I suppose I would be remise as a housing industry professional to not at least mention the new $6,500 tax credit for existing homeowners that was part of the Worker, Homeownership, and Business Assistance Act of 2009, signed by President Obama.
According to the Washington Realtors, over 60 percent of current / existing homeowners will be eligible for this new tax credit. Basically, if you’ve owned and lived in your home five consecutive years over the previous eight years you may qualify for a tax credit of up to $6,500 if you purchase a home by April 30, 2010. Purchase, for this credit, is defined as having a mutually accepted purchase agreement signed, and you have up to up to July 1, 2010 to close. This is especially helpful if you are looking at new construction.
The past tax credits have been focused on the first time homebuyer, and the $8,000 first time buyer tax credit was extended as part of this new bill. Homeownership has been considered part of the American way of life and the Federal government has supported these initial home purchases for years. The basic premise is to continue to maintain and build our society of owners. By getting people to own their own home there have been a variety of social and economic benefits that we have all benefited from. Traditionally there is a trickle down economic theory associated with this policy.
Existing homeowner sells their home to first time buyer, seller buys larger home that works for growing family or general needs, the purchaser ends up buying new or buys an existing home of another person, this new seller needs to find a new home that better needs their lifestyle. This home may be a home they will live in as they enter into retirement or just looking for lower maintenance. Each of these transactions along the way is an economic generator and meets societal needs for all of us. Generally, it all starts with the first time buyer and that is why the focus is traditionally on them. Well, in this previous round of tax incentives it didn’t play out quite that way.
With the economy such as it has been, here is what we saw. As opposed to a family selling their starter home and purchasing a move up house, or people move out of their long term home and move across to a home that better suited their current needs, we saw was people just sitting tight and not making any changes to their lives. There was little reason to do so with all the uncertainty in the world. The first time buyer has been finding their homes in the bank owned and foreclosed properties, short sales, etc. We have noticed in some of the submarkets we work in, that a third to over a half of all homes sold have been bank owned or short sales, and under the $250,000 mark. Candidly, they’ve done a good job of sucking up that excess inventory at the lower price points.
Here is where I think the new tax credit is closer to getting things right, compared to what has happened with the more recent tax credits. It rewards the responsible. There are some great homes to buy out there right now. With interest rates still at historic lows and pricing is pretty amazing. Part of the great news is if you are looking at new construction. This gives many homeowner / homebuyers a brief window of opportunity to get the home they have wanted built. Given building schedules and cycle times home builders need to work through, now is the time to act to have your next home tailored to the way you live.
Simply put, this is an unprecedented opportunity. As the great management leader Peter Drucker famously said, “opportunity favors the prepared mind”. If this is interesting t you, I’m sure you have a lot more questions. There are some details we should all understand. If you wan to know more about the new tax credit, here is a good website to look at: www.federalhousingtaxcredit.com or you can always reach me by email at Brian@LandedGentry.com or stop by one of our communities, our team at Landed Gentry wants to be a resource for you.
