Is the Tax Credit Turning D.C. Into a Seller’s Market?
I've spent a lot of time blogging about the first-time homebuyer tax credit recently, and last week, even devoted an entire column to the subject. My feeling is, it's out there—I might as well inform people how to take advantage. I don't know if the posts came off sounding too cheerleader-ish. But, in case they did, here's the flip side of the credit: A lot of people consider it unnecessary, believing the recent drop in home values would have pushed many buyers back out into the market without the extra tax incentive. The credit, essentially, was an extra dollop of whipped cream on top of the cocoa. Lovely. But not necessary.
In Sunday's Washington Post, professor Joseph Gyourko of University of Pennsylvania's Wharton School, made another valuable point about the ill effects of the credit in his piece "5 myths about home sweet homeownership." He argues that the credit is creating competition in areas where the market should still be settling—like here:
2. The homebuyer tax credit makes buying a house more affordable.
Not necessarily. Just because you got an $8,000 tax credit toward the purchase of a home doesn't mean that you actually saved $8,000. In areas where there is strong demand for housing and the supply of new housing is limited — including the Washington metro region — tax credits may result in the bidding up of home prices. In other words, the program has probably led to higher prices in these areas than we would be seeing without it. This means that some of the benefit of the tax credit is being passed on from homebuyers to home sellers.
As I wrote last week, the extended credit now applies not only to existing homeowners, but also people making well past moderate incomes: The current income limitation for a single person is $125,000. The previous restrictions—$75,000 for a single person—surely shut out people from buying in some of the city's most exclusive neighborhoods. Will this new credit open up the flood gates?
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Carmen Arruda’s thoughts on foreclosures and the current real estate market:
The number of people interested in investing in real estate has doubled since March as more folks are lured by low prices and the wide selection of foreclosures that can be bought on the cheap, according to survey results released this week by Move.com.
Just more than 12% of potential home buyers surveyed plan to purchase a home as an investment property compared with less than 6% who said the same seven months ago, the survey found. Of those interested in buying a foreclosure, 42% were investors. About 13% of those investors would turn their foreclosures into rentals, 11% would fix them up for resale and 17% said the houses would be used by a family member until the home could be sold for a profit, according to the survey.
Of all potential buyers interested in purchasing a home -- both for investment and to live in -- 25% said they want to buy a foreclosure.
They also plan on buying low and watching their purchase pay off in the next several years. Of the potential buyers polled, 58% said they expect to pay at least 20% less than market price for a foreclosure, and 39% said they expected a 25% or greater discount. Seventy-three percent expect their properties to appreciate 10% or more in five years; 28% expect their purchases to appreciate 20% or more during the same time.
The most popular reasons given for taking action now: concern that prices have hit a bottom and a desire to take advantage of bargains, according to the results.
About 1,000 people participated in the survey.
"This latest survey validates what many had hoped to see in the housing markets -- affordable prices and ample inventories are restoring the appeal of real estate to investors while providing opportunities for first-time home buyers to enter the market,"
"In today's environment, regardless of whether you're an investor or interested in purchasing a home to live in yourself, residential real estate is a more attractive investment today for many than it has been in recent years."
Members of the National Association of Realtors will likely be expressing similar sentiments when they meet this weekend for their annual conference.
With the first-time home-buyer tax credit extended last week -- and expanded to benefit certain move-up buyers too -- this could be an unusually busy winter for home sales. Throw increased investor interest in the mix, and its possible Realtors could have the happiest holidays they've had in a while.
Buying forelcosures:
Buying foreclosures can be extremely profitable for real estate investors. It means that you need to be aware of local laws and how they may affect the ownership of a property. Buying below market value with no money down is easy, you just need to know how to do it. You can usually purchase a foreclosure for no more than 75% of retail price.
Homeowners usually face foreclosure on their properties for failing to pay their mortgage payments.Because the homeowner has been delinquent their mortgage, they are now in a position to entertain offers by investors. Depending on your state, the lender will issue this notice when the homeowner has been 3 months delinquent on the mortgage payments. In order to buy during this period, you first have to make a deal with the homeowner. Buying a pre-foreclosure means dealing and working out an agreement with a homeowner, attempting to buy the property from them before it has been foreclosed on.