Do you think this will make a difference in the debate about whether to extend the $8,000 tax credit?

Okay, that’s a really long title to a very short post.   Here’s the scenario:

• The IRS has already discovered 100,000 potential cases of tax fraud on the $8000 First Time Buyer Tax Credit already.
• Let’s say that 50% of the people they are pursuing are not fraudulent (a highly generous assumption).
• That would still mean that $400,000,000 worth of tax payer dollars is being used for fraudulent purposes.

Do you think that will have a factor in the government’s decisions on whether and if so how to extend the tax credit?

I think it should.

Tom Vanderwell

House Subcommittee to Study Homebuyer Tax Credit Fraud : HousingWire || financial news for the mortgage market

The House Ways and Means Oversight Subcommittee will hold a hearing Thursday on the administration of the first-time homebuyer tax credit.

Specifically, the subcommittee will review the circumstances surrounding the Internal Revenue Service (IRS)’s more than 100,000 civil examinations of potential fraud related to the credit. The subcommittee will also consider opportunities to enhance the administration of the tax credit during the 2010 tax filing season.

Technorati Tags: $8000 Tax Credit

Free Ice Cream Anyone?

The post below is reprinted with permission from my “friend” Greg Swann who I’ve never met.   Greg is the owner of Bloodhound Realty in Phoenix and the owner of the Bloodhoundblog.com.   I’m privileged to be able to say that I’m one of the writers with Greg on Bloodhound.   It’s one of the most eclectic and truly inspirational groups of people who I’ve ever “hung around” with.    Check them out!

Tom

BloodhoundBlog.com – How about free ice cream?

When I was a kid, my Uncle Jack, my mother’s oldest brother, told me a story I’ve never forgotten. He was at a little county fair way out in corn country. Nothing special, just beauty contests for hogs, cheesy little rides and sticky, sugared confections.

Late in the day, the ice cream vendor decided to pack it in, announcing that he was giving away what was left of his inventory. People elbowed their way to the front of the crowd, so eager were they to get something for nothing. They walked away with the ice cream piled into their bare hands, rushing off to their cars, leaving a trail of melted drips behind them.

The lesson I took from my uncle’s story was that those folks didn’t really want ice cream. They were willing to get themselves dirty, and to get their vehicles dirty, just to have something for free. Most of them probably didn’t even eat the ice cream, and they certainly couldn’t have enjoyed it. Imagine trying to inhale a glutton’s quantity of chocolate-fudge-swirl before it melts all over your clothes.

Could that be what’s going on right now with the $8,000 first-time home-buyer’s tax credit? I happen to be carrying three listings that are undeniably “investor’s specials” — which means they’re a good buy, but they need a lot of work. Even so, my phone is ringing off the hook with agents trying to sell those houses to owner-occupants — folks with very little cash trying to get an FHA loan so they can buy a house, thus to get $8,000 in “free” money.

Do those buyers really want homes, or do they just want that free money? What will happen to the properties when the $8,000 is spent? Should we dial the clock back to 2006 to see if anything looks familiar?

Meanwhile, the National Association of Realtors is campaigning for even more “free” money to bribe even more otherwise-unmotivated buyers. The only thing that could make the deal sweeter would be a double hand-full of “free” ice cream.

Technorati Tags: BloodHound Blog, Greg Swann, Free Ice Cream, $8, 000 Tax Credit

More thoughts on the $15,000

As usual, Bill does a great job at telling it “straight” about the potential $15,000 tax credit that is being proposed.  A couple of things I’d like to add…..

• Keep in mind that nothing has been passed yet, so it’s all subject to change.
• Bill makes a good point – since this is about new homes and existing homes, it’s not going to solve the inventory problems, it’s really just going to shuffle houses and generate work for Realtors and lenders.  While I’m not opposed to generating work for mortgage lenders and Realtors, I’m not sure that we need to be creating tax credits for strictly them.

What do you think?

Tom Vanderwell

Calculated Risk: The Homebuyer Tax Credit

This tax credit is being compared to the 1975 tax credit for homebuyers. However in 1975 the tax credit was for new homes only, and was intended to reduce the inventory of new homes, and help put residential construction workers back to work. A boom in new home sales followed the enactment of the 1975 tax credit, but the cause and effect is debatable because the economy was emerging from a recession anyway. The tax credit probably helped.

Although new home inventory was a little high in 1975, there were few other excess housing units. The homeowner vacancy rate was 1.2% (compared to 2.9% today) and the rental vacancy rate in 1975 was 6% (compared to 10.1% today). So the supply dynamics were very different.

In this case the tax credit is for both existing and new homes. This is more of an incentive to get people to move as opposed to putting people back to work. Whereas there were few excess units in 1975 (except excess new home inventory), there are far too many excess units today.

The sponsors and supporters of this tax credit believe this will support house prices – a mistake because this will mostly just shuffle homeowners between homes, and not reduce the excess supply.

If the incentive was for new homes only, the credit would probably help create some construction jobs. However, the job creation would be limited because of the competing oversupply of existing homes.

The tax credit for existing homes does almost nothing to help the economy. Some might argue that this is more work for agents and home inspectors, and might help with furniture sales, but the impact will be minor. Remember existing home sales are already at a normal level compared to the stock of owner occupied units, so agents are doing fine already (just not compared to the bubble years).

$15, 000 Tax Credit