We all know about the first time home buyer tax credits the Obama Stimulus Plan put in place a few months ago. But now we see State governments getting into the act. California lead the pack by announcing their new home $10,000 tax credit program and now other States are following suit.
California New Home Buyer Tax Credits
Late last month the California Legislature passed their budget which included a provision to give new home builders a big boost by incentizing new home buying.
The plan as described on Newhomesection.com:
1. The $10,000 tax credit is not a loan and if the home remains your primary residence for 2-years, you do not have to pay any portion of the tax credit back.
2. The tax credit is for new homes only. The construction of a new home generates more tax revenues than the $10,000 tax credit will cost, so the credit is limited to the purchase of new homes. You will not qualify for the state tax credit if you buy an existing home.
3. The tax credit is good for 5% of the home’s price or $10,000, whichever is less.
Examples: (price of home x .05)
If you purchase a new home that costs $150,000, your tax credit will be $7,500.
If you purchase a new home that costs $200,000, your tax credit will be $10,000.
If you purchase a new home that costs $450,000, your tax credit will be $10,000.
4. Home buyers will receive the tax credit, in equal amounts, over 3-years.
Examples: (Tax Credit / 3)
If your tax credit is $7,500, you will receive a tax credit of $2,500 each year for three years.
If your tax credit is $10,000, you will receive a tax credit of $3,333.33 each year for three years.
5. Unlike the $8,000 federal tax credit, the California state tax credit is not limited to first-time home buyers.
6. There are no maximum income limitations so any buyer purchasing a previously unoccupied home can qualify for the tax credit.
7. The tax credit only applies if the purchased home is your primary residence.
8. There is no down payment requirement to receive the $10,000 tax credit.
9. The $10,000 state tax credit can be used along with the $8,000 federal tax credit for home buyers. If you’re a first-time home buyer, and you purchase a new home in California that costs more than $200,000, you’ll get $18,000 in tax credits.
10. The tax credit is limited to the first 10,000 new home purchases.
Selfish Home Builder Lobby At Work
There is no doubt about the benefits to new home builders who have the powerful lobbyists needed to get such legislation passed. The real question is whether this legislation is just more of the same short term thinking that created the subprime, “easy money”, credit expansion which caused the housing “boom bust” cycle California is reeling from as we speak?
Do we really want to encourage new home builders to continue building at the precise moment we need less inventory, not more?
Do we want California (and the rest of the country) to find a bottom in their housing market or not?
Home Builder Lobby Busy in Other States
Now we hear this type of new home legislation is being introduced all over the country. According to the National Association of Home Builders’ Sales and Marketing and Council:
“Utah offers a $6,000 grant to be used by buyers for downpayments.
The Kentucky House has cleared a $5,000 tax credit for new home purchasers.
A similar measure has cleared the Virginia Senate and has been introduced in the Illinois House.
In Georgia, a $3,600 tax credit spread over three years for new homebuyers has passed the lower chamber.
North Carolina and South Carolina are said to be looking at replicating California’s program, which gives Golden State taxpayers who buy a new home a credit of 5% of the purchase price, up to a maximum of $10,000 to be paid out over a three-year period. If adopted, the combined federal-state benefit would be as much as $18,000.
In Missouri, meanwhile, the state housing finance agency is advancing buyers the federal tax credit in the form of a short-term loan. Delaware has a similar program, and Pennsylvania, New Mexico and several other states are considering such programs.
Builder associations in Indiana, Kentucky, Michigan, New York, Oregon, Tennessee, Texas, Washington are said to be pursuing Missouri’s model, which, in effect, “monetizes” the credit so buyers can use it for cash needed to close on their mortgages instead of waiting until they file their tax returns.”
While everyone is busy worry about whose getting a bonus at AIG, the home builder lobby is busy bullying State legislators into creating a false floor in housing with temporary incentives at tax payer expense. That false floor in housing prices enriches their industry sacrificing the long term health of the housing market and the economy.
If you want to see an example of Corporate America running wild with taxpayer money with long term damaging consiquences, don’t just look at the banks and Wall Street. What Wall Street did to the credit markets, the new home builders are doing to the housing market.
Don’t let it happen again!
Take a good long look here and let your State Representatives know you are watching.
Until next week…