Homebuyer Tax Credit is a Mixed Blessing

Advisory Board Opinion

Homebuyer Tax Credit is a Mixed Blessing

Peter P. Casey, GRI, CRB, RECS

12-7-2009 (Publication Date)

The Worker, Homeownership and Business Assistance Act of 2009, signed into law on November 6, extends the American Recovery and Reinvestment Act and expands homebuyer tax credits to some current homeowners. The Act became effective on November 7, 2009.

First time homebuyer tax credits continue to be available, up to the original $8,000 maximum credit, but income limits have been raised $50,000 to $125,000 if single or $225,000 for married couples. The original deadline of November 30 has been extended to April 30, 2010.

Under the Act, current homeowners, if they owned their primary residence for five consecutive years out of the last eight years, are now eligible for a credit of up to $6,500 if married or $3,250 if single. Income limits are the same as for first time buyers. There is absolutely no tax credit for the purchase of any home exceeding $800,000.

Homebuyers are only eligible if a binding contract is signed by April 30, 2010, even if the purchase closes as late as July 1, 2010. Any future claims for tax credits will require that documentation be filed with claimants’ tax returns. Eleven state housing finance agencies (FHA’s), not including Massachusetts, offer products that allow buyers to apply tax credits as down payments. As with all tax laws, things are never so simple and the actual credit will depend on the specific facts of each particular case.

Has the homebuyer tax credit worked? Will it positively impact our economy? As you might guess, it depends on whom you ask.

The National Association of Homebuilders claims that the new law will create nearly 325,000 jobs, $16 billion in wages, $12 billion in business income, $8.4 billion in Federal tax revenue and $3.2 billion for state and local governments. They also conclude that the excess stock of homes for sale will be absorbed and home prices will begin to move up again.

National Association of Realtors economists estimate that two million people took advantage of the original tax credits contributing some $22 billion to the general economy. “Now”, to quote a famous radio host, “for the rest of the story!”

Bloomberg news, along with other media sources, reports that key controls were missing in the rush to distribute credit checks and, as a result, significant fraud occurred. The Internal Revenue Service has identified more than 74,000 fraudulent claims totaling more than half a billion dollars; this out of the roughly 1.2 million credit claims totaling $8.5 billion.

Goldman Sachs estimates that all but 200,000 home sales, of those 1.2 million, would have occurred without the homebuyer credit. The National Association of Realtors puts the estimate at 350,000. One MIT professor concludes that, at a marginal cost of between $43,000 and $80,000 per incremental sale, the ratio of new economic activity to spending is far too low. He also concludes that homebuyer credits raise the cost of housing which, in his view, is already too high.

Recent Rasmussen surveys find that 57% favor the credit of $8,000 for first time homebuyers. “But support falls to 42% when respondents are informed that the program will cost several billion dollars. With the price tag attached,” Rasmussen says, “a plurality of voters (45%) are opposed to the plan.”

Where do you stand? Is this a good way to spend taxpayer dollars or is it a bad idea? Will you take advantage of the opportunity or not? Is this good for the housing markets or does it artificially inflate housing prices?

I have mixed feelings. In the short term it could improve my business, a very good thing! Long-term I prefer an economy where expansion results naturally from lower taxes.

END

Banker & Tradesman ©2009 All Rights Reserved

A Stimulus Or A Tax Grab?
By Peter P. Casey, GRI, CRB, RECS


More than four decades of business experience, and a couple more of life experience, have taught me that when income declines we have two choices: cut expenses or borrow money to cover the shortfall. Bailouts were not an option!

Conveniently, our government can also print money or turn to its preferred method of solving all problems, raise taxes! Borrowing money has become an all too popular government-funding source while cutting expenses at all levels is the last resort, clearly unacceptable to most officials.

Housing markets in Massachusetts and across the country are in trouble and they need to improve before the general economy can recover. If you agree, you probably also agree that the 2009 Homebuyer Tax Credit is a good idea, at least conceptually if not in scope. After all, this generally accepted prescription for recovery only amounts to .8% of the $787 billion stimulus package.

Ok, at least they’re trying. The credit does contribute to improving the affordability of housing and may start things moving in the right direction. Is it enough? Well, lets see what else government is doing to help.

Well, there’s energy scoring, a statewide sales tax on services, deeds excise tax increases, rental taxes on seasonal rentals and transfer taxes (again). Now, I’m no Albert Einstein but I am good at math and pretty sure these ideas will not help make housing more affordable! In fact, my calculus suggests that they will easily offset the Homebuyer Tax Credit.

Take energy scoring, for example. Defeated in Massachusetts last year, it is now a hot item on the minds of Congressmen Markey (D-MA) and Waxman (D-CA). They propose requiring point of sale (at closing) energy star labels for homes and commercial properties and providing funds to states to develop the labeling program.

Labels will not improve energy efficiency! They will stigmatize properties (especially older properties found in Massachusetts) and likely cause a loss of property value thereby reducing family wealth and weakening the overall economy. A pre-sale audit would be required, further increasing the cost to sell. A more constructive use of these funds might be to offer incentives (i.e. tax credits) for actually making buildings more energy efficient.

Consider the proposed 5%+ statewide sales tax on services, including real estate commissions. Although withdrawn as an amendment to the House proposed budget, it would have increased the cost of selling a $400,000 home by approximately $1,400! Stay tuned as the Senate’s budget is released!

Barnstable County has proposed a $.43 per thousand increase in the deeds excise tax. Martha’s Vineyard and Nantucket are back with yet another Transfer Tax in addition to the 2% tax already in place. A Rental Tax of up to 9.7% of income has been proposed for short-term rentals of single-family homes and there is even talk of imposing a “hotel/motel” like tax on seasonal private homes.

Why is it that government, while claiming to “feel our pain”, seems unwilling or unable to act in furtherance of alleviating it? Why is it that we, the people directly affected by these tax grabs, are not screaming form the rooftops to stop them? Perhaps it is because all these fees and taxes by other names may not appear to affect us as individuals.

It seems to me that all government entities should be required to quantify and regularly report on the total cost of taxes and fees charged by them as a percentage of our household income. I call it “truth in taxation”. A good friend of mine suggested that a “household income impact statement” be required before any new or increased taxes or fees are adopted. I would be happy with either but both requirements would be better. Maybe then we will know when enough is enough!

END

This Advisory Board, Editorial Opinion was written for Banker & Tradesman Newspaper, a New England Banking and Real Estate Weekly, and for its Online Edition. All Rights Reserved.

UNBALANCED REPORTING DRIVES HOME SALES DOWN

(Advisory Board Opinion)

By: Peter P. Casey, GRI, CRB, RECS
Prudential Wilmot Whitney Real Estate
3/2/2009 Edition


The answer must be pride! Surely pride is the reason
residential real estate is not selling as briskly as it
once did. Certainly sellers don’t want to admit to
taking a loss if they sell and buyers each want to
believe they bought at the bottom of the market.

If not pride, perhaps sellers are simply unreasonable
for refusing to reduce prices and bargain-hunting
buyers are simply enjoying the hunt for a bargain.
No, it must be that the laws of economics are so
inexorable that they alone control market conditions.

Yet another possibility is that published speculation
about the desirability of available properties, or about
properties being overpriced and not worth buying, or
about the declining market lasting for years to come
all have something to do with a buyer’s willingness
to buy or a seller’s willingness to offer a property for
sale. Are such proclamations, mostly claiming to be
news or expert testimony, the driving force behind
buyer and seller decisions or are their decisions made
independent of such influence?

Much of the statistical housing information being
published daily seems accurate. Inventory is down,
sales and median prices are down and homes take
longer to sell than they once did. All true!

Also true, but not often repeated, is that interest rates
are among the lowest in the past forty years and there
are plenty of very nice homes for sale at fairly
reasonable, perhaps not bargain, prices. Why is it,
do you suppose, that the bad news is reiterated ad
nauseam while seemingly good news is lost in a
barrage of negativisms?

Consider the content of much of the published
commentary on housing, and on many other issues
for that matter. Most accurately report the facts but,
unfortunately, most also add discussion more akin to
editorial opinions. At least editorial opinions are
clearly labeled as opinions, just like this one! The
reader or listener understands that not all opinions are
valid or correct and decides for him or herself how to
value each. On the other hand, opinions mixed with
facts and labeled as reporting or expert testimony are,
in my opinion, typically misleading and potentially
dangerous.

So, now I return to the question asked earlier: are
published proclamations claiming to be news or
expert testimony the driving force behind decisions
or are buyer and seller decisions made independent of
such influence? I leave the answer to you.

We clearly have a serious housing problem. Why the
problem occurred or why it continues to exist will be
the subject of much public and private commentary
long after the problem is solved. It is clear to me,
however, that ill-founded speculation will not solve it
and may forestall our willingness to adopt helpful
solutions.

My purpose here is simply to suggest that the
suppliers of the public discourse take a critical look at
their contribution to the problem and that consumers
hone their critical evaluation skills for what they read
and hear. If erroneous facts and misinformed and ill-
founded speculation do, in fact, drive some segment
of the decision process undertaken by buyers and
sellers, a more balanced approach by contributors and
a far more critical analysis by consumers may be
important elements of a housing recovery.

END

Banker & Tradesman ©2009 All Rights Reserved

November 2008 Housing Release

Massachusetts Home Sales Down in November

After Two Straight Months of Increases

FOR IMMEDIATE RELEASE

Contact:
Eric Berman
Massachusetts Association of Realtors®
eberman@marealtor.com
781-839-5507

WALTHAM, Mass. – December 23, 2008 - The Massachusetts Association of REALTORS® (MAR) reported today that single-family home sales were down 21.8 percent in November compared to the same time last year after two straight months of year-over-year increases. Condominium sales were down 27.3 percent in November compared to the same time last year. The median price for a single-family home in November was $283,000 while the median price for a condominium was $250,000.

“While prices still continue to be affordable, the uncertainty created by the September financial crisis on Wall Street caused many would-be-buyers to once again stay out of the housing market,” said MAR President Susan R. Renfrew, broker/co-owner of Renfrew Real Estate in Greenfield. “We need a vibrant housing market to help get the economy moving and the recent steps by the Federal Reserve to reduce interest rates combined with affordable home prices are the type of action we need.”

There were 2,339 detached single-family homes sold this November, a 21.8 percent decrease from the 2,991 homes sold the same time last year. On a month-to-month basis, home sales were down 28.1 percent from 3,251 homes sold this past October. Sales traditionally go down from October to November.

The median selling price for single-family homes in October was $283,000, a decrease of 14.2 percent compared to $330,000 in November 2007. Median prices have remained below $300,000 for the third consecutive month. On a month-to-month basis, the November median selling price was down 4.0 percent from $294,900 in October 2008.

The condominium market experienced a 27.3 percent decrease in the number of units sold this November, compared to the same time last year (from 1,246 units sold in 2007 to 906 units sold in 2008). On a month-to-month basis, condominium sales were down 30.1 percent compared to the 1,296 units sold this past October.

Condominium median selling prices in November were down 9.1 percent from $275,000 in 2007 to $250,000 in 2008. Compared to this past October, the median selling price of a condominium has remained the same at $250,000.

Inventory and Days on Market:

The inventory of residential properties on the market as of November 30, 2008 decreased 16 percent compared to the same time last year (from 48,036 listings in 2007 to 40,590 listings in 2008). At the current sales pace, this represents approximately 12.5 months of supply, an increase from 11.3 months of supply in November 2007. On a month-to-month basis, the average months of supply is up from 9.9 months in October 2008. It is considered a balanced market when there are between 7.5 and 8.5 months of supply.

The inventory of single-family homes decreased 13.0 percent from November 2007 (32,786 listings in 2007 to 28,607 listings in 2008) which translates into 12.2 months of supply in November 2008. This is up from 11.0 months of supply last year and up from 9.8 months of supply in October 2008.

The condominium market saw October inventory decrease by 21 percent from last year (15,250 listings in 2007 to 11,983 listings in 2008), which translates into 13.2 months of supply, up from 12.2 months in 2007 and up from 10.2 months this past
October.

Detached single-family homes stayed on the market an average of 137 days in November 2008 compared to an average of 133 days in November 2007, while condos stayed on the market an average of 149 days, up from an average of 141 days in November 2007. On a month-to-month basis, days on market for single-family homes were down from 140 days and condos were up from 141 days in October.

About the Massachusetts Association of REALTORS®:

Organized in 1924, the Massachusetts Association of REALTORS® is a professional trade organization with more than 21,000 members. The term REALTOR® is registered as the exclusive designation of members of the National Association of REALTORS® who subscribe to a strict code of ethics and enjoy continuing education programs.

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Editors and reporters: Please note that the term Realtor is properly spelled with an initial capital “R”, per the Associated Press Stylebook.