WSJ: Does the Tax Credit Really Make a Difference?
Brett Arends, The Wall Street Journal columnist who does a good job of explaining financial issues in layman’s terms, examines whether or not the expanding home buyer credit would be a good deal for buyers in his most recent column.
In a post earlier this week, we wrote that the Senate passed a proposal that would extend the credit to home purchases under contract by April 30, 2010 and it would be available to individuals earning up to $125,000, or $250,000 for couples, up from $75,000 for individuals and $150,000 for couples under the current law. The proposal would also let homeowners qualify for a $6,500 credit if they have lived in their residence for five years.
However, according to Arends’ column, the credit will really only make a difference in places where homes are really cheap:
For example, it may provide a helpful shot in the arm for the stricken real estate market in Nevada (where Sen. Reid faces a tough re-election battle next year) more than in high-priced coastal markets like Silicon Valley and New York City.
According to Zillow.com, the median home price in Las Vegas right now is just $139,000. That compares to $562,000 in San Jose, California and $795,000 in Manhattan.
So the maximum $8,000 credit will cover about 6% of the median price in Vegas, but barely 1% in the most-expensive areas.
For your reference, Redfin says that the current median list price for homes in the DC area is currently $350,000.
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The better question is where the goverment is going to get the money to finance all this?
The answer to the question above - the same place they did for the stimulus and every other bailout—print it.
If you are looking to buy and can afford to buy - who in their right mind won’t take a free $8K. That is a few months of mortgage payments (maybe not in DC but I’ll take it).
Just remember than in DC you get 5k anyway, so after 11/30 the 8k is reduced only by 3k.
You can’t take both.