By The Tim on February 8, 2009
Please vote in this poll using the sidebar.
Potential Buyers Only: Would a $15k tax credit affect your decision to purchase a home?
- Yes (34%, 93 Votes)
- No (66%, 180 Votes)
Total Voters: 273
This poll will be active and displayed on the sidebar through 02.14.2009.
Posted in Polls | Tagged bailout, government_meddling, Polls
Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.
$15k is only 5% of a $300k home. At the present rate of decline, homes are dropping that much off their prices in 3 months. I’ve got enough patience that I can wait a while longer to make sure prices are done falling.
P.S. – To come up with the 3 month figure I took the average month-to-month decline (-1.74%) of the last three months of Case-Shiler (-1.37%, -1.38%, and -2.48%) and applied that drop to a base price of $300,000. After 1 month: $294,780, 2 months: $289,651, 3 months: $284,611.
I voted no. The one and only thing that is going to get us off the fence is a reasonable price for the right home, and we are willing to wait for that.
I’m sitting on 450k cash and will not deploy until Tim buys.
I do not think I have seen it spelt out, though it obvious that some people on this thread understand it, the tax credit is really worth ~$5k. It maybe worth a little more to a higher earner who has a higher marginal tax rate and less to a lower earner who has a lower marginal tax rate. This would give you a 1% benefit on a $500,000 house. If you think house prices are going to drop by 10% as is expected in this Seattle area why would a 1% incentive help the market?
That said, $5K is not to be sneezed at all things being equal so it would probably help the housing market in some of the harder hit states (CA, NV, FL) where a bottom may be forming and the low prices are bringing the buyers back. For buyers in those states the tax credit could be the proverbial cherry on the cake if they have already found a distressed property they are picking up at an enormous discount. Also, the tax credit will be worth relatively more on low priced homes (e.g. 2.5% on a $200K house) so it may have a bigger impact in that part of the market. This could help a little, though I doubt a lot, because lower price homes are the foundation for the rest of the market but it will take years for the benefit to reach the whole market.
Also, our leaders need to be beware ofunintended consequences because this ishow we got into this mess in the first place. Anything that creates a false/temporary bottom, slows down the eventual correction or is only a temporary fix will potentially cause problems later. For example, are they just going to pull the tax credit when the market stabilizes because in a perfect market this will just lead to another correction of $5k.
I’ll save the detail for another post but I basically believe political solutions to this economic problem (which was caused by attempting political solutions to other economic problems) will cause some serious issues that will possibly cause a much more protracted housing recession because of the unintended consequences. We need leaders who will break the destructive cycle we are in and not keep perpetuating it with short term policies mostly concerned with their political popularity.
“$15k is only 5% of a $300k home. ”
I don’t think this is a realistic scenario (at least in the Seattle area, anyway). A home buyer purchasing a $300,000 home, if they use 28% of their income for a $1,900 per month mortgage (assuming a FHA loan at 5.3% with 3.5% down, calculates to about $82,000 per year in annual salary (rough figures, but it is in the ballpark, I think).
A tax filer who has $82K in annual income would not even be close to getting the full 15K rebate. So the percentage is even less than the 5% in the example.
My numbers may or may not be off, but my point is that to get the full $15K tax credit, you need to have substantial income. Who would buy a $300,000 home as their primary residence if they have that large income?
edit/
G4Goerge beat me to the point as I was typing. I fully agree with you.
it will affect my decision only if i’m buying something under 200k OR I plan to use 15k as downpayment and default.
My reaction as a fence-sitter, yawn and now back to our feature show
As a taxpayer: Outrage.
This is a joke….more garbage from our congress.
Get ready for the Dollar to fall off a cliff. Short or buy puts on the UUP to protect yourself.
Sorry Tim, you posted whilst I was writing my comment and I seem to have covered the same topic as you.
May be I am wrong but I thought the tax credit could be applied against you income. For sake of simplicity say you have $100k of income that is taxable and you marginal tax rate is 30% then you would have $15k of income that is not taxed at 30%. (30% of 15K is ~$5k). That is why the credit benefits tax payers on a higher income more than low income earners; a low income earner would likely have a lower marginal tax rate to apply against the $15k.
Therefore, if I am right the $15k tax credit (assuming a 30% marginal tax rate) would only provide a 1.66% benefit on a $300K property.
Anyone reading this please correct me if I have misunderstood this and the government is really going to give homebuyers a full $15k each and not just exclude $15k from taxable income.
G4George,
I understand that this $15K is a tax credit that reduces the amount of income tax you have to pay, not your taxable income. It is a credit, just like the Child tax credit. If you owe $15K in taxes, you will then pay nothing. If you owe just $5000 in taxes, you pay nothing. That’s why this is more valuable to higher wage earners.
G4George & gortnerp,
Yup. Tax deduction = reduces your taxable income. Tax credit = reduces your tax itself.
Wonder how this would play out in an AMT situation.
You’d be pretty stupid to say that this would not affect your buying decision. It’s a factor, albeit a small one. It may not push you over the edge, but it will give something more to think about. Meaning it will affect your decision.
Gortnerp @ #10, I am confused…
You said that if you owe $15000 in taxes, then you owe nothing. If you owe $5000, then you owe nothing – shouldn’t the one who owes only $5000 get $10000 in refund? Sorry I’m not very good at this, so please explain. Thanks!
jonasb,
“shouldn’t the one who owes only $5000 get $10000 in refund?”
Nope. In the current law, a first-time home buyer gets a $7,500 “rebate.” That means if the buyer owes just $5,000, the US Gov’t will cut a check for $2,500.
The amendment for the proposed stimulus bill is different. The $15,000 is not a “rebate,” it is a “tax credit.” That means that the maximum benefit to a home buyer is the amount of the home buyer’s tax bill. The tax credit will be capped at the amount of your federal tax bill, or $15,000, whichever is less.
The amendment does provide a provision to divide the $15,000 into two equal parts (2 x $7,500) and claim each $7,500 tax credit in the first two years after buying a home.
please refer to the actual text of the amendment on Senator Isakson’s website:
http://isakson.senate.gov/Amdt_106.pdf
“You’d be pretty stupid to say that this would not affect your buying decision. It’s a factor, albeit a small one. It may not push you over the edge, but it will give something more to think about. Meaning it will affect your decision. ”
???
The decision is to buy or not to buy, there is nothing in between. If it doesn’t make you change your position it doesn’t affect your decision. A decision is a decision not the thought process that leads up to it.
gortnerp,
thanks for the explanation and sorry for my ignornace :)
In that case the $15K tax credit will make a bigger difference to buying decisions.
On the flip side the unintended consequences of this credit may be alot worse e.g. remove the tax credit and all houses should correct by $15K. For cheaper homes when added to a realtors 6% commission the $15K drop could account for the most of the downpayment on a house being wiped out.
Yes, with the caveat that there’s many many other factors that dominate this one, and it wouldn’t change my decision about whether to buy today.
Here’s a tip for everyone who voted “Yes”. You don’t need to wait for the credit just make an offer $15k below asking on a couple of properties today. I’m pretty confident you will get yoursld a home for $15k off and since that is what would make you come off the fence, no need to wait or depend on a tax credit.
Been reading your blog for a while Tim, but it’s my first time responding. So first let me say – thanks for taking the time to pull all this information together. I don’t know that I’m representative of the Seattle community, but here’s what I think….
A little about myself first…I’m not a top wage earner, but I earn about 80k per year. I have a very stable job, the unemployment in my career has been very low historically, and 10-year employment growth (according to BLS) is about three times the average. I’m single, I don’t have any dependents, I rent, I don’t own my own business…so I have very few tax deductions. This year I’ll probably end up paying in the realm of $13,000 in federal income taxes.
This is nearly enough to take full advantage of the $15,000 credit, although from what I understand, the $15,000 credit could be split across two years. This would allow people with lower incomes to also take full advantage of the credit.
I have been tracking real estate around Eastlake (Seattle) and Queen Anne for a few years. In these areas, I can only afford a condo. Prices in these neighborhoods have come down a bit, but perhaps not as much as some of the neighborhood-specific data on your blog or Case-Schiller would suggest (I know the data is for SFH not condos). It’s hard to say, though, because there have been so few sales around here lately.
After hearing about the tax credit, it renewed my interest enough to start poking around and following the condos and homes being put up for sale a bit more closely than I had been. I would say that is the extent of the tax credit’s impact on me so far, though. I haven’t suddenly vaulted off the fence, I’m just keeping a closer eye on the situation.
$15,000 is maybe 3 to 5 percent of the list price for most condos in the areas I would like to live in…so it really isn’t that substantial of a factor. The more substantial factors, in my mind, are:
-the potential for home values to decline much more (more than 3 to 5 percent)
-the possibility that congress may come out with a better home buyer tax credit in the future (perhaps that’s location adjusted?)
-the fact that $500-600/sf is not a reasonable asking price, even if the place does have stainless steel appliances
As other posters have mentioned, the tax credit may have a greater impact in markets that are close to reaching bottom or in markets where home prices are low. Based on my observations, Seattle is neither.
Why i have to loose 100k for just 15K?
“Here’s a tip for everyone who voted “Yes”. You don’t need to wait for the credit just make an offer $15k below asking on a couple of properties today. I’m pretty confident you will get yoursld a home for $15k off and since that is what would make you come off the fence, no need to wait or depend on a tax credit. ”
You can do much better if you know which properties to offer more than 15k off asking.
As to the original question, I think many of you are ignoring a big fact. There are a lot of people that will flush a dollar down the toilet to save 30 cents on their taxes. Accountants call them doctors, but that’s hardly the only group that does it.
I posted this in another topic, but it makes more sense to post it here.
An unintended consequence of the $15k credit could be a reduction in 401k or HSA contributions. Part of the benefit of these accounts is to reduce the amount of taxable income. If you are at a payscale that would not allow you to take full advantage of the credit, then you may want to increase your taxable income to allow for a larger credit. Does this make sense?
As many others have pointed out, this is a drop in the bucket financially, so I it won’t affect my decision at all.
Not that I support the government spending my money in a vain attempt to support asset prices, but they would need to provide enough cushion to remove all of the downside risk of buying right now. Which means either fronting me hundreds of thousands of dollars or guaranteeing that I never bring money to the table to sell.
Kary – if you are implying that this will help financially unsophisticated people come out and buy, then you are probably right to some degree.
For those having a difficult time understanding what will work in the short term:
Principle reduction by the current lenders. If this avenue is not taken home prices will continue to decline. Rates, tax credits, and lower prices will assist minimally. The absorbtion rate of homes from Buyers will take many years unless current owners have a vested interest to stay in their home. I assure you this. When a homeowner realizes they are upside down triple digits…THEY WILL WALK! ..**However** principle reduction will cause anarchy in neighborhoods. When the neighbor finds out Joe next door at 100k wiped off his MTG…Payments will stop…
As a student of history this is very sad but I’m fascinated on learning how we pull out of this mess. Until then I suggest everyone try to invent something like this so you can live off the riches.
http://www.youtube.com/watch?v=il9Arcx4h2k&feature=related
By patient @ 7:
Ayup- this pretty much says it all.
if I reall “need” $15000 in tax credit to buy a house, I probably can’t afford it.
By Ric @ 26:
RE: Ric @ 26 –
oops..I meant “really”
RE: Kary L. Krismer @ 21 –
Kary are you a realtor? (I know I can find it online, but if you are, I dont even want to waste my time doing that).
The line you used above “people will flush a dollar to save 30 cents” sounds like the typical BS that has been shoveled at gullible people to sell them houses in the past few years. Please, just give it up it does nothing but discredit your “industry” in the eyes of precisely all those professionals.
And why do you call yourself an “industry” anyway? Seriously what do you people “produce”? We should just start calling you home dealerships.
Honestly, I’m more focused on my job being around, and what will happen with my salary (Job is probably gonna be ok, but there’s a good chance of a wage reduction if this economy keeps up).
As such, these tax credits don’t even come into play at all for me.
TheHulk – they are a service industry, like many others. Many people pay them money to find houses and to manage the affairs of a house purchase.
I think that many Real Estate agents are not worth the money that they want, but I won’t pretend that they are not participating in production.
Services and transportation are part of production in the economic sense, as much as manufacturing is.
As hard as it is to swallow, it is not the RE industry’s fault that people decide that they are worth money.
As a first time buyer who thinks prices will keep dropping, no. If I was already invested in a place and thinking about selling to buy a different place, maybe. Theoretically I could buy a place 15K nicer and not get any more invested in a depreciating asset than I already am.
G4George @ posting position #4, someone else may have already corrected you but a tax credit offsets the taxes you owe dollar for dollar, the tax payers marginal tax rate doesn’t matter. Marginal tax rates only matter for an itemized deduction.
So if you owe $15K in taxes, this tax credit of $15K would be deducted from the amount you owe and you wouldn’t pay any tax!
I agree with Tim, prices are dropping too quickly for this tax credit to be attractive. I’ll stay on the fence and continue to save until I think prices are reasonable. For me, that would be early 2000 level pricing.
RE: Ben @ 30 –
I agree that they for a part of the “services” industry. I can’t think of too many other “services” that have lead to total financial devastation for so many people or left them with albatrosses hung around their necks that they have to bear for 10-15 years.
Now, in spite of all the above, the NAR and people like Kary continue pushing the BS that worked for these past years. Sorry, they don’t get a free pass from me.
I voted no, but it is not quite so clear cut. This tax credit will not get me off the fence, but if I’m negotiating a price, it might make me give a couple thousand more than I would like to.
does anyone know if the tax credit will apply retroactively to purchases made before it was approved? and if so, by how long?
The Hulk wrote: “The line you used above “people will flush a dollar to save 30 cents” sounds like the typical BS that has been shoveled at gullible people to sell them houses in the past few years. Please, just give it up it does nothing but discredit your “industry” in the eyes of precisely all those professionals.”
Yes I’m an agent, but I have to ask do you even know what I was referencing when I said people will flush a dollar down a toilet to save 30 cents on taxes? It has little or nothing to do with real estate (although it can).
The point was people make stupid decisions that cost them money to save money on taxes. Do you disagree with that?
The Hulk wrote: “Now, in spite of all the above, the NAR and people like Kary continue pushing the BS that worked for these past years. Sorry, they don’t get a free pass from me. ”
Rather obviously you don’t know me. You also apparently don’t understand what I’m writing. So don’t call something BS simply because you don’t understand.
RE: Kary L. Krismer @ 36 – “people make stupid decisions that cost them money to save money on taxes.”
Would you agree that many Real estate agents pushed people to buy houses during the bubble creating FUD such as:
- You are throwing away money on rent
- Why get a fixed rate mortgage? You can get a much better house with an ARM. In any case most people sell houses within 7 years and you would be throwing away money on a Fixed rate mortgage.
- A house is an fail safe investment.
- Take advantage of low interest rates, they have never been this low in years!!!
And now it will probably be:
- The government is giving away a 15K tax credit. Why throw money away on taxes?
RE: Kary L. Krismer @ 37 –
Oh, and excuse me I do understand the tax implications here.
A hypothetical family of four earning 120K a year pays close to 15K taxes. IF they bought a house this year they would not have to pay any taxes at all.
Lets see… 120K a year = 10K per month. Which means they could afford a 2500$ mortgage payment (assuming mom/pop are able to keep their jobs in this economy). With a 5.5% fixed rate mortgage, that works out to around a 450,000$ mortgage. With 20% down, that would probably mean a 562,500 purchase price for the house.
Now, sellers already know about the 15K “discount” so it will be taken into account when they try to sell the house (just like the buyer’s agent’s real estate commission). So, the hypothetical family could have actually purchased that house for 547,250 instead of 562K. Anyways, let us ignore that fact for now and assume prices drop 10% YOY like they did last year. A year later that 562,500 house is now selling for 506,250.
My word! Would you look at that. Simply waiting a year saved the family: 562K -506K -15K(the tax credit which the would have “thrown” away) = 41K. That is simply the money directly saved in purchasing the house. If you pile on top of it all the interest the family will pay over the duration of the loan, I am sure it will simply add up even more. Thrown in 1500$ the family is “throwing” away on rent this year and they will still be 23K in the positive.
Now, first do tell me if anything is wrong with my calculations. Second, having full knowledge of the above, would you recommend the family of 4 to buy a house and take “advantage” of the 15K tax credit?
HOW MANY OF YOU BLOGGERS ARE PAYING $15K IN INCOME TAX FOR 2009?
Practically none of you is my guess, so the maximum tax credit is a complete joke for most home buyers.
My estimate is it would take a married couple making $150-200K per year to pay that much tax; and most of that group isn’t in the RE market anyway, they already own a house they can’t sell [unless they reduce the selling price, like 20%, let's be serious and pragmatic].
It reminds me of the government’s promised help to foreclosed homeowners, all talk and promise with no workable [or fair bail out plans] actions to date.
As a potential move-up buyer, the credit is at least worth examining because it helps close the gap between our current house and our desired house. Our desired house would sell for around 1.5x our current house. Thus, assuming that both declined equally on a percentage basis, our current house would fall by $6,667 for every $10,000 our desired house falls. If my math is correct, it would take over $40,000 of additional price declines on our desired house to wipe out the benefit of the credit in our case.
The credit wouldn’t make us move when we wouldn’t otherwise, but it could impact the timing of our purchase. Regardless, we’re not doing anything until I see signs of stability in the overall job market.
$15k financed over 30 years at 6% is around $75/month. When $75/month makes a big difference in my finances then the $15k tax credit will make a difference in my decision to buy a house.
RE: gortnerp @ 14 This is a great discussion. Thanks for the clarification on a tax credit versus rebate. Does this mean that if you owed and paid $15K in taxes this year, you’d get a $15K refund if you purchased a home Or would you only save what you might still owe in federal taxes come April 15?
I am hoping that this doesn’t affect me, but I can see this causing a potential short term slowdown in the price declines. This just means that I may have to wait a bit longer before things really stabilize.
Brief recap: sold in october 2006, made dough, put it in cash. Happy, but envied by friends. Why on earth would $15k make me pay 2007 prices for houses that are worth 2004 dollar amounts? The only thing that is going to make me buy a house is for it to be a good house at a reasonable price. Sellers have not really got the message, sometimes after 3 listing agents and 10 price moves up and down over months.
I’ve put in a few bids on places, but am tired of fighting sellers in denial. So no, emphatically no, $15k will not move me. In fact, if anything it will probably end up making life more painful for everyone in the long run since it means sellers will assume that buyers now have fifteen thousand more to spend…and you know agents with maxed out credit cards are going to sing songs of hope to their sellers…
RE: softwarengineer @ 40 –
You hit the nail on the head. Sure I paid $4k in taxes in 2008, and if I purchased a house with my partner and spread it out over 2 years I would see the full benefit. But really, $3750/year for 2 years doesn’t move me at all.
If you sold a house and purchased another in the same year, you would have lots of deductions; excise tax, points paid, and perhaps overlaping interest deductions.
RE: harbored @ 47 –
No credit for you!
98115, oh how I envy you. I wish I wasn’t chained to a house. I’d rent a nice place and have cash to go get sunburned.
Ardell has insprired me to make some bold predictions tonight:
I hearby proclaim this tax credit will henceforth have the following results:
The 6%’ers will tout this as the 2nd comming
Nobody but the aforementioned wealthy couple with a CPA doing their taxes will benefit from this junk feel good tax credit
Anybody who’s gullible enough to think their getting a $15k worth of purchasing power will have a rude awakening next March when McTax prep service breaks the news
The auto industry, with their much better cadre of lobbyist, will next get a tax credit for car buyers
The tax credit’s net effect on the real estate market will feel like driving over a speed bump in a monster truck
Lenders will require transparency, audits, and accountability for NWMLS numbers
A lot of people with crappy credit will be targeted for rent to own scams
Lennox Scott and Dick Beeson will be widely quoted the day after this turd tax credit flushes
RE: softwarengineer @ 40 –
Software Engineer, a couple making over $91k in income is typically in the 18% from what I know. So don’t pull stuff out of thin air as you usually do.
I paid in addition to what was already paid for ‘07 $21k.
Yes, it would affect my decision. If I were about to buy a home, I’d pull out of the deal and wait for them to offer me a $30K credit.
And a pony.
TheHulk:
It’s just my opinion, but I think you are being a little tough on Kary. He warned people not to get suckered into the 15K or they will lose money in the long run. I take that as a good thing.
SoftwareEngineer:
The tax can be spread out over a two-year period. I suspect a married couple who makes $75K/yr combined would be able to recoup most or all of the $15K.
Jonness, I’m with you on Kary. He seems like a good guy, honest and forthright. I hope his arrival doesn’t mean we get stuck with Cherry Garcia and the permabull hags.
(oh yes I did)
RE: Jonness @ 52 –
Everyone is assuming that this hypothetical couple doesn’t already have lots of tax sheltering going on from 401ks, IRAs, massive student loan interest deductions, new massive mortgage interest deductions, etc. The hypothetical couple MAY each get their $3750/year, but just barely. AND it’s only $3750/each/year = fraction of home price.
By Kary L. Krismer @ 21:
Exactly!
Which Properties?
Every single one of ‘em.
RE: RavennaDad @ 43 –
I am not sure that I understand your question…
Under this homebuyer proposal, if you have had $15K withheld from your pay over the last year, and you pruchase a home during the one year after enactment of this proposal, you will receive a refund for the $15K in federal taxes that you have had withheld.
If you have already had $15K withheld during the course of the year from your paychecks, and you still owe another $4K (for a total tax bill of $19K) come time to file, then you would have a credit for $15K out of that $19K, bringing the total tax bill to just $4K. Since you have already had $15K withheld, you would receive a check back from the IRS for the difference ($11K). Make sense? Did I answer your question?
One of the provisions is that you cannot have owned a home for the past two years. Correct?
RE: harbored @ 47 – Good point on being able to deduct points, but excise taxes aren’t deductible.
From an FAQ on sales tax deduction (http://cantwell.senate.gov/issues/sales_tax.cfm):
Q: Can I deduct items like luxury tax or excise taxes on the sale of homes?
A: No, these taxes are not deductible under the new state sales tax deduction.
The Hulk: “Would you agree that many Real estate agents pushed people to buy houses during the bubble creating FUD such as:”
Actually I find most people using an agent already wanted to buy prior to ever seeing the agent, and the agent would have a hard time talking them out of it. But obviously the buyer’s agent would have little motivation to do that.
The point is, agents don’t create demand for housing. If they did, there would have been 2000 SFR sales in King County in January, rather than under 700.
sofwareengineer wrote: [quoting someone] “HOW MANY OF YOU BLOGGERS ARE PAYING $15K IN INCOME TAX FOR 2009?”
:Practically none of you is my guess, so the maximum tax credit is a complete joke for most home buyers.”
I believe the credit can be taken over two years time.
EconE wrote: “Which Properties [can you get more than 10% off list on]? Every single one of ‘em. ”
My point was more that you can tell from public records which sellers are more likely to negotiate. Just writing offers for XX% off what they’re asking would be unnecessarily time consuming. Selecting the properties is better.
Of course this works better for buyers that are not too picky about what they want. If they want 3 bedrooms upstairs, one downstairs and a second kitchen, they might as well try every property they find that fits that criteria.
Herman, the $7,500 credit required a “first time buyer” which I think was not having owned a home for 2 or 3 years. This $15,000 credit has now such restriction.
Jonness, and Harbored, thank you. I think the Hulk simply failed to understand what I was saying. My point was simply that a lot of people do things that don’t make any sense at all to save something on tax. For example, they’ll buy something and say: “It’s deductable!” even though that might mean only saving 20% of the cost of the item on taxes (or worse–having to depreciate it over time).
The poll here is showing 33% or so of people would buy. Just to be nice to the people that voted, let’s assume they’re all rational people and actually penciled this out and understand it, etc. What I’m saying is there could be 5-10% more that would do it just because it “saves them money on taxes.”
One more thing to The Hulk. He brought up ARMs. Not only would I try to talk my clients out of ARMs, I would try to talk them out of 80/20s because of the increased liability concerns. Many agents only learned last year what I considered obvious–that you’d likely still owe the 20 after the 80 foreclosed. Many agents probably still don’t know that. When talking to mortgage brokers about that I’d often get blank stares about PMI becoming deductible, and quite frankly I’m not sure I ever affected a single client’s decision. The name of the game for both the mortgage broker and the client was getting the payments low. That’s what people wanted, and that was hard to change.
Welcome Kary!
The Seattle Bubble looks like a good fit for you.
Can you explain more about the second mortgages?
Thanks
Most analysis of this proposed tax credit argue it on its merits alone, on which it seems to be failing. But when you add in all the other things that are keeping people on the fence, job stability, overpriced homes, not able to know if a house is bank owned, etc, then this tax credit will move, in my guess, about zero people off the fence.
David, under Washington law a foreclosure of a deed of trust only extinguishes the deed of trust being foreclosed. There was a goofy decision a few years ago, that I wasn’t even aware of, that gave the impression of a different result. That was cleared up last year. So when a first forecloses, you still owe on the second.
Most deeds of trust have what’s called a “dragnet clause” which brings in other subsequent debt of the same lender. Where the first and second are loaned by teh same entity, there is some argument that the dragnet clause would bring in the second loan debt too, and it would be discharged. That, IMHO, is a rather weak argument because dragnet clauses are interpreted to be consistent with what the parties intended. Where they do two separate loans, with two deeds of trust, clearly they did not intend the second loan to be covered by the first.
Thus, where you had a 500k purchase financed with a 400k first and a 100k second, if the first forecloses, likely you’ll still owe 100k. If you had a 500k loan with PMI, when it foreclosed you’d owe nothing. To me it was worth the extra $$$ per month to avoid possibly owing 100k.
In prior markets you could possibly avoid this result by simply not paying the second, and continuing to pay the first. Not many people tried that, because the first was the big payment. In this market I don’t think the second would bother to foreclose, and if they did, I don’t think they’d pay off the first (what would be needed to get rid of the liability).
Finally, again, this is based on Washington law. Other states may be different.
Kary,
Why do you sound so much more reasonable to me when you post on SB than you do on RCG or the PI?
I should sound more reasonable on RCG, because there I’m countering the totally absurd, like if you can’t find comps start with Zillow or the assessed value.
By Kary L. Krismer @ 59:
My apologies to Kary, I misinterpreted his statement saying “some people will flush a dollar to save 30 cents”. Yes, I agree *some* people are stupid enough to do this, but I would argue that is a tiny minority.
Regarding the FUD bit, sorry you and your NAR cannot give up responsibility in pushing PR all the time urging people to buy houses knowing fully well they could not afford it. Look at every single Press Release issued for the Seattle area in 2008. Every single one had positive spin on it.
Btw, you still have not answered the question I posed in #39 above. I repeat my question yet again: Would you recommend the family of 4 to buy a house and take “advantage” of the 15K tax credit?
98115_Renter @54:
If you make 75K/yr and only pay $3,750/yr in federal taxes, I definitely need some tax advice. My knowledge is limited, but I suspect what you are claiming is not true for the average case though. For instance, the interest on mortgage payments is perhaps 15K/yr. That is a write-off, not a rebate. So a person earning $75K with $25K in write-offs would pay $8850 in federal tax. A married couple would pay $6700. Many people will go for this for the same reason people took out home equity loans. The promise of not having to pay any federal taxes for two years will be a heavy lure (money now, spend, spend, spend, we deserve it honey). As Kary mentioned, these people could ultimately lose money due to continued price depreciation, but the majority of people do not think that deeply. If this were not true, we would not be in this mess in the first place.
Lower income families buying a $150K house won’t end up with a whole lot, but yuppie families earning over $100k/yr in areas that have already seen heavy market correction will jump off the fence for this.
Hulk, I don’t control the NAR, and I’ve been critical of much of what they’ve done. Most of the good stuff they do is done locally by WR (formerly WAR), like keeping excise taxes from being increased and fixing the distressed property law.
As to your question, I missed it, but my standard answer is people should buy or sell when they need to buy or sell. I’m not a big fan of trying to time a purchase based on the market because I don’t think anyone can predict the future. So I don’t think this 15k credit should make someone buy, but if they were thinking about buying for other reasons (e.g. a kid on the way), then yes this could be something that would affect their decision.
Kary, kudos to you for the patience you showed here. There are many people on the Interwebs that comment on things and state stuff as fact when they are simply misinformed or wrong.
RE: G4George @ 4 –
I think you’re confusing a tax credit with a tax deduction. The way I understand it, the 15K tax credit means you’d owe a total of 15K less to the government, so it’s a free 15K if you pay 15K or more in taxes.
Anyway, no, it’s not really affecting my decision. The main reason I won’t buy is because, being in my twenties, I think the ability to pick up and move anywhere in the country to work is more valuable than owning a home. Also, I’m convinced prices still have another 10%+ to fall.
In Seattle, no. 3% of median price will be wiped out by falling prices by the end of summer.
There are many places in the country where you can get a decent house for $150k, though. And this tax credit might be enough for me to alter my plans and move sooner than expected.
Is there any income limitation for $15k tax deduction?
Can you show me any weblink that tells 4% – 4.5% rates are in plan for 09?
RE: Cris @ 75 –
No income limitation.
You may refer to the actual text of the $15K tax credit on SEN Isakson’s website:
http://isakson.senate.gov/Amdt_106.pdf.
RE: Jonness @ 70 –
I was working off of a hypothetical COUPLE bringing in 75K/year total as you stated in your post #52, not each .
RE: Jonness @ 70 –
Nevermind