Saturday, February 14, 2009

WHEW, WHAT A WEEK! (OR, HOW THE STIMULUS BILL WILL AFFECT COLORADO)

Well, there was no lack of drama in Washington this week.

The House and Senate voted on Friday to approve the final version of the $787 billion (with a “b”) economic stimulus package that has been the talk of the country for the past month.

While we certainly can debate the merits of whether this bill was appropriate or responsible, it is going to have a dramatic and undeniable impact on our lives both in the short-term and in the long-term (unless, of course, you don't own a house, don't have a job, don't have children and don't pay taxes - if that's you, then life simply goes on).

Since what we do here is help folks buy and sell homes, let's focus for a moment on the most important provision of this bill as it pertains to the Colorado housing market: the debate over the tax credit provision for home buyers.

The tax credit provision was one of the most heavily lobbied and debated components of the economic stimulus package. In fact, because I am involved in a number of online communities and networking groups, I was getting almost hourly email updates this week from the National Association of Realtors, investor groups, builders, mortgage companies, as well as my local congressperson, US Senators and even a note from the President himself! (electronic, of course, but I'm sure he wrote it for me...)

In short form, here’s how the tax credit idea evolved:

Last year’s Housing Recovery Act included a provision which offered a refundable, repayable $7,500 tax credit to first-time buyers who purchased a home between April 9, 2008 and June 30, 2009. The credit was limited to those who had not purchased a home in the past three years and actually served as more of an “interest-free loan”, as the credit had to be paid back by the taxpayer in 15 installments of $500, beginning with the 2010 tax year.

The House version of the Economic Stimulus bill extended the existing credit out to the end of 2009 and forgave the repayment requirement, while the Senate’s version when much further, doubling the credit to $15,000 and making it available to all homebuyers purchasing a principal residence.

Sparks shot in all directions throughout the week as interest groups clamoured for a larger piece of the biggest pie ever baked by the US government.

In the end, the committee which negotiates out the differences between the House and Senate drafts of the bill settled on $8,000 for first-time buyers, eliminating the repayment clause and extending the credit through December 1, 2009.

So, in summary, the tax credit provision remained only for first-time buyers, but was increased to $8,000, made non-repayable, and extended to December 1. Those who purchased last year will remain bound by the terms of the original first-time buyers credit.

While some are disappointed that the full $15,000 tax credit did not end up in the final bill, the reality is that the new credit is larger and better than the old credit, and it will be around longer than in the original Housing Recovery bill from last year.

The biggest payoffs for those in Colorado, as I see it, are obviously for first-time buyers... but also for private sellers with homes under $250,000, where most first-time buyers will focus their interests.

Earlier this week, I posted about how strong the market was in January for homes at the lower price points, and how about one in 3 homes on the market under $250,000 is already under contract.

In the end, these changes should give our market a good, solid dose of adrenaline, especially at the lower price points.

If you or someone you know is interested in taking advantage the $8,000 first-time buyer tax credit, please give me a call.