Feature: The Future of the First Time Homebuyer Tax Credit
This post first appeared in the September edition of Cirios Trends: Getting to the Bottom of the Housing Market
For all you first time homebuyers rushing out to buy a home before the current $8,000 federal tax credit disappears in December, perhaps now is the time to stop, breathe deeply and assess your financial situation and target market before jumping into such a hefty commitment. Besides, if Congress has its way, there is no rush to take advantage of a tax break. Currently, there are at least 3 different proposed bills seeking to extend and/or expand the current first time homebuyer tax credits.
The leading proposal, HR 2801 – the Home Ownership Moves the Economy (HOME) Act of 2009, introduced in June by Howard Coble (R-NC) and co-sponsored by members from both parties, seeks to extend the current tax credit until January 1, 2011. The bill would also expand access to more potential homebuyers. The HOME Act would remove income restrictions (the current credit “phases out” for singles making more than $75,000 and couples making more than $150,000 annually) as well as extend the tax credit to all homebuyers, not just first time buyers.
A prospective home buyer can glean some important insight from the recent tax credit proposals. First, Congress is standing firmly behind its belief that a healthy housing market is key to our nation’s economic recovery and appears committed to propping up the collapsing housing market by extending financial support to a wider swath of potential buyers.
Second, with the high-end real estate market feeling downward pricing pressure, Congress appears ready to extend taxpayer support to the housing market as a whole, rather than to lower-priced homes only.
So what does this mean for a prospective home buyer?
In reality, it should not mean much.
Buying a home is a huge financial obligation, one which has the potential to, if done right,
establish a solid financial foundation for the rest of one’s life.
But with that potential reward comes risk, which many homeowners are discovering only too late. $8,000 is not an insignificant amount of money, but we often counsel our clients: “If you are buying a home to get an $8,000 check, maybe you aren’t buying for the right reasons.”
Consider that if you buy a $400,000 home, a mere 2% decrease in the value of your home wipes out the $8,000 credit you just received. In markets that have declined, 20, 30 or 40% already, another 2% barely even registers.
An important caveat to both buyers looking to capitalize on the current tax credit and those waiting-and-seeing: the HOME Act of 2009 has not been signed into law, and is still early in the House Committee process. The breadth of this proposed tax credit expansion could drastically change before it is signed into law, or even be abandoned altogether.
Those who followed the passage of the present tax credit know that the Senate initially sought to create a $15,000 credit, and several proponents wanted it extended beyond first time buyers.
In other words: Nothing is set in stone, yet. Whether you intend to take advantage of the current tax credit or wait and see what will be available next year, Cirios is here to aid and educate prospective buyers dipping their feet into what should still be considered a “confusing” market.
Tags: Cirios Trends, first time homebuyer, Home Ownership Moves the Economy Act, HR 2801, tax credit