New Legislation Entices Buyers To The Closing Table
With the foreclosure wave stemming from the mortgage crisis, the Senate scrambled to pull together a bill that would address economic concerns and hopefully avert foreclosures while stimulating the real estate market. While ambitious, the resulting legislation has been met with criticism and concern that it just may not be enough. Still, there are a few enticing incentives for potential home buyers and business owners which may prove beneficial in the long run. But, we'll let you be the judge as we are here to provide you information in hopes that you will be able to make an informed decision.
The Current Problem: Domino Effect
It's no secret that families are losing their homes in record numbers as foreclosures are on the rise. Businesses such as local and national builders supported by the real estate boom are suffering from the lack of home sales and increasing fire sales which take a chomp out of their eventual bottom line. Foreclosures, short sales and the like lead to lower sales prices which lower the comps of neighboring homes. This prevents the embattled homeowner from refinancing and often stuck with a predatory loan which eventually leads to foreclosure if they are unable to keep up with payments. As you can see, this becomes a never ending domino which affects everyone in its path.
The Senate's proposed solution involved the following criteria as it relates the the foreclosure crisis:
- $7,000 tax credit to buyers of new construction and foreclosure homes
- Spread over two years
- No income limit on those who may qualify for the credit
Pros: Increases home values and gives incentive to possible buyers of new construction and foreclosure homes. Due to the increase in prices, homeowners may be able to refinance in order to avert an impending foreclosure.
Cons: Boosts the price of foreclosure and new construction homes at the expense of other homes on the market and in the neighborhood. For example, buyer Tom has a choice of House A in foreclosure, House B a new construction and House C, Buyer Tom has more incentive to purchase House A or House B with the $7,000 credit spread over two years. Furthermore, the purchase mostly benefits the banks and mortgage companies in that the credit boosts the demand for foreclosure and new construction homes, this does little for the buyer and embattled homeowners.
Property Tax Deduction For Non-Itemizers
Temporary $1,000 for couples, $500 for individual for property taxes paid for filers who do not itemize
Pros: Beneficial to homeowners who have incomes high enough to benefit from the deduction but do not itemize
Cons: The tax benefits aren't likely be of any significant assistance with deductions at $150 for a couple in the 15% tax bracket and unlikely to be of any help in averting a foreclosure. This deduction is also denied to tax payers who live in counties that increase property tax rates and hurts their local jurisdiction because it prevents them from increasing property tax rates to compensate for shrinking property values.
Extension Of Net Operating Loss Carry back Period
Business owners will be able to file for refunds going as far back as four years instead of two years as allowed under the current tax law
Pros: Business owners will be able to recoup taxes paid as far back as 4 years thereby putting more cash into their pockets to help make up for the losses incurred through the housing crisis
Cons: Unlikely to influence day to day business decisions around investing and lay offs and may even encourage fire sales by sellers with the temptation of making up for the loss through these tax write-offs. It is also possible that companies with no relationship to the housing industry would benefit more than those in the housing industry and thus not likely to help the economy.
Things to Consider
The aspect of the bill that may be of concern to potential home buyers is the$7,000 tax credit to new construction and foreclosure home buyers . This is all in hopes of gaining an owner-occupant which will serve to increase buyer faith and psychology, and, in light of increased prices, facilitate refinancing which may avert a foreclosure. However, there is concern that the inflated prices of foreclosure homes and new construction homes will come at the expense of other homes. This in turn spurs on more foreclosures because homeowners will have more incentive to let their homes go into foreclosure. Keep in mind this may be at the expense of their credit histories, and in some cases jingle mail may occur at the height of frustration.
Run your own numbers and purchase wisely, DROdio is here to answer any questions you may have about the new legislation and how it affects the sale or purchase of a home.
What are your thoughts? This is a lot to take in as you weigh the pros and cons of entering into the market at this time.