Is the 8000 dollar tax credit incentive driving up housing price?

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I hear we have until the end of November to buy a home and get an 8000 dollar tax credit from the government. But could this possibly drive up the price of real estate, so in the end you really don't save?

I really don''t like having a deadline to purchase my first home, I want to take my time to find a good deal and a great home. But this tax credit incentive is so tempting...

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My two cents- YES, if you are in the first time homebuyer price point in your area. In the Philly area, first time homebuyers tend to buy homes below $300,000. I just sold my home two weeks ago. Between March-July, there were six homes sold on my street. They were sold between $165-$210. The market then "cleared" with no homes for sale. On Labor day, I listed my home at $227 (against the advice of my realtor who told us to list at $214 by the way) and received multiple offers. This is the highest sales price this block has ever seen. We bought the home for $214 at the height of the bubble in the summer of 2005.

So why am I telling you this? Because IMO, our home is no better than the neighbors. In fact we have 1060 square feet and 1.0 bathrooms. Most of my neighbors have 1400 square feet and either 1.5 or 2.0 bathrooms. We strategically listed it at the time when procrastinating potential first time homebuyers are in a feeding frenzy to buy a home and receive their $8,000 tax credit. And by doing this, my wife and I essentially "collected" the check, not the buyer through an inflated sales price. Yet another reason why these stimulus programs are poison. The net effect of the tax credit is to take $8000 out of the mouths of renters, retirees, and those in need of federal assistance and transfer it to my wife and I so we have a smaller mortgage on the new 3500 sq. foot home. Sure, I'll take it, but it is a stupid program. One only the powerful NAR lobby could sell to the American public.

We run the risk of propping prices up now by stealing sales from the future. And with potentially low demand AFTER 11/30/09, prices could sag again. We just don't know.

On the other hand, interest rates are phenomenal today. And the fed has announced this week that they are beginning the exit stages of their mortgage backed securities purchase program. Thus, rates have nowhere to go but up. So if you wait 6 months, you may get the home for $20,000 less, but your monthly payment will be higher. This is always the dilemma.

IMO, on balance, I'd say you're better off shopping now and if you find something you like, pull the trigger. $10-$20k price difference over a period of years is not really a big deal. However, interest rate risk could be a deal killer.

Lots to think about. Good luck.

Edited by jq26
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I can't speak to anywhere but my neighborhood, but around here houses are still languishing. There are three houses within one block of me that have been for sale since February at least (I looked at all three when I was house hunting in February). Another just went on the market in July. If I go two or three blocks further there's an additional half dozen houses that have been on the market at least 6 months.

My neighbors walked away from their home about six weeks ago, leaving me with essentially an abandoned house next door. The house next door to me is the biggest house anywhere around here. This is a neighborhood of 1-3 bedroom homes in the 800-1100 sq foot range. The house next door to me was renovated in 1992 and is currently sitting at 5 bedrooms/3 baths, and over 2500 sq feet. I think, unfortunately, that addition priced it out of the market for people who usually look in this neighborhood. The people who did the addition sold in 2000 and it's been sold twice since then. The current owners just bought it in 2007 and have now walked away.

Anyway, anecdotally speaking it doesn't seem that the tax credit is having much of an effect around here, if any. Either that or the economy is just so depressed that people can't buy even though they really want to. Our county currently has a 10% unemployment rate. My city has an average annual income of less than $40,000 so home ownership can be a bit of a pipe dream for many people even in good economic times.

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This real estate thing is very regional. Here in the Philly area, realtors are comparing it to 2005 again. My realtor is working 14 hr days because she can't keep up. She consistently has 3-4 closings every Friday.

Keep in mind this is one price point subset (low end of market) of one regional market. I have heard other markets have seen big time activity too, but not everywhere. and once you get above the $500k mark, home sale activity and prices are still retreating.

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