Federal and State Tax Credits

Hello and Happy Thursday!

The federal government and the state of CA were offering tax credits to home buyers this year.  In an attempt to stimulate the real estate market, these tax credits were being offered as an incentive for those contemplating the purchase of a home.  The state of CA was offering up to $10,000 for a tax credit and the feds offered $8,000.

In some regard the incentive worked.  I heard that the state stopped taking applications for the tax credit in June. Reports were that there were over 12,000 applications for the tax credit and a budget for only 10,000 applicants.  Some will most likely not get this tax credit.  The federal government tax credit will cease in November of this year, so buyers need to get working on finding a home soon to take advantage of the credit.

Some drawbacks to this tax credit program.  In order to qualify, the buyer must have been a first time home buyer.  In regard to the state of CA program, the buyer had to purchase a new home (never been lived in before).  The intent was to help the builders move some of their inventory.  If a buyer went in to purchase a brand new home, and the delivery of the new home was past June, the buyer could have missed out of this program.

My feelings are this:  If you are going to offer and incentive to "kick start" the housing market, open it up to everyone.  If a current home owner sees an opportunity to move up, and may get an tax credit also, his motivation goes up.  These move up buyers generate movement in the housing market. They buy a larger home and also sell a home in the process.  The state of CA had to stop taking applications because they cannot afford to absorb more tax credits.  I think they should have offered less money, perhaps $5,000, and have twice as many applicants.

In this challenging economy, the incentives need to be offered across the board.  Real estate buyers are always not first time buyers.  We should not discriminate against them, we need them to move up.  By getting movement through out the "chain" the housing market could gain a little momentum.

It's July 30, 2009 and I am bullish on Sacramento

David Ohara

@dwo34

dwo34@aol.com 

916-600-9495