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Monday, October 19, 2009

Extending or Expanding Tax Credit for First Time Homebuyers: Good for the Real Estate Market?

Knowing that I'm a Realtor® and that much of my income is dependant upon the real estate market, you might be surprised as you read my opinion on extending and/or expanding the Homebuyer Tax Credit.  For starters, I'll say that I believe the free market can almost always solve problems better without government involvement.  Unfortunately, the real estate market has not been allowed to operate without government interference for some time.  I'll even go one step further and say that government interference caused the real estate market bubble and resulting crash, and the same idiots who created the problem should not be trusted to fix it.

Politicians, who wanted to buy votes by forcing banks to give loans to people who could not afford to pay them back, are the primary cause of the real estate bubble and ultimate crash (which I believe also caused the current recession).  This effort was driven by bleeding-heart liberal Democrats, but many of the so-called conservative Republicans shamefully went along with it for many years and many administrations.  We all know what happens when banks are forced to lend money to people who can't afford to pay it back... eventually they don't pay it back and the banks lose money.  The banks then have to make up these losses somewhere else: either by charging good customers more, or by (the new trend of) getting billions in bailout dollars from taxpayers.  So either way, hard-working taxpayers lose when government forces businesses to make bad bets.

But instead of recognizing that government is the problem, our brilliant bureaucrats instantly (and without any real thought) decided that more government is the answer.  So they offered $8,000 refundable tax credits (aka govt handouts) aimed at first time homebuyers who otherwise could not afford to buy a house.  HELLO?  These are the people whose loans are currently foreclosing at astronomical rates.  Incentivizing people who can't really afford a house into buying one anyway isn't going to fix the real estate market or the banking situation.  This is what caused the problem!  Repeating the same mistake will only prolong the agony and further stress the financial institutions that finance these properties.  Not to mention the fact that it's inherently unfair to ask some taxpayers to pay higher taxes so the government can give their money to others for a down-payment on a new house they can't really afford.  And then add insult to injury by forcing those same taxpayers to bail out the banks when these loans foreclose, as if it were not foreseeable (right!).

So like cash-for-clunkers, I believe the First Time Homebuyer Tax Credit was a stupid idea, and therefore extending or expanding it will ultimately do more harm than good to the real estate market.  It may cause a short-lived spike in sales like cash-for-clunkers did (at the cost of future sales, by the way).  But do we really want manic ups and downs in the real estate market, or do we want a slower but sustainable growth?  I think anyone who owns real estate or works in the real estate industry would agree that a slow, sustained growth is better for all of us in the long run.  Some lawmakers and various Realtor® associations are pushing to increase the tax credit to $15,000 and extend it to more than just first time homebuyers, with a higher limit on the buyer's income.  To me, this is just the same dumb idea with longer lines of people taking the handout, and with a much higher price tag.

So when will the real estate market start to recover if government stops interfering?  It's already started to recover, in Arizona at least.  Keep in mind that national statistics quoted in the news may not be applicable to Arizona's real estate market.  Real estate is local.  Arizona was one of the first and hardest hit areas of the country when the real estate bubble started to burst (for lack of a better term!).  And I think Arizona was also one of the first to start recovering, because Arizona real estate prices were driven down faster and lower than other areas.  And lower prices is what makes buyers start coming out.

Don't get me wrong, the Arizona real estate market is not all sunshine and lolli-pops.  Not at all.  There are still tough times ahead, but people are buying despite the fact that banks aren't really lending like they should be (I guess it's more profitable for banks not to lend, and suck up taxpayer bailouts instead!).  But if the government just stays out of the way, the market will slowly recover on its own - without unnecessary, artificial government stimulation that really just wastes billions in taxpayer's money.

Visit Shannon Hubbard's Home Page     Written By: Shannon Hubbard

Great American Realty, Inc.

Cell: (480) 695-6672
Email me

Posted by Shannon Hubbard, AZ Realtor & Computer Guru on October 19, 2009 | Permalink


I could not agree more. well put.

Posted by: ray michaels | Oct 19, 2009 3:58:57 PM

Looking back at my clients who qualified for the credit, it was a nudge that got them off the fence. They still had to qualify for financing.

It also created a nice little sellers market for my sellers in the lower price ranges a few weeks back. The first time home buyers who waited for the market to continue dropping ended-up bidding against each other.

Fran Bailey
Realtor - Baird & Warner

Posted by: Fran Bailey | Oct 20, 2009 5:48:23 AM

no i wouldnt expect to hear a realtor say this

Posted by: Aaron, phoenix | Oct 20, 2009 1:35:32 PM

Personally, I believe that they should increase it to 15K and remove the number of homes you could buy if you had cash.

Posted by: Leesburg VA Homes for Sale | Oct 31, 2009 6:10:27 PM

I know it has already been extended again, but many major economists are asking why? The reason there are fewer buyers out there, is that we've exhausted the pool of buyers.

Posted by: Manassas VA Homes | Nov 19, 2009 11:27:18 AM

The first time home buyers credit has been great for our countries real estate market. We needed a spark as a real estate market, and its starting too pay off. I am glad they extended it.

Posted by: Staten Island Real Estate Agent | Nov 20, 2009 10:49:58 AM

It is my considered opinion that most businesses would be a lot better off if the government would stay out. All the government seems to do is to complicate the situation and tie everyone up in red tape.

Over the past few years everything has gotten so much more complicated and a lot of this problem can be attributed to government intervention.

Posted by: Robbyn Siegel | Dec 14, 2009 10:34:19 AM

The Senate is preparing to pass FHA Reform ACT of 2010. It has some good features that will improve mortgage financing; however, it also contains a very concerning mortgage insurance increase proposal that could have detrimental effects on the housing market.
The proposed increase of FHA's annual mortgage insurance premium from 0.55% to 1.55% would reduce a homebuyer's purchasing power.
Here's why: FHA's current annual premium is 0.55% (up from 0.50% just two months ago in April). A proposed 1.55% annual premium would have huge negative impact. For example, a borrower's monthly mortgage insurance premium on a $250k loan amount would be $115/mo. A 1% increase would raise the monthly mortgage insurance to $323 per month!
This bill has been passed by the House and is headed to the Senate for passage. Please tell your Senator to say NO!

Posted by: Ralph D Bredahl | Jul 21, 2010 11:51:41 AM


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