You must be thinking “is this guy crazy?” An insentive for buying a house, who doesn’t want that? Well I don’t. And up until a week ago I was trying to take advantage of the current first time homebuyer tax credit. Key word there is trying. You see my wife and I have discovered there is quite a lot of competition out there for homes in the “first time buyer price range.” And competition drives up prices. People are clamoring to take advantage of the credit. You would think that the credit would help. But in the end it hurts.
My wife and I aren’t the only ones to think so. There are other articles that also feel this is bad. I will just tell our personal story. That all starts with a trip to the lawyers office. Our apartment lease doesn’t end until April 30th and if we closed on November 30th, the last day of the credit, we’d be on the hook for 5 months of rent. So half of the tax credit gone, straight away. The lawyer cut a deal with the apartment complex and we were off shopping. But we weren’t the only ones. Twice we ran into situations where agents had schedules showings for the same or overlapping times. Both times there wasn’t one other potential buyer there, but two! And both homes stayed on the market less than a week. We live in Pennsylvania, but the same thing is happening in Santa Clarita, CA.
We ended up making three offers in the span of two months. And we lost out on two of those offers. Both were at asking price! We had been watching lots of HGTV and none of those people payed asking! In one case there was an escalation clause involved! My agent was beside himself both times. So you may be asking, what happened to the third? We were under contract on that third house. The home inspection revealed a few big ticket items that needed to be addressed. And the homeowner didn’t want to give us any money towards repair. This homeowner was quite “hostile” during negotiations. But I also got a sense that they felt we could suck it up since we were getting free government money. Well it isn’t free if we have to use it to rebuild the falling garage we paid for.
This quote from the Calculated Risk Blog sums up the market situation nicely.
This level of first-time buyers is completely unsustainable – even if another tax credit is enacted. There was significant pent up demand from potential first-time buyers who were priced out of the market in 2004-2006, and then were afraid to buy as prices fell. But demand from these buyers will wane.
We were part of that pent up demand. Before the market “collapsed” we wondered if we would ever be able to afford a home. Well even after the collapse we still can’t apparently.
Here are some other points to ponder. Others have pointed out that a credit such as this, especially if it is extended to everyone, will raise the price of homes by that amount. And that is true. But who does that benefit? Not the buyer. If that $8,000 credit goes towards your down payment, and you put 10% down, that allows you to buy $80,000 more house. Although you were able to afford more house you have a larger mortgage. You have to pay some of that money back, compounded with interest. Your mortgage company likes that. Yeah those same guys that marketed their “toxic”, bound to fail mortgages to others, that got us into this whole mess. And we will all have to pay for this program via taxes. Meanwhile the seller just walked away with $80,000 more than they would have been able to get otherwise. Let’s not forget to mention the people trying to defraud the system. So write or call your senators and tell them no.