As the deadline approaches, we are seeing a scramble in the market place for properties within reach of most first time buyers - predominately homes well-under $200,000 in value. In areas like NoMi (North Minneapolis), Camden, Brooklyn Center, Brooklyn Park, Columbia Heights, Fridley - the houses are going fast and often in multiple offers, creating an increase in prices generally not seen during the last few months of the calendar year.
The most common argument I hear against the tax credit is one of fairness. Is giving out $8,000 for buying a house really fair to the rest of the folks who struggled and saved to buy before the market crash, often giving up vacations, putting off major purchases, or working overtime to obtain homeownership? It's a question my husband and I have pondered, and although it doesn't seem completely fair to folks like us - we still endorse the credit, and here's why:
Stabilization of Neighborhoods: Attracting new homeowners to remediate foreclosed properties may be the single biggest factor in the future success of our urban neighborhood, translating to a recovery of property values for not only our home, but our rental duplex next door. Although we aren't getting the direct benefit of an extra $8,000 - we are seeing small signs of a recovery in property values and an overall stabilization of our community with an influx of enthusiastic new owner occupants.
Employment: Buying a home impacts a string of industries - so far, I've come up with mortgage, title insurance, homeowners insurance, closers, real estate agents and brokers, home inspectors, appraisers, local and state governments (property taxes, deed tax, mortgage registration tax, permits, etc), contractors, building suppliers, and an endless number of local businesses who will gain a new customer once the property is occupied again. What would the impact be on these businesses if the tax credit disappeared?
Balancing the High Reinvestment Need and the Lean Appreciation Potential: Although prices are down from 5 years ago, the actual "good deal" is still not as good as it was 13 years ago, when I purchased my first house.
After inspecting over 600 foreclosed properties in the last two years - my experience is the $69,900 house of 2009 is typically so distressed buyers can't use FHA financing (unless it's a 203k), it has title issues, and it's going in multiple offers. The $69,900 house purchased in 1996 was clean, serviceable, and essentially move-in condition, with slightly dated decor but overall free of title and vandalism issues which would have made financing nearly impossible. And I wasn't fending off multiple offers - I was even able to negotiate some repairs into the purchase.
"In other words - the buyers willing to jump in and take on a vacant, foreclosed home in 2009 are still not getting as good of a deal as I got in 1996 due to the condition of the property and the probable lean appreciation years ahead - even with an $8,000 tax credit going in their pocket - although they are still getting a deal compared to prices in 2005."It's one of the few times in life I feel blessed to have been a little older, as I got into the market just before it took off and was able to sell that first house for a very nice profit within just 6 years due to what we now realize was a very irrational market. Today's buyers are mostly likely going to see a more traditional level of appreciation than the buyers of a decade ago.
Common Sense and Comfort Level: The buyers I've been working with are demonstrating a significant amount of common sense. Most of my buyers are buying homes well within their means, and they are planning on saving at least part of the credit for an emergency fund. Also, the tax credit is enabling buyers to have a comfort level to buy despite the overwhelming negativity of foreclosure in the marketplace.
Should the Feds extend the tax credit? It's hard to ignore what it's bringing to the table - and harder to predict what may be the cost if it's removed from the tool box while our economy is still in a delicate position.