Saturday, February 21st, 2009 at 7:42 AM
Tax Credit to Spur Home Buying?
LGS sent along this link to BB & T’s John Allison’s 86-minute dissertation, sponsored by the Ayn Rand Institute, on how the government has caused the financial crisis:
http://www.aynrand.org/site/PageServer?pagename=reg_ls_financial_crisis
Here is a link to his charts if you’d like to see a quicker version:
http://www.aynrand.org/site/DocServer/LS091_slides.pdf?docID=1861
He presents a great summary of what’s happened, start to finish, and includes his idea on how to fix the residential real estate market – a 10% tax credit on residential real estate purchases with the goal being to entice individuals to purchase real estate who would not otherwise invest at this time, in an effort to clear the real estate market.
- Reduces cost to buyers without reducing price to sellers
- Available to all/also receive interest tax deduction
- Government-sponsored “fire sale”
- Only available for new houses under construction (or completed) and pre-owned homes for sale as of January 1, 2009.
- Do not want to incent additional house construction
- Incent to act now – only available to August 30, 2009, and limited to $150 billion on a first come/first serve basis. (use part of $700 billion)
- Must have carry forward feature for everyone, and must be available to high-income individuals – those who pay taxes and have capital.
John seems to be like many who would prefer no bailout, but if the government insists on doing something, this is his idea on what they should do. He says in the presentation that the overall prices have come down 20%, and have another 10% to go.
Do you think his idea would work?
Would you buy a house in the next eight months if you got a 10% tax credit?
If you bought a house for $500,000, it would probably be a $50,000 tax credit spread over the next 3-5 years against your personal income tax owed – plus you get the interest deduction too.
Posted on Saturday, February 21st, 2009 at 7:42 AM in Thinking of Buying? | 33 Comments » | 
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If I knew it was a limited time window then yes I probably would. I wouldn’t be as picky as I am right now but I would still look for something with a big price cushion like OCRenter did.
jbirdfunk | February 21st, 2009 at 8:13 amI love how government is trying anything they can think of to keep their banker masters happy.
shadash | February 21st, 2009 at 9:20 amMaybe sellers should get a 10% tax credit? Soften the landing as we fall.
doughboy | February 21st, 2009 at 9:23 amInstead of establishing a credit, how about if the government encouraged transparency in financial markets and started closing a larger number of insolvent banks?
It’s a nice dream, anyways…
greenlander | February 21st, 2009 at 9:24 amIf this 10% also apply to 2nd home and investment property, then I’d look to buy now.
george8 | February 21st, 2009 at 9:26 amI don’t think anything designed to encourage people to buy homes is going to do much good as long as potential buyers continue to perceive home values as being artifically propped up by the government. The worst aspect of the current efforts to do this is that even when prices do hit their natural bottom potential buyers with real cash to put down on a home will have no way to know and as a result will hold off getting into the market longer than they would have if things had been allowed to proceed on their own.
GeneK | February 21st, 2009 at 10:18 amSomeone made a great comment last week to the effect of, “for every foreclosure saved, a buyer is sacrificed.”
What I like about the idea above is that it incentivizes buyers, not deadbeats. Will, it work? Not yet for me, but it seems to be pointing in the right direction.
The Blur | February 21st, 2009 at 10:35 amI think it is the best proposal I’ve seen so far – including the just-passed bailout.
I agree we have to do something, and the something he proposes is about as fair as it is going to get.
The Good Life | February 21st, 2009 at 10:54 amWhen the dot com bubble burst back in 2000, nobody said Pets.com stocks is falling we need tax cuts, stimulus plans to prop it up. So why housing?
Any plan to continue and perpetuate this sort mispricing
no bubble here | February 21st, 2009 at 11:10 amhttp://www.nytimes.com/imagepages/2006/08/26/weekinreview/27leon_graph2.html
will only lead to disaster and more hardship.
“What I like about the idea above is that it incentivizes buyers, not deadbeats.”
Perhaps combine it with a “clean slate” “incentive” to nonpaying mortgage holders: some legal slight-of-hand to record the turning in of their keys as a “sale” rather than a foreclosure and their previous NODs wiped from their credit, plus a “cash for keys” grant to underwrite their move to a rental. Limited time offer, take it now and get on with your lives so your homes can be revalued to market and resold to people who really have a chance of making the payments.
GeneK | February 21st, 2009 at 11:11 amI think the proposal was beyond pathetic. These guys can’t even spell or write in complete sentences.
And from the Ayn Rand institute, no less. You know this is the chick (and I use that term in the most derogatory sense possible) that “Easy Al” Greenspan used to bang when he was young and impressionable? The woman that “invented” objectivism, a philosophy (and I use that word losely) which is an infantile mixture of over-the-top libertarianism mixed with Manhattan-armchair strong-man fantasies?
No wonder it sounds like it is coming from a brain-dead right-winger with daddy-issues.
Problem: ANYTHING
mustbe | February 21st, 2009 at 11:14 amSolution: TAX CUTS !!
That would be the biggest bailout ever invented since TARP. Why not just give you a 100% tax credit? Even simpler, how about we tax renters 100% and hand that money directly into every homeowner’s bank account.
Some people who think they know something about money don’t.
sdbri | February 21st, 2009 at 11:43 amGeneK@10: “some legal slight-of-hand to record the turning in of their keys as a ‘sale’ rather than a foreclosure”
The flip-side of that proposal is that manipulating credit reports is going to cause lenders to lose (some) confidence is those reports and the FICOs derived from them. Given that we’ve lost confidence in, oh, just about everything else having to do with housing finance, I think blurring up the credit reports would come back and bite us on the ass real hard.
Johan Larson | February 21st, 2009 at 2:32 pmPandering to perceived constiuents and big time doners (banks) is what this is all about. As soon as home prices are allowed to be priced at the market value the sooner things will start to get better.
shadash | February 21st, 2009 at 3:35 pmI think it’s a given that our national ass is going to get bitten multiple times, if it isn’t already happening. But my guess is that the majority of people defaulting were already in subprime territory before they bought homes in the first place. All we’d be doing for them by making their foreclosures disappear is shortening the length of time it will take them to raise their FICOs into the credit worthy range, assuming they’ve learned a lesson and can ever get there at all.
GeneK | February 21st, 2009 at 4:02 pmYeah, yeah, I know a lot of you renters out there want the gvt to sit back and do nothing.
Well, that’s not going to happen. It was evident that wasn’t going to happen two years ago and it has turned out to be true.
I do sympathize with those of you who state that keeping the idiots whose payments are shooting through the roof is not fair – that’s why I think the proposal outlined in this post is much better.
What we really need is to encourage people to buy, and giving them 10% off will go a long way to alleviate the fear that prices are still heading south.
It can’t get much fairer than this: buy a house, get 10% back. All you have to do to get your dough is to BUY.
The Good Life | February 21st, 2009 at 5:36 pmI’m trying to decide…should I click on an 86-minute long link to something sponsored by the Ayn Rand Institute, or pry my fingernails off one by one using needle-nosed pliers?
Blissful Ignoramus | February 21st, 2009 at 6:53 pmBuy with the tax credit? Nope. Prices are still way too high.
KC | February 21st, 2009 at 7:02 pmHow about a $8,000 fed credit, $10,000 state credit, 10% income tax credit, 4.875% interest rates, and 20-30% off peak pricing??
Still not tempted?
Many others will be.
Saw this gem on a short-sale listing today:
All offers need to include “Buyer will pay $3000 for Seller’s HOA costs”.
Jim the Realtor | February 21st, 2009 at 7:20 pmIt would definitely encourage us to buy this year instead of waiting until next year.
Erin | February 21st, 2009 at 7:27 pmAyn Rand would not like this. NOT ONE BIT!
Stephen Waits | February 21st, 2009 at 7:34 pmGood advice from Century 21:
“Ask For BANK OWNED”
W.C. Varones | February 21st, 2009 at 8:21 pmWho pays for it?
Alex | February 21st, 2009 at 10:04 pmShadash:
“As soon as home prices are allowed to be priced at the market value”. How do YOU define market value and when do you know this has happened?
LC Jim | February 21st, 2009 at 10:23 pmMaybe sellers should get a 10% sales tax.
That would help reduce supply and keep prices artificially inflated, which is what Obama seems to want.
W.C. Varones | February 22nd, 2009 at 8:27 amAll offers need to include “Buyer will pay $3000 for Seller’s HOA costs”.
I had to read that three times before it sunk in.
To me it isn’t even about the money. This screams of a seller you cannot possibly work with. I’d rather promise to feed the squirrels. [Remember that?]
Rob Dawg | February 22nd, 2009 at 8:41 amI would have bought a house (one particular house) last week if they offered 10% tax credit. But what you would see is the sellers become unrealistic because they know there is this tax credit out there. So I don’t think it would be as effective as advertised if offered. The sellers and buyers aren’t desperate enough yet.
Ling | February 22nd, 2009 at 8:44 am“How do YOU define market value and when do you know this has happened?”
That’s the problem with govt efforts to prop up home prices. Nobody will know when it’s happened and most people will just keep waiting for some arbitrary indication of their own choosing that convinces them. It’ll be chaos.
GeneK | February 22nd, 2009 at 9:02 am“To me it isn’t even about the money. This screams of a seller you cannot possibly work with.”
“Work with,” no. But if I liked the house enough to put an offer in, maybe f*** with. Like putting in an offer that says, “seller to pay down remaining Mello-Roos obligation and one year HOA.” Then, if a counter comes in, counter that by lowering the original offer.
GeneK | February 22nd, 2009 at 9:07 amI have some question and comments:
1. Not everyone who buys a new home can get the credit. I read that the maximum California total credit is $100 million or about ten thousand new homes at the full credit. Those kind of numbers aren’t going to make a dent in helping the issue, rather mask it and kick the problem down the road. This only serves to create a larger beast.
2. Is the California tax credit only for new unoccupied homes in California? If so, sounds like pro home builder provisions to me. If Fed tax money aids the California plan then we are subsidizing the purchase (either way we are) for the new buyer and ‘sacrificing’ the seller. Granted, I believe they should lose their home anyway.
3. Does the 10K credit apply to signed contracts or close of escrow? Can you say delay, delay, delay?
4. On the Fed side: I read somewhere that single filers are eligible for the full $7500/$8000 credit. And married filing jointly get half or the $3,750/$4,000. Read the tax code as always or consult a CPA and or Lawyer before diving in.
5. I like this the best (non house related) – Obama exempts the first $2,400 of unemployment insurance benefits from federal income taxes in 2009. So basically the first month of my unemployment check is exempt – Hip Hip Hooray!
3clicks from da Beach | February 22nd, 2009 at 10:11 amJim “Saw this gem on a short-sale listing today:
All offers need to include “Buyer will pay $3000 for Seller’s HOA costs”.”
Wouldn’t that be because the seller is delinquent on the HOA and no other lien holder wants it coming out of their end?
Ling | February 22nd, 2009 at 11:09 amWhat we really need is to encourage people to buy, and giving them 10% off will go a long way to alleviate the fear that prices are still heading south.
————————
Incorrect. Unless the govt is going to offer this seller subsidy indefinitely, then buyers have no reason to believe prices have hit bottom. Many will wait until the govt stops subsidizing the housing market, so true price discovery can be realized.
As to the question, “what is fair market value?”:
FMV exists when prices are set by buyers who have the income to afford the prices using traditional loans (30-yr, fully-amortized, FRMs and have a 30% max DTI ratio on stable, verified income). As long as the government is artificially propping up prices, we have not hit bottom. It will only make the downturn last longer, because the clueless homedebtors will hold on much longer than they should, because they will think prices are going to rocket back up in just a couple of years.
Shadash is right. We will not see an economic recovery until prices are allowed to fall to their intrinsic value. Keeping people indebted for life is NOT going to help our economy. People need to repudiate their debt (walk away/foreclose), so we can start anew.
CA renter | February 23rd, 2009 at 1:27 amI do not think this would help. I think the main issue is that the price of homes has outpaced incomes. The prices of homes these days may be lower, but they are priced so high that people have to take on massive debt to “own” their home.
James | April 5th, 2009 at 6:41 pm