Calling Mr. Flipper: Shrink tax credit but extend to investors

Congress and the White House seem intent on extending and expanding the $8,000 first-time home buyer tax credit when it expires after November 30.

That would mean that a handout that first applied to home purchases in April 2008 - albeit at a less generous $7,500 - will stretch well into 2010.

The National Association of Realtors wanted the credit to rise to $15,000, but I think the better question is why the credit isn’t smaller.

Between April 2008 and September 2009, the median Tampa Bay home price dipped 22 percent. That means that over the past 18 months, the credit is covering a larger chunk of a typical home’s purchase price.

Based on September’s median home price of $137,800, the tax credit paid 5.8 percent of the price of a home. Back in April 2008, the $7,500 tax credit covered 4.3 percent of the cost of typical Tampa Bay home worth $176,000. The credit’s buying power has swollen by about a third.

My advice to the powers-that-be is simple: Shrink the credit by $1,500. And use the windfall to let real estate investors tap the money. The first idea is mine; the second comes from national housing economist Mark Zandi.

Sacrilege, you’ll say. Investors are the greedy bums who brought the wrath of the housing gods on our heads. The way I see it, by encouraging investors to buy homes next year, we’re handing a mop to the slobs who tracked mud on the floor tile: It’s your mess, you clean it up.

Zandi argues that foreclosures, despite a recent flattening of their two-year upward trajectory, will take flight again in the first half of 2010. Who’s going to sponge up those thousands of excess houses? Certainly not the 12 percent of Floridians out of work.

It’s not that extravagant a step. Washington has already conceded that the credit should apply to more than just first-time home buyers. For next year, it’s proposing a lesser, $6,500 credit for homeowners who want to move. But it slipped in an anti-speculator provision: You have to have lived in your current home at least 5 years. Flippers need not apply.

It’s no one’s intention to reinflate the housing bubble. Limit each investor to using the credit once or twice. We wouldn’t want to bankroll a giant investment trust buying up 1,000 properties at a swoop.

The cost? So far this year, about 1.4 million home buyers have tapped the $8,000 credit (about 100,000 of those transactions could be fraudulent, the Internal Revenue Service said).

That’s $11.2 billion worth of credits. By reducing the $8,000 to $6,500 across the board, we would have saved $2.1 billion, enough to subsidize another 323,000 home purchases.

When you consider that Tampa Bay’s housing surplus falls somewhere in the 10,000 to 15,000 range, spreading the credit more thinly, but to a wider range of buyers, could make a wealth of difference.

Comments

[Fuzzy Bear]

"The National Association of Realtors wanted the credit to rise to $15,000, but I think the better question is why the credit isn’t smaller."

That is certainly an interesting debate as the special interest groups want it all, but is it really necessary?

Too much housing welfare could drive home values through the ceiling. Too little could leave the piles of housing inventory lingering for many years to come.

The first time homebuyer credit worked fine, but it also detailed that there are simply not enough first time homebuyers to reduce the inventory. The inventory I mention also includes the "hidden inventory" or shadow market that clearly exists.

Excess of any type of government handouts can hinder the recovery and bring out those people who defraud these programs. Instead of throwing the money to the people, throw the money or tax breaks to the corporations who produce good paying jobs that remain in the USA.

The global economy from a jobs perspective is nothing more that a way for corporate America to reduce their costs by using cheaper labor in third world countries. However, when high paying jobs such as Information Technology, accounting, engineering, etc. are shipped off to low wage countries, that in turn ends up hurting industries such as the housing industry.

[Frank Lee]

You wouldn't be surprised if you were a blog regular, but I've historically taken the supposedly unpopular position of being against tax credits and bailouts. It would be a mistake to assume everyone in the industry unilaterally supports a government printing press out of control.

Sarcastically speaking, if our government has no problems throwing HUNDREDS OF BILLIONS towards jet-set bank execs with million-dollar bonuses awarded for failure, what's a paltry *few* billion for the working-class' clunkers and cookie-cutters? Hush money.

[Tino]

The welfare checks should be eliminated.

Instead, the money should be allocated to local courts to break the bottlenecks and flush out the excess foreclosure inventory. The resulting flood of inexpensive properties would allow EVERYONE to get a good deal and would definitely bring a bottoming out of real estate prices.

Plus, we should all be aware that this money isn't "free". It is being borrowed from foreigners and will need to be paid back by our children/grandchildren with interest.

[ej]

i am confused; why does the tax credit not apply to me? i sold my house in 2008 (owned it for 10 years) and i am renting now while i house-hunt. why does it not apply to people like me?

if it applies to CURRENT owners, it makes no sense. those people can't even SELL in order to buy and use the credit!

[James Thorner]

EJ, I don't know if your question is rhetorical, but I'll answer it straight up. If you bought after April 1, 2008, you could have taken that old $7,500 credit. But you would have had to pay it back over the years. You have a good point about current owners using the credit in 2010. I think the government's logic is this: A first time home buyer uses the $8,000 credit. Then the seller, who presumably is in the market for a move-up home, can tap $6,500 for his purchase. One of the big complaints about the credit this year was that it didn't stimulate move-up purchases. I think this is an attempt to plug that hole.