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The Benefit of the Tax Credit being Extended

This might sound like a heresy coming from someone in the Real Estate business, but I don’t think it was a good idea to extend the first time home buyers tax credit.  Except for one reason.

The Tax Credit Legislation had a bad ending

The Long Shadow of the tax credit

Have you even gone to a movie and enjoyed most of it till the ending; then you felt a huge let down?  Maybe worse, you felt the ending ruined the whole movie.  Well, that’s what was about to happen with the ending written for the $8000 first time home buyer tax credit.

It was hastily put together to try and stimulate the economy.  It got quite a few people off the fence and into the market.  But it also got a lot of people filling fraudulent claims for the credit.  (Do people really think they won’t get caught?)

In the haste to get this legislation into the economic stew the ending wasn’t well thought out.

Termination: December 1, 2009
All purchase has to be FINAL before December 1, 2009

That was two days ago. Do you know what yesterday would have been like if for any reason a close that was to take place by Nov. 30, 2009 had been delayed?  Today would be the beginning of “MASSIVE LITIGATION AND LAW SUITS AGAINST . . .”

Would it have mattered that Buyers waited to long to make a purchase?  NO.  What would matter is that IT DIDN”T CLOSE ON TIME.

Who would be getting sued?

Oh, let’s make a list of possibilities.

1. Real Estate Brokerages
2. Real Estate Agents
3. Title Companies
4. Lenders

Just a name a few of the obvious possibilities.  The Real Estate industry was dreading the ending of this legislation wondering who would be stuck picking up the tab for the $8000 that the government wouldn’t be paying out but buyers were going to DEMAND be paid by SOMEONE to them.

The Better Ending

The benefit of the tax credit being extended is: The Better Ending.

Binding Contract Rule. So long as a written binding contract to purchase is in effect on April 30, 2010, the purchaser will have until July 1, 2010 to close.

This is the ending that should have been written originally.  Maybe we don’t remember, but this legislation was itself an extension of sorts of the First time home buyer legislation.  Granted the first required payment back to the government.  So we could call this the extension of the extension.  What ever we call it, it is a better ending.

The purchase contract has to be in effect by April 30 and then closed by June 30.  This gives two months for the details of inspections, BINSR, Lender getting docs out of underwriting, etc.  This time there should be no excuses or reasons for MASSIVE LITIGATION on the part of buyers.

Finally, the benefit of the extended tax credit.  It should have a smooth ending, not one which brings a lot of pain and turmoil into the real estate markets across the country.  Something the industry and the country don’t need; more turmoil in the economic stew.

The Effect of the $8000 tax credt on Tucson Real Estate

How Big is The Effect of the Tax Credit on Tucson?

Nobody Tracks this stuff

That’s the question I’ve been asking around lately.  Here is what I’ve learned so far and what I speculate.

What I’ve learned.

Most brokerages in town don’t track this.  There is no place in their software to track if a buyer took advantage of the tax credit or not.  The same is true of the Tucson MLS, no bucket to track this statistic.  I haven’t checked with a title company yet to see if there is software tracking this for Pima county.

Where does this leave us for a tally of what the effect of this tax credit is on the Tucson real estate market?  It leaves us to speculate on the impact based on anecdotal information.  We can also take a look at the market itself as well as the community.

What We speculate

We speculate the effect is more incidental than intentional in Tucson.  I mean, there are buyers in the market who haven’t owned a home in three years or are for the first time making a home purchase.  They are buying because they need a place to live in Tucson and prices haven’t been this low in 5 years.  They aren’t buying because they can get $8000 off the total purchase price.  Buyers here are taking advantage of the tax credit when they buy, but it isn’t the reason they are in the market.

Is There Any Benefit to it being Extended?

If it isn’t a driving force in purchases in Tucson, is there any benefit to the Tax credit being extended?  Yes, there is and not just because it give buyers more time to take advantage of the tax credit.  Tomorrow’s post will cover what I think is the biggest benefit of extending this legislation.