What will the Expanded Tax Credits Do for the Market?
Many people, by now, have heard that the government has extended and expanded the First Time Homebuyer Credit, and added a provision for Move-up Seller/Buyers. Information about the First Time Homebuyer Credit is available on my website.
But How Does This Effect the Market?
Take
a moment to consider what this means to first-time buyers, as well as
those who have a home to sell, and are considering moving up. The
benefits to the first-timers is obvious. Paying $8000 less in taxes to
the Federal Government keeps $8,000 in their pocket. This provides a
great contingency fund for the first year of home ownership, can help
defray some update and repair costs if necessary... or whatever else
you would like to do with the funds.
With an FHA loan,
which most first-timers use, they would be able to purchase a home for
approximately $230,000 and get as much back from the government as
their down payment! With so many strong buyer markets, and sellers
covering closing costs, that would mean, almost literally, no money
down. The beauty of this system is that the buyer must have saved up
the money to buy first, then get the credit back. This will help to
ensure that they are capable of saving, monitoring expenses, etc.-
important precursors to successful home ownership.
More
importantly, it does two things. First, it provides a great
psychological boost to nervous first-timers who are on the fence about
buying. For most, $8000 is a large enough sum to make them feel
comfortable taking the big step of home ownership. What that will do
is create more demand for homes that are favored by first-time
buyers.... town homes, condos, etc.
The
secondary effect will be to allow sellers of those homes to move up,
and thus get the market moving again. Think about it. Due to the cost
of new construction homes, few first-time buyers can afford new
construction. So, for almost every home purchased by a first-timer,
there is a seller who can move on. It is easy to see how this program
may provide a boost to home sales.
I know that the tax incentive has motivated my first-time buyers, and the extension has motivated more of them. With prices low, interest rates low, and incentive money from the government, it is truly an outstanding time to buy a home!