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The $8,000 housing credit 'swindle'

Pity anyone who took the tax credit to buy a house in 2009 or 2010.

By MSN Money Partner Nov 8, 2011 3:09PM

This post comes from Brent Arends at partner site MarketWatch.

 

MarketWatch on MSN MoneyCall it the Great Rock & Roll Real Estate Swindle. Call it a $26 billion Bait & Switch. Call it the Mother of All Boondoggles.

 

Call it whatever you want.

 

But as foreclosures surge again and house prices continue to slide, new data out this week reveal more of the grim verdict on the $26 billion federal program in 2009 and 2010 to offer tax credits to home buyers.

 

You may remember that between spring 2009 and September 2010 the government handed out credits of up to $8,000 to induce people to buy a new home. It was supposed to gee up the housing market.

 

How'd that work out?

 

Zillow.com, the real estate information company, says the average price of an American home fell again last month to $171,500 -- the lowest level in eight years. That’s down 4.4% from a year ago, although it’s been about stable over the summer.

 

Now compare the average prices with those that people paid in 2009 and 2010, when they took advantage of the credits.

 

According to Zillow, prices during that time averaged about $186,000.

 

In other words, based at least on average prices, you’ve lost about $14,500 — nearly twice the value of the credit. Stan Humphries, Zillow’s chief economist, says the credits effectively expired in June 2010, when prices nationwide averaged $182,000. Since then we’re down $10,500.

 

The biggest losers? Step forward all those who took up Uncle Sam’s $8,000 bribe and rushed out to buy a new home in Santa Barbara, Calif. You have already lost $50,000 of your $440,000 investment. And that’s even counting the $8,000 bribe! Post continues after video.

Others who are already down more than $30,000 include home buyers in places like San Francisco, Seattle, Flagstaff, Ariz., and anyone who bought down the road from the underground bunker of MarketWatch’s own Paul “The Road” Farrell in San Luis Obispo, Calif.

 

Oh, and check out Carson City, Nev. The typical homes only cost about $190,000, and even after counting the $8,000 credit you’re already down $8,000.

 

The IRS says the entire program cost taxpayers $26 billion (though of course it was put on the national credit card, on which interest rates are very low). That money has vanished. It has, as the saying goes, “gone to money heaven.”

 

Zillow tracks prices closely in 157 cities and major towns around the country. Humphries says that in 110 of those, prices today are more than $8,000 lower than they were in June 2010.

 

The picture is even worse when you compare prices today with the average for the entire year-and-a-half that the credits were in place. By that measure, prices have fallen by more than $8,000 in about 130 cities and towns.

 

But look on the bright side. Home buyers in about two dozen metro areas have kept at least some of the $8,000. And in a few — six, to be precise — the market is actually up overall.

 

Leading the pack? Three cheers for Honolulu. Average prices have risen about $4,500 since the period when the tax credits were being handed out — meaning potential profits on your new home near Diamond Head of maybe $12,500 overall.

 

If that doesn’t count as a success, I don’t know what does.

 

More on MarketWatch and MSN Money:

77Comments
Nov 8, 2011 10:57PM
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The government needs to keep its paws off of the housing market , automotive market and every other industry.  Everything it has done to create homeownership, has only made people like myself who played by the rules and actually paid money down, when I have purchased a home loss value.  I purchased my first home in 1978.  It was a 10 year old home, not new and not updated.  I paid $48,800 for the home and I paid $15,000 down, I saved from 1973-1978 after graduating from college.  When I purchased this home, I was making $15,300 a year!

 

I lived like a pauper to save this down payment.  I sold this home in 2004 and received a check for the full sales price less the real estate commission.  The title company called me the day before closing and advised they could not find  a lien.  I told them, that there were no liens, as it was paid for.

 

People today think they are entitled to everything and are not willing to sacrifice.  It is an all now attitude.

 

Go back to real underwriting, down payments and debt ratios  If you do not qualify, settle for less house or do without until you have saved the down payment and can actually afford it!

 

These people will always be broke!  -  I for one am tired of bailing these people out.  Nobody wants to help me!

Nov 8, 2011 3:51PM
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Until or unless the people actually sell the house, the loss isn't real.  If they stay in the house, if they live in the house and make it a home, two things will happen... they have a place to live (rent isn't free) and time will move forward and there is an excellent chance the house won't be worth less than they paid for it if they stay in it a while, maintain it, and weren't idiots when they bought it.    IF they bought what they wanted and needed within a reasonable budget amount, which generally should be less than the bank is willing to lend, then what the house is worth any given day has nothing to do with their day to day lives.  They are paying for a place to live.  IF the house goes up in value (and they don't suck it out via some kind of loan) then they will have had a place to live AND a gain over time--but generally, unless there is a bubble, that is basically inflation.

 

Either way, if the house is worth less today than one owes, that does not mean that the person didn't make a wise purchase, if the home is what they need, what they want and they are not forced to sell for a move, etc.

Nov 9, 2011 2:25AM
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Um the purpose of a primary home is to live in it, so um, if you live in it who cares what the value of it is until you plan on selling it, which if your smart, will be 10-30 years later (why would you buy if you dont plan on living there for a while).  Just sayin.
Nov 8, 2011 4:06PM
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This is an example of insipid and shallow so-called journalism. Archimedes said: "Give me a lever and I can move the world." PT Barnum said: "There's a sucker born every minute."  It is all about the PREMISE.

Homes are not purchased for consumption like a loaf of bread or a pair of jeans. Homes are intended as long term purchases. To evaluate a program that at least stimulated some activity and got some people into homes, as well as reducing the glut of foreclosed properties, on the basis of a year to year "average" decline in property sales prices is absurd and dishonest. There is no cited evidence that the homes that dropped in value were the ones for which the tax incentive were used. It is more logical that homes were purchased in areas where values were perceived as more stable. Again the argument of the author proceeds on wrongheaded, unsubstantiated and deceptive premises.

Nov 8, 2011 5:47PM
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Well, You haven't lost anything unless you actually sell your house, condo or whatever.  Oh yes and don't forget we all need a place to live...and I like owning my home not renting.
Nov 9, 2011 6:24AM
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I got the credit and I do not feel swindled at all. I now live in a brand new beautiful home, which I easily make the payments on. I don't care how much my home is worth, or how much in value it drops. I plan on living here a long time. Very happy. Very content. I would not have been able to afford the down payment had it not been for the Obama Credit.

 

Nov 8, 2011 11:08PM
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Another article about the supposed 'instant gratification failure/success' of real estate.  IT DOESN'T WORK LIKE THAT!

Is anybody really dumb enough to buy a house SOLELY because of a government tax break?
Nov 8, 2011 4:48PM
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As someone that bought a house in March of 2010 I find this article to be a complete insult. You didn't think of the buyers that actually used common sense when buying a house, yes I know common sense actually isn't common. Which could not be more evident then by the person that actually wrote this article.

 

I bought a house that was ALREADY foreclosed on and was own by the government, put in a bid that was about $60,000 less then the value of the home (which they of course accepted). On top of this the government still gave me another $8,000 dollars. There are some of us that knows what we are doing and figure when the government is handing out free money lets take it.

 

Now half of that money that the government gave me, I used to put in upgrades to the house which according to the last appraisal added about $20,000 to the house. So now on top of the $60,000 i started a head of the curve the $4,000 still left from the government and the value of the upgrades I am somewhere near $90,000 in the black.

Nov 8, 2011 3:56PM
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"Others who are already down more than $30,000 include home buyers in places like [.  . ..]"

 

This article would make more sense if it were a critique of buying equities. The point of that exercise is to make money by buying low and selling high(er).

 

The point of buying a house is supposed to be to have a place to live--a home. For sure, it can be a nicer place to live if it also appreciates in value. But unlike buying equities, that is not supposed to be the point of the house purchase.

 

What's next? Children that can be sold for a profit or else are viewed as a disappointing loss?

Nov 8, 2011 3:50PM
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While I appreciate anything that points out government handouts are a bad idea, increase the deficit, and don't help in the long run...

 

This is unfortunately more "Lies, Damn Lies, and Statistics". The author only chooses examples that support his point and ignores others. (Like putting individuals on TV who are hurt by any proposed change.) And the "average sale price" is and has always been bad statistics--if more smaller or more larger houses are sold in any one period, it distorts the number. So there's very little here I can applaud--as I say, unfortunately.

Nov 20, 2011 8:44AM
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Scare tactic, always so negative.  Real estate is not a short term investment.  If you bought a home in 2009-2010 go get your loan refinanced, rates are a lot better now.  You should be worried about your monthly payment not the overall value of your house.  If you did by a house for a short term investment please seek professional help.

Nov 12, 2011 11:12AM
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Is anybody really dumb enough to buy a house SOLELY because of a government tax break?

 

sadly - yes, I do taxes and have had clients buy newer, larger homes because they 'got a break' on their taxes.  Otherwise smart people who thought it was a great idea to spend $1 to 'save' .25 cents.  And I had clients who got the $8K who had been looking at homes before the credits who told me that they bought quickly after the credit came in because home prices were going up to compensate for the credit. 

 

Fortunately I also have plenty of clients who diligently pay off their mortgages, stay in their homes for many years and don't  (or didn't) use their homes as piggy-banks taking out equity for random instant gratification (new car, vacations, the latest  furniture).  These   folks are the one's who can weather the storm if the economic downturn hits them as they don't have to be concerned about losing their homes,    Of course they also invest wisely and live below their means and have never felt the need to impress their friends, family and neighbors by buying the latest toys .  They are the 'millionaires next door' - their net worth would astonish you - even in todays economy...

Nov 8, 2011 4:11PM
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See, this is when you know journalism is bad....when the writers hide behind a name like 'MSN Money Partner'. Cowards and a discredit to your profession.

Nov 9, 2011 12:12PM
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It's no dumber than the cash for clunkers nonsense.
Nov 20, 2011 8:47AM
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I was going to buy a home anyway and the $8,000 was free money! I bought a foreclosure that I paid 10% below market value. My homes value has dropped, but less then the $8,000. I used $4,000 to fix up the house. My $950 a month mortgage payment is less then the $1,100 a month rent I was paying. If I was forced to sell now I could as I owe less then I could sell for. The only money I would lose would be the cost of the sale, but at most times you would lose money if you sold in the first few years of ownership. I paid $80,000 less then if would cost today to build my home, the house was only 4 years old when I bought it. Add to that the cost of the land. How was this a bad deal? With tax savings on interest and property taxes, plus the $150 a month rent savings; I have about $3,000 each year for repairs. So far I have only had one repair bill for $600. I am ahead of the game!     
Nov 8, 2011 4:32PM
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I bet this guy is a speech writer for Michelle Bachmann.  Let's start with a quote from the 'author'.

 

"Leading the pack? Three cheers for Honolulu. Average prices have risen about $4,500 since the period when the tax credits were being handed out — meaning potential profits on your new home near Diamond Head of maybe $12,500 overall.

 

If that doesn’t count as a success, I don’t know what does."

 

1st off- potential profits??????  That's part of what got us into this mess in the first place, people buying houses with the goal of making profits, not having a nice place to live.

 

Secondly - the $8,000 credit was not to bring home prices up (wouldn't that defeat the purpose of giving a credit in the first place??)  The point of the exercise was to shift the demand curve so that more people would buy homes at the current price level. 

 

This article is void of all logic, and the political commentary as well as the sarcasm are an utter embarrassment. 

Nov 8, 2011 10:46PM
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You know, I got my house in Las Vegas with the help of this tax credit and I am greatful. I would not have been in this position after my divorce if not for this. The key is to use what you get wisely and not over-extend yourself. I have been paying extra on my house payment so I already owe less on the mortgage that I did when I first signed. I am not worried about the value of my house and I am not worried that I won't have a place to live (that is the ultimate goal, isn't it?). I did not buy as an investment, I bought a HOME. I am thankful for what I have and that I was given some help in accomplishing my dream. I think this article is ridiculous. I'm not a loser by any stretch of the imagination. This improved my life!
Nov 20, 2011 8:17AM
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One doesn't lose in the housing market or gain in the stock market based on current market values until the item or items are actually sold.  The $8.000.00 credit wasn't a scam, it was a nice surprise.  I would have purchased my home without it.   I was living in a small duplex but now I have a place of my own where I have my water ponds, my many and varied garden, and property that I can landscape to fit my desires.  I really don't care  if it would sell for more or less than I paid for it.  It isn't just a place to live, it's home. 
Nov 14, 2011 5:38PM
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I bought my house in 2009, It was a 3 bed/2 bath/2 car garage foreclosure in good condition but had old carpets all over the house and linoleum on the kitchen floor, it had no appliances except for the stove, still was valued more than the asking price. With the 8,000 tax credit I was able to put new laminate floors, put tiles in the kitchen, buy the appliances, and paint inside the house. At that time the houses were affordable not to the point to make a good profit so, I believe the people who were buying were looking for a stable place to live. I am very happy in my home and don't plan to move anytime soon, and best of all my mortgage payments are much less than what I was paying for renting a 1 bedroom apartment. I would say no need to pity me.
Nov 8, 2011 5:34PM
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Obama must stop the welfare give away with Cash for Clunkers and the House Give Away for buying a house.   Let the housing prices take care of them selves.  Stop trying to get the housing market started again as it is a place for people to live and they will buy when then they can afford to buy.  

The employment must start first by placing a fee on each employee hired by an American Company in a overseas market to service the USA.

 

BUY USA PRODUCTS ONLY

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