Tax Credit would be Great for Buyers and Sellers

by Coldwell Banker Evergreen Olympic Realty, Inc. on February 5, 2009

In past postings we have indicated that the pace of home sales will be dictated by prices. In December 2008, Thurston County had a 6% increase in buyer activity. That activity is the direct result of home prices coming back 9% from December 2007.

Fortunately, Thurston County has not been hit as hard as other parts of the country in terms of price declines. See our posting on January 18, 2009. Our market has had a softer decline than virtually all other areas of the country. It is those more severely impacted markets (California, Florida, Nevada, Arizona, and Michigan) that are generating all that attention in Washington, D.C.
Yesterday, the U.S. Senate passed a key housing amendment to the economic stimulus package that is making its way through Congress. If this provision becomes law, it will provide a powerful incentive for buyers to get back in the housing market.

The provision is a $15,000 tax credit (or 10% of the home’s price, whichever is less) that would be offered to all buyers who purchase a primary residence within one year of enactment.

This is a significant enhancement to the existing law that provides up to a $7,500 tax credit for first time home buyers. Not only does this new provision double the tax credit, but it also provides that it does not have to be repaid (as long as the home is owned for at least two years). The current law requires repayment over time. And unlike the current law, the credit would be available to all purchasers of primary residences.

The current tax credit, while a nice option, does not reach a broad enough segment of the housing market to make the kind of impact Congress is hoping for. The latest version would have a much better impact.

We will continue to watch this provision as it makes its way through Congress and report on its status. It certainly will be a helpful provision in housing recovery. But as we’ve said in the past, prices will continue to be the leading force in returning the market to more sustainable levels. After all, we continue to see well-priced homes sell everyday – without the tax credit. By the same token, it is unlikely that a tax credit will help sell an overpriced home. What it will do is invite more buyers to consider jumping back in to look at all of the great values that exist even today.

Statistics compiled by Coldwell Banker Evergreen Olympic Realty, Inc. from the NWMLS database. Statistics not compiled or published by NWMLS.

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