time buyers who are on the fence as to whether to pull the trigger will have another reason to dive into this buyer's market.

As an aside, here are some statistics for the local housing market (15 towns from Boxford through Littleton, MA) covering trends for December as compared year over year (December '08 as compared to December '07): Single-family home sales increased 7%, but the most dramatic shift was an increase of 158.1% in sales of multi-families. In contrast, condominium sales slid by 39.4%. The drastic increase in multi-family sales is explained in large part by the steep decline in the median price, which fell by 36.2%. Prices for single-family homes and condominiums fell by 10.5% and 15%, respectively. All three types of properties described herein are still sitting on the market for an average of 4 to 5 months. (Source: Northeast Association of REALTORS).