The best home buying incentive: Low prices

We're blue in the face from repeating this, but housing is one of the most incentivized industries in the country. We've got low interest rates, the mortgage interest deduction, Florida's Save Our Homes law, downpayment assistance for low income buyers, etc. It's not stopping builders from demanding more. Here's a snippet from today's Wall Street Journal Online:

A bustling stock rally ground to a halt Tuesday following new signs that the housing market remains under heavy pressure.

New data from the National Association of Home Builders were particularly worrisome. The organization said on Tuesday that its November index of new, single-family homes fell to an all-time low of 9, down from 14 in October.

"Today's report shows that we are in a crisis situation," said NAHB Chairman Sandy Dunn, a home builder from West Virginia. "If there's any hope of turning this economy around, Congress and the (Bush) Administration need to focus on stabilizing housing."

Ms. Dunn said uncertainty about the economy has driven consumers from the housing market.

"It's going to take some major incentives to bring them back," she said. She argued that Congress should pass new economic stimulus legislation that includes new home-buying incentives.

Comments

Exactly how is "Florida's Save Our Homes law" an incentive James?

[Tino]

I'll help.

The SOM law allows people to essentially lock in their property taxes when they buy their home. The longer they stay in their home, the more they save.

Renters, on the other hand, are forced to pay for the annual increases in property taxes because rental properties cannot be homesteaded.

[James Thorner]

Thanks to SOH, I lived in a $250,000 house and paid only $1,100 in taxes, an amount that actually decreased during my 8 years in the house. I know old timers who pay only $600 a year in property taxes. That's a huge advantage compared to home owners who pay $6,000 for the same house up north. Now the bad news: Commercial property, second- and vacation home purchasers and recent home buyers essentially subsidize longer term homesteaders. If the government is cushioning you from wild upswings in your home's taxable value, saving you thousands of dollars every year, I consider that an incentive. Realtors and home builders who want more government incentives are not asking enough of home buyers. How much is enough? What ever happened to "meeting each other half way." Five- to 20 percent down, a decent credit score and a stable job aren't much to ask of a home buyer.

[Brian]

James, Luv your blog and your comments are honest, but SOH is not an incentive. If the incentive is to buy a home, a newcomer must subsidize longer term residents at their expense. That's not exactly welcoming. In fact, I had hoped to be one of those newcomers, but not until prices have dropped 60% from 2005 prices, in good areas. Why? because I want a nice home and low taxes, just like everyone who has lived there for 15 years. Otherwise, I'll retire someplace else.

[Tino]

Brian, what other states without an income tax will allow you to essentially freeze your property taxes in perpetuity?

That is a GREAT incentive for retirees -- it takes the uncertainty out of their future property tax payments.

Yes, new homeowners subsidize longer term residents, but they in turn get subsidized by everyone after them (see: Social Security for another example).

Is it fair? No.

Does it provide an incentive for long-term buyers (i.e. retirees)? Yes.

Will it ever be changed? Probably not, unless you want to see Grandma being thrown out on the street.

[Brian]

Tino, the incentive lies in staying put or under ammendment 1, selling your home and buying another. It was not an incentive for an investor or retiree looking to buy FL RE in 2003-2006.The only incentive then was; massive appreciation through speculation and fraud pricing. In fact, very people outside of FL know about SOH. Maybe, 2010 or 2011, but by that time my NY home will be 30% less and the saga continues for FL RE. James, the silver lining for you is that you bought before the re-assessments.

Tino, please. No economy can run on retirees. SOH is a DISincentive for NEW buyers. Without new blood and brains moving in, FL is in for a slow demise. You already penalized the heck out of businesses, landlords, and part-time residents. And for what? To keep some of the biggest consumers of social services paying the lowest taxes? Talk about the redistribution of wealth....

[Dave]

SOH is a huge incentive for home ownership, but mainly for those who bought before the bubble. Unfortunately, most post bubble buyers (like me) are getting screwed on taxes. The county does not consider the purchase price of a property to be a measure of the fair market value. As a result, my assessed value (and resulting taxes) is 40% higher than my purchase price!!! I would call that a disincentive for home buyers.

[James Thorner]

I represent both the good and bad side of SOH. My old house, which I referenced above, came with astonishingly low property taxes, since I bought before the bubble in 1998. Unfortunately I moved up in 2006 - family growth not real estate speculation - and now pay 5 times the taxes I paid with my old house. But Tino's point stands: My taxes are capped henceforth and will look relatively low in 5-10 years.