Understanding the Extended Home Buyer Tax Credit

Many folks have taken advantage of the first-time homebuyer tax credit that was due to expire at the end of this month. Congress in its wisdom has extended that benefit up to April 30 of 2010. Not only is this good news for people looking to purchase their first home at exceptionally good interest rates, the "move up" buyers are able to take advantage of the tax credit as well. These are people who have been in their primary residence for 5 of the last 8 years.

Why these parameters? It is a generally understood market trend that people who have lived in their home for at least 5 years have build equity in their homes and may start to think about buying something new. Maybe the family is growing, the schools become more important, etc. Savvy investors know that money is made in the "buy" and now is an excellent opportunity to buy low and hold. Sadly, that can mean plenty of short sale and foreclosure homes are available to the move up buyers, but the good news is that this can stop a cycle of downward spiraling home values.

The credit diminishes as incomes increase, which makes sense. In the link below from the National Association of REALTORS® you can see that there are income caps, home pricing caps, and a gradual phase out of the tax credit to high income people. What waits to be seen is if the middle range homes for sale-say over $325,000 in our Pierce County market, start to move. The move up buyer will still need to be able to sell their home for enough profit to upgrade. So far the "entry level" priced homes below $250,000 (which I think can still be a heavy load for many families) have been moving due to the supply of distressed and bank owned properties, or REO's. This is good for getting inventory moving, however the mid-ranged sellers have to compete in pricing with the comparable sales in their neighborhoods and if there are bank properties being snatched up at bargain prices woe to the non-distressed seller. The importance of competitive price, location and presentation are more important than ever now. Professional real estate agents are the best source for this information.

The good news is that there are wonderful homes available in our communities and great opportunities for home ownership. As a homeowner, I want my neighborhood to be full of people who care about where they live and take pride in their homes and streets. By extending the tax credit and re-energizing the desire for home ownership, maybe, just maybe, we will be stabilizing our local economy and our communities.

Below is a simple matrix to help you understand the credits. Check with your CPA on the tax consequences of buying and selling, and always hire a professional real estate agent to assist you in the process.

NATIONAL ASSOCIATION OF REALTORS® GOVERNMENT AFFAIRS BRIEF

Here's to my next great neighbors!