Missed the Home Buyer Tax Credit? No big deal!

There’s been a lot of anxiety over trying to buy a home in time to qualify for the First-Time Home Buyer Tax Credit. It was good as far as it went. It certainly got a lot of people off the sidelines and into the home of their dreams. It’s also gotten a lot of people into a home they don’t really love, just for the sake of getting that tax credit. You’d be interested to know that there was a tax credit EVEN BETTER than the one for first-time home buyers.

For the biggest bang for your buck, the Cash for Clunkers program was even better than the First-Time Home Buyer Tax Credit.

 
The Cash for Clunkers program offered between $3,500-$4,500 bucks if you turned in an old car and bought a new one for under $45,000 dollars. Do the math: You saved 12% off a new $30,000 car if you got the minimum $3,500 rebate. That’s not a bad savings!

First-time home buyers were eligible for an $8,000 tax credit but if you did the math, they really only saved 4% on a $200,000 home. $8,000 bucks buys a lot of sandwiches but doesn’t really save that much when you think about it.

The point is, if you didn’t run out and buy a new car to save 12%, you’re probably not too worked up about not saving 4% on a new home.

On the other hand, if you’re reading this, you’re probably still in the market for a new home. SERIOUS buyers are watching:

1. Home Prices – The MLS and Nat’l. Assoc. of Realtors^® have declared a seller’s market in Essex and Middlesex counties. (Read Is it REALLY a Seller’s Market?, and 4Q09 Economic and Market Watch Report) Each new home coming on the market today is priced more aggressively than the last.
2. Mortgage Interest Rates – Mortgage interest rates are low by historical standards. Even if they shoot up to 6%, they’re still low. They’re just not as low as the 5% that you could have had just a month or so ago. When rates go up by 1%, you LOSE $20,000 in buying power on a $200,000 home. On a $300,000 dollar home, you’ll spend $30,000 more just in financing. That hurts.
3. Taxes – Have taxes EVER gone down? Demand for government services continues to increase. The problem is, the “government” is us. Governments don’t have money. The services they provide are paid for by taxpayers like you. The government has bailed out the auto industry, the housing industry, and the financial industry. It’s pressing to “go green” and to reform health care. All this money comes from income taxes and… wait for it… property taxes. You’ll soon see an increase in property tax rates and home assessments. These new amounts will be plugged into the mortgage calculator. The pain will become evident.
4. Inflation – There’s a lot of worry in the financial press about inflation. And why not? The government has turned on the printing presses and put a lot of money into the system. All this money sloshing around will create demand for goods and services. The buyers for the goods and services are just coming back into the market. Tech spending is way up and manufacturing is coming around. Industry is ramping up in anticipation of greater consumer demand. When this pent-up demand hits, watch out! When you’re spending more on everything else, you’ll have less to spend for a new home.

A defensive play in real estate means BUYING A HOME TODAY to lock in low interest rates, low home prices, and low taxes before higher inflation takes a big bite out of the home of your dreams. (Read How to Take the Risk Out of Buying a Home)