Extend the Homebuyer Tax Credit? Not So Sure

In February, as part of the economic stimulus package, the Federal government enacted an $8,000 tax credit for first time home buyers that met certain income limits. That tax credit is set to expire on Nov. 30th. Now there is a flurry of activity on Capitol Hill to extend and even expand the program, with heavy lobbying from the real estate industry, including the National Association of Realtors (NAR) and the National Association of Home Builders. As a member of NAR, I've been getting regular emails to contact my congressperson to encourage extension of the tax credit.

But I'm not so sure. I've been doing a lot of reading on the web. The program is costly and there is some question about how many incremental sales (e.g. sales that wouldn't have been made if there wasn't a tax credit) it generated. But the program is very popular with the middle class, and the middle class votes. It is so politically popular, in fact, that legislators are looking to not just extend it, but expand it. Some proposals call for increasing the tax credit amount, to $13,000 or even $15,000, raising the income limits to $150,000 single / $300,000 couple, and eliminating the first time home buyer requirement.

I'm all for helping first time home buyers get into houses. We have a number of state and federal programs to do that. In New York state, SONYMA (State of New York Mortgage Agency) provides funding for below market fixed rate mortgages with very attractive terms for low to moderate income buyers. FHA mortgages are also a great option for first time home buyers who need a lower down payment loan to get into that first home. I'm a big proponent of streamlining and strengthening these programs to increase affordability for qualified home buyers.

But the tax credit — particularly if the amount is increased and income limits raised — is starting to feel not so much like a stimulus as a giveaway. NAR points to the 9.4% increase in single family homes in September as a strong indication that the tax credit is working, to increase sales and stabilize the market. I would agree that the tax credit has had some impact. I wonder, however, how many of those sales would have happened anyway over the next six months, but have been pushed up by buyers looking to get in under the Nov. 30th deadline?

Comments

[Eric Kramer]

After the unparalelled successes of the stimulus package to pull us back into prosperity, cash-for-clunkers to revitalize the auto industry, and the H1N1 vaccination funding to completely shield the country from swine flu, how can government extention of the homebuyers' tax credit do anything but bring back 2005? What's another $25 or 25 billion amongst friends?

stimulus...givaway....you say tomato....

[ar]

The basis of your skepticism seems to be that many sales that benefited from the tax incentive would have happened anyway. If that's true, I agree with you that the benefit is not worth the cost. But what evidence do you have that a significant number of such sales would have occurred anyway? That seems to be the entire crux of your argument, and so it would seem to need more substantiation than "wondering."

As for the program being a "giveway" -- there is a thin line between any economic stimulus and a "giveaway". By definition, economic stimuli are economic benefits that would not be provided under normal circumstances. If "giveaways" were an argument against a particular stimulus, there wouldn't have been much to the recent rescue efforts. Every bank in America is the beneficiary of "giveaways" in the form of interest rates kept low by deficit spending.

[Bix]

The tax credit, as I understand it, does not apply to second home buyers. So it would have only limited effect in Sullivan County.

[David Knudsen]

ar, that's the billion, or rather multi-billion, dollar question. What is the incremental sales stimulus? A lot of economists and pundits are scratching their heads about that. If you Google "first time home buyer tax credit incremental sales", you'll find a lot of commentary and a number of references to surveying going on to answer that question.

One of the most succinct summaries of the argument was posted by Stan Humphries, the Chief Economist for Zillow, at http://www.zillow.com/blog/the-possible-impact-and-real-cost-of-extending-the-first-time-homebuyer-tax-credit/2009/09/23/.

Bix, the extension and expansion of the tax credit actually could have an impact, probably a negative one, on Sullivan County second home sales. Younger New York professionals are Sullivan's prime second home market. The tax credit has been irrelevant for many, because their incomes exceeded the tax credit limit. But increase that limit to $150K single / $300K couple, and a lot of those younger professionals will now qualify. Pump up the credit to $13K or $15K, and it becomes even more attractive for New York renters to consider buying. And take away the first time buyer requirement, and those mid-level professionals trapped in one bedroom apartments can think about trading up.

This could create the perfect storm for renters to consider buying in the city or close in burbs, and that could pull some of them out of the market for a second home.

[Rod]

David - you miss one facet of the 'buy NYC' argument - that being that no one is sure where the prices are going and will ultimately end up, so why take a chance of losing $200k just to get a $15k tax break?

[keith]

WOO HOO!!!
http://www.nytimes.com/2009/10/28/business/energy-environment/28drill.html?hp

[Donald Fagen]

Dave,
There were a few people that were on your blog this past year with their prognostications of the Sullivan County real estate market and what the closing sales price would be.

NYSAR has the Sullivan County CLOSED price in 2009 at:

125k

Online at:

http://www.nysar.com/content/upload/AssetMgmt/pdfs/ytdmedian.pdf

These people who were bashed ruthlessly by some of the cheerleaders - Rod and Mal come to mind - should read NYSAR's report.

Those that want to dispute these figures should contact NYSAR.

By late this winter of 2010 - we predict the median closed price in Sullivan County, NY will drop to 110k to 115k.

Donald Fagen

[Rod]

If nysar says it, it must be true.

[David Knudsen]

Actually, the data isn't accurate. The relative percentages, in terms of price and drops, aren't that far off, but the gross numbers are. The reason? It appears that NYSAR takes its Sullivan County sales numbers from sales submitted by GHVMLS, the Greater Hudson MLS, which doesn't include all listings or sales in Sullivan. There is a primary Sullivan MLS, but it doesn't appear that NYSAR uses that data. A lot of sales are reported in both MLSs, because a number of Sullivan brokers participate and put listings into both systems. But the GHVMLS tends to have only about 60% of the sales volume that's reported in the Sullivan MLS. And their sales dollar numbers tend to be 5 to 10% lower, because the GHVMLS listed Sullivan properties tend to skew to the less expensive eastern parts of Sullivan. For example, between 1/1/09 and 9/30/09 this year, there were 5 sales reported in the Sullivan MLS over $500,000 — none of which were double listed in the GHVMLS. There has been only 1 $500,000+ sale reported for Sullivan this year in the GHVMLS.

Sure, those that want to dispute the numbers should get in touch with NYSAR. I don't want to. I tried a couple of years ago about the accuracy of their reported data, and got a curt brush off.

It's not my data and it's not my fight.

[Nick]

Re the mention of the second/first home market in Sullivan and this tax credit it may be more relevant than you'd think. I have nothing to do with this and I know it ain't totally kosher, but I have on good sources there's at least one married couple I know of who's bought a second home and successfully used this credit. In the particular case the wife had never been on the deed and the husband's ownership predated the marriage, so they went for it. I don't know if that's against the letter of the law (I'm pretty sure that's expressly excluded) but either way it's against the spirit of the thing. Well unless the spirit is just to throw money at real estate, which actually may be a fair assessment.

Leaving aside married couples though there must be quite a few candidates who are eligible. All non-married (including engaged) couples should qualify. As, sad to say, would our friends in the LGBT community who are coupled up. Not just in New York state where gay marriage unfortunately isn't legal yet, but even to legally married same sex couples from other states, as this is a Federal program and the DOMA makes the definition of "spouse" and "married" pretty clear under federal law.

I don't know what the trends are -- it seems like Milford really has become the epicenter for the community in the region -- but presumably it's non-trivial.

[Waspy Willie]

C'mon Dave...I know it's your blog but please cut NYSAR some slack.

For those that don't know - Rod- NYSAR stands for the New York State Association of Realtors.

$125,000 are their preliminary figures for the median closed price in Sullivan County.

I would think you would want to inform your buyers of this fact.

Thank you Dave.

[Dino]

Dave- You can slice and dice the numbers anyway you'd like but take a look at the additional NYSAR numbers for Sullivan County at:

-------

http://www.nysar.com/content/upload/AssetMgmt/pdfs/quartermedian.pdf

http://www.nysar.com/content/upload/AssetMgmt/pdfs/ytdsales.pdf

--------

3Q 2009 preliminary closed median price is now at $123,500.

3Q 2007 through 3Q 2009 closed prices are off by 33+%.

3Q 2007 through 3 Q 2009 closing sales are also off by over 33+%.

In fact, Sullivan County, out all of the counties in New York State is *second highest* county in New York State where prices have fallen the most.

Hope you post this Dave for the betterment of your buyer/clients!

Dino

[Rod]

So, Dave's specific examples of why nysar is inaccurate does not appease the shouters. Big Surprise.

[David Knudsen]

Why should I cut NYSAR some slack, when they don't give a rats ass about the accuracy of their data? Take a look at their 3rd quarter 2007 Sullivan sales data. NYSAR reports 67 single family sales for the 3 month period, 7/1/07 through 9/30/07. That number doesn't correspond to anything I can find. For that period, the Sullivan MLS shows 183, the GHVMLS shows 102 (remember, there is overlap between the two MLSs), and Reallist, the subscription property record system from Corelogic that relies on county property data, shows 246. (Realist numbers are higher due to two factors. All "title transfers" are included in their data, including those that would be within families, as well as any private, non-MLS transactions. Also, Realist uses state property classification codes, and seasonal properties get lumped into 'single family', and are largely excluded from that classiciation in MLS data.)

So where did NYSAR get the 67? Heaven only knows, because they don't attribute their data. And for the 3rd quarter of 2009, they report 78 Sullivan sales, of an increase of 16.4% over 2007 - when more accurately sales volume has declined about 30%.

According to NYSAR data, though, I'm working in the wrong area. Up in Cortland County, 3rd quarter 2009 sales are up 79% over 2007, and in Yates County, they're up 71%.

So, personally, I find it very difficult to pay NYSAR data much heed one way or another.

[David Knudsen]

There is, however, an interesting question here. Is Sullivan performing 'less well' than other parts of New York state, and, if so, why? If the NYSAR data for neighboring Orange and Ulster counties can be believed, those counties are also towards the bottom in terms of 07 to 09 price performance, with each showing price declines of greater than 20% (but not greater than 30%.) How different is their mix of primary versus second homes? What was their price run up prior to 2007? Were there factors specific to Sullivan that may have contributed to a higher price run up, and as a result, a sharper fall? Have both of those counties also experienced near death experiences in the upper end second home market? Have upper end buyers disappeared altogether, or have they shifted further to Hudson Valley?

They are a slew of interesting questions. I wish I could find a couple of real estate data junkies in those areas similar to me, who would enjoy comparing notes and trying to answer these questions.

I'm not trying to ignore NYSAR's data or sugarcoat anything. But from my experience with one county, I don't trust their data as accurate and reliable. I would welcome good, accurate comparative data - which would be the springboard to ask the interesting questions.

[Tom Lombardi]

Hell Dave, if you can't trust the data from the New York State Association of Realtors© - who can you trust?

Tom Lombardi

[David Knudsen]

That's a good question and one that should be directed to NYSAR. Given that you put the copyright symbol after Realtor (and only a Realtor would probably do that), I'm assuming you're a Realtor, so bring it up with them.

The best option would be to have timely, comprehensive data from the county's Office of Real Property Services. But we don't. I think my data is pretty accurate from a trend standpoint. I've always been very upfront about my data sources, and look over the data every month looking for any outliers. But since I don't collect similar data for other counties, I can't make a comparison. And I'm very aware of the drawbacks of the data I use --- it's MLS data, from a single MLS, and doesn't include private and non-MLS sales, or Sullivan sales reported in other MLS's. But I do periodically go through and validate my sample against the bigger universe, and am pretty confident in the picture it paints.