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$8K tax credit - not a good reason to buy now?

dlsdls
edited January 2010 in Seattle Real Estate
Now that I'm in the market to either buy or rent (forced out of my apt due to sprinkler pipe burst, repair of which exposed other damage to the structure, I'm not moving back in) I've been trying to decide if the current $8K tax credit for first time buyers makes it worth buying now (next month or two) or still better to wait another year or so. My rough calculations (excluding time value of money, one time buy sell costs, etc) shows that it would only take 4-5-6% drop in the price of a $250K - $300K house (condo, townhouse) to negate the tax credit, and, assuming 1 or 2% average annual appreciation, it would take about 12 - 17 years for the property to appreciate back to purchase price (longer depending on the actual future value of today's cost). Buy/sell costs, along with the mortgage interest, only seem to further sour the case for buying, at least for another year or so as housing and the economy play out. Thoughts?

Comments

  • BillEBillE
    I've heard a few people say they want to "hurry up and buy" to get the tax credit. None of them have really looked at the housing market aside from what's being said on the evening news. I've decided to ignore the tax credit in deciding when to buy. I'm not gambling on hundreds of thousands of dollars to get $8000.
    You've already done the math to see how much depreciation it takes to eat that 8k.
  • ira sira s
    No, the 8k credit should not be the reason you decide to buy now. A lot of people have felt otherwise, with the offer of "free money".
    But I guess it depends on how much you want to own. Some people just feel this compelling urge to own a home, and aren't really happy until they do.
    If that's the case, make sure to get what you want at the best possible price. Pay less than market value. Get some of the commission rebated by your agent. Don't pay much more for your mortgage than you did for rent.
    Waiting a year is probably not going to hurt, 8k tax credit or not.
  • dlsdls
    Thanks for the feed-back, you've re-enforced my thoughts that the tax credit shouldn't be part of a buy decision. $8K isn't nothing to sneeze at, but it pales in comparison to the much larger potential (and quite probable) dollar loss of buying something in the very near future only to have it drop even a few percent (then there is the mortgage interest...).

    Perhaps I should flip my mindset and take advantage of being 'rootless rental scum' by trying life in a different part of the area other than Edmonds/Lynnwood, perhaps the Greenwood or Kirkland areas (both pretty much a wash work-wise), grass might be (or not be) greener elsewhere.
  • RhondaPorterRhondaPorter
    I don't think it's ever a good reason to "hurry up and buy" (hardly ever)... one factor to consider is mortgage rates. I do think they will be higher after March and an other program is the tightening of mortgage programs/underwriting guidelines. Another reason (just being "devil's advocate w/a few reasons to consider) is sellers are more likely to make contributions towards closing costs.

    I've had folks worked up in a frenzy over buying now--it's just not a good state of mind to buy in. You need to be logical.

    If it were me and I found a home I really wanted to have...it's unique or in the perfect location, I would consider it...but not just based on the tax credit.
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