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The move-up tax credit is pointless

This story from the Associated Press a couple weeks ago doesn’t surprise me.

To summarize, it says the $6,500 tax credit offered to move-up homebuyers is not working.

Dani Grigg

Dani Grigg

One of the big reasons is that in order to buy new homes, these move-up buyers have to sell their old ones. And their old ones are often worth less now than what the owners owe on their mortgages, making entering the selling market right now a no-go.

Additionally, unemployment is at about 10 percent nationally. No one’s going to buy a new home right after losing a job or if they’re worried about an impending loss.

And some people are looking at the $6,500 and saying “Who cares?” For people who have enough equity to sell one home and buy another, $6,500 could be just a drop in the bucket of what they’ll spend to move up.

“No one is saying, ‘I need to buy something before it expires,'” Tim Surratt, an agent with Greenwood King Properties in Houston, told the AP.

OK, so it’s not working. But my question is, did we really need to stimulate that type of buyer in the first place?

The way I see it, it’s all about the first-time buyer (and I admit my perspective could be tainted by the fact that I am one of them). If we get lots of first-timers to enter the market, owner/sellers of those entry-level homes should have more success. And as they sell their houses, they turn into buyers of second-tier houses. And then those second-tier sellers become buyers of third-tier houses, and on up the food chain.

One chink in my logic could be that first-time buyers aren’t buying houses that are being sold in the traditional way – they’re buying foreclosures and short sales, ways of selling that usually hit credit scores badly enough to mean the seller can’t become a buyer for a few years. That stops the trickle-up process dead in its tracks.

But still, that’s not a problem that can be solved by offering move-up buyers $6,500. In order to buy a new home, they’ve still got to sell their old one, and unless they’re able to price the home at the same level as the foreclosure or short sale down the street, they’re stuck – leaving us right where we started.

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  1. I completely agree, in fact not only has it been a non motivator but every dollar that has been spent on this part of the program has been WASTED. It’s even worse than that; this portion of the incentive plan never had the possibility of being successful. In an environment where we as a country are broke they are willing to offer a program that has no chance of helping and it is just another example of how the Federal Government lacks common sense.

    It would make way more sense to offer the additional $6,500 over and above the $8,000 to returning Veterans who have earned the support of all of us and oh by the way most of them are First Time Home Buyers as well.

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