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$8,000 Home Tax Break Update

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October 27, 2009 – Comments (11) | RELATED TICKERS: H , O , ME.DL2

It is looking like my predictions on the housing credit are not going to turn out to be accurate (and neither will zloj’s). Looks like Congress held off on extending UE benefits so they could bundle it with the tax credit and that ensures there is ZERO chance Obama will veto them packaged together.

 

In an effort to make the new credit more confusing and less economically beneficial, the credit amount will be reduced to $7,290 (no idea who came up with that number), but it will allow for “move-up” buyers to qualify for the credit so long as they either live in their existing house for 5 years or are willing to “state” that they have (This constitutes a fairly large number of recent home purchasers who procured the loan via “stated” income).

 

This newly extended / modestly reduced credit will only extend to April 30th, 2010 (plus 60 days for closing), though I would expect if the USA has not completely run out of ink in the printers that the credit will be extended one more time (perhaps to $6,480), as I doubt any politicians will want to stop giving away “free money” before the 2010 elections.

 

The next non-sense housing agenda that I have not heard any movement on is extending the limits on FHA conforming loans. That is currently set to expire at year-end and will keep FHA out of loans over $417,000.

 

I’m not holding out hope, but I will still wish for a Friday miracle that gets rid of this wasteful, ineffective credit.

 

See post from Sept 27, 2009 for original, inaccurate prediction

 

As far as the impact to the housing market, by the way, I expect this has little to no impact. This credit getting extended was more or less fully priced in.

 

I maintain my central belief that despite the past few months of rises, national housing prices median will not bottom until at least one year from now.

11 Comments – Post Your Own

#1) On October 27, 2009 at 11:04 PM, hud500 (44.58) wrote:

That's a real shame.

Agree that prices have further to go. I would have thought these measures have to drop below 100 once all these games and manipulations stop?If not well below 100.

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#2) On October 27, 2009 at 11:17 PM, tonylogan1 (27.87) wrote:

hud -

Take a look at case shiller adjusted for inflation.

It looks like it is already getting close to 100 if you account for inflation.

If my link does not work, try looking at http://case-shiller.blogspot.com/

Calculated risk and dr housing bubble have been doing a good job rallying against the credit, but clearly logic is unimportant.

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#3) On October 27, 2009 at 11:33 PM, devoish (89.76) wrote:

Tonylogan,

Despite my defending the "gov" against the FHBTC fraud exagerrations, I do not like the tax credit either and do not think it is effective. The vast majority of the people who took the credit would have purchased their house anyway, so there is little bang for the buck.

The only value I can see from it is that it speeds the fall in home prices (and pension values and 401k's and everything invested in them) and that is a real gain.

But once again, those houses, that we all saw the pictures of sitting empty, represent real copper and forest and cement and the limited energy and resources to build them. It would be a tragedy to increase home prices by letting them rot and then building new ones after a recovery.

Private mortgage lenders and investment banks pulled future resources forward with their weak lending standards. Letting these homes rot will only raise the cost of tomorrows homes, so unfortunately demand (or ability to buy) also needs to be pulled forward or the natural resources are wasted. It would be nice to just let it happen through market forces but that does not actually seem to be a very effective strategy right now.

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#4) On October 27, 2009 at 11:43 PM, tonylogan1 (27.87) wrote:

Devo -

Good to see we agree on this one...

I think you may have meant that the credit stops house prices from falling so quickly? (The credit is definitely holding prices up, since it is allowing people to buy houses up to $267,000 with no money down)

As for the natural resources, not to worry, the majority of the resources to build a house are recycled. Very little copper goes to waste. Trees keep growing, and in fact, new trees recycle more CO2 than old ones.

While you are correct there is a certain amount of energy input to build a house, it is extremely small compared to the economic impact of bubble building.

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#5) On October 28, 2009 at 12:28 AM, tonylogan1 (27.87) wrote:

Just read this comment from josap (profile) wrote on Tue, 10/27/2009 - 4:29 pm on Calculated Risk...

"Oh, this gives the owners who short sale a way to buy a new house. Very smart thinking.

As people have no money when they do a short sale or are forclosed on, the tax credit / down payment will get them into another house. That works, a second chance to lose your house, just like the people trying to get a loan mod. Perfect thinking."

I could not figure out the point of the extension to "move-up" buyers, but I think josap hit the nail on the head! Particularly since a "move-up" buyer does not actually have to even sell their old house.

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#6) On October 28, 2009 at 12:44 AM, tonylogan1 (27.87) wrote:

Another good comment on Calculated Risk from ridiculous_fish (profile) wrote (in reply to...) on Tue, 10/27/2009 - 5:16 pm

"My ears are burning - my wife and I are FTHBs with a combined income around $170k, looking to buy a house in the $650k range. Even though we were not previously eligible for the credit, we consoled ourselves with the fact that most people looking to buy in our range aren't either.

And now we're still not eligible, but much of our competition is. This change makes us significantly less likely to buy in the near future.

What's up with the reverse Robin Hood? When did it become OK to take from renters and give to homeowners?"

Tonylogan comment - Hopefully Congress figures out how silly this is and at least sets it up so income reuirements are the same for FTHB and "Move-up" buyers.

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#7) On October 28, 2009 at 4:39 AM, KamranatUCLA (29.60) wrote:

i looked all around LA for a condo or a house. I found that most houses are still out of my budget, unless I live with gangmembers and maybe get shot in my condo.

Prices are still very high and believe it or not in a city of 8 million people that amount of houses and condos that are for sale are ridiclously low. 

Renters still can't afford to buy...8000 never made a difference because in Southern California you can't get a house or condo under 380,000  unless ur willing to get shot in your bed by mentally ill gang members.

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#8) On October 28, 2009 at 10:52 AM, leohaas (29.69) wrote:

Hey, I need this credit! How else am I going to pay the taxes on my planned IRA-to-Roth-IRA conversion next year?

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#9) On October 28, 2009 at 10:53 AM, tonylogan1 (27.87) wrote:

Kam -

My prediction here is just related to National medians, however I fully agree, Los Angeles Median price will drop 2-3X more than the National decline %.

Today I stayed in Orange County and had little to no use for my kalachnikov.

(I also saw a parked Good Year Blimp)

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#10) On October 28, 2009 at 11:33 AM, EnigmaDude (65.27) wrote:

Well I for one really do need the credit extended.  I think home prices are still going lower, it has not been 3 years since I owned my last home (a requirement for the current credit to qualify as "first-time"), and I have to improve my credit score some more after my BK.

I am a single Dad raising a teenage daughter who has Needs!  Well I have needs too, you know!

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#11) On October 28, 2009 at 11:38 AM, outoffocus (24.07) wrote:

I think I need prices to come down more than I need a freakin credit.

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