Home Buyer Tax Credit Implications

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Here are a couple of thoughts on what the future holds in light of the first time home buyer tax credit.

First, everyone should realize what the government apparently does not. Namely, there is no free lunch.  A lot of first time buyers have been pulled into the market recently with the promise of an $8,000 government giveaway. All halfway decent realtors are busy as hell right now taking care of these folks. There’s only one problem. These people would have eventually bought a house anyway. All the government succeeded in doing with their wealth redistribution agenda was to pull this demand forward by 6 months or so and create an artificial, temporary demand spike. But once the tax credit expires the natural housing demand will have been drained from the system and activity will plummet. Look for a long, cold winter in Chicago.

Second, with all these first time home buyers trying to get in under the wire, I’m worried that there will not be enough title processing capacity in the system to close all these deals before the deadline. Think of the last weekend of cash for clunkers (another flawed government scheme). So home buyers and sellers could find their closings pushed into December, which will be past the deadline for the tax credit.

In light of the above two considerations, my advice to buyers and sellers is try to get your deals signed by mid-October in order to allow plenty of time to schedule your closings. Any later than that and sellers could find themselves without buyers and buyers could find themselves short $8,000.

Gary Lucido

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3 Comments
Chris

Another thing. It’s not just $8000 for you, that one particular guy, sitting there looking to buy a house. It’s also $8000 for that guy over there, and this third guy too, and everybody else.

All these first-time folks are bidding against each other. Everybody is paying eight thousand more than they need to right now. Seems foolish to me.

Jonathan R. Silber

Greetings, Mr. Lucido,

Another implication of the program: buyers who, having no savings or cash for a down payment, use the credit to make the down payment—say, the three percent or so required for an FHA loan—have been shown to be much more likely to default on their loan and have their property go into foreclosure.

For the losses incurred the taxpayer is now on the hook.

So the cost of the program is not just the cost of the credit, but the losses on the foreclosures, which will
exceed the cost of the credits.

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