How long will the tax credit last, and what will happen when the deadline is reached?
Sixty-nine per cent of the Austin housing market in Q2 2009 was homes under $300,000 – homes which broadly fit into the first time home buyer market. This is a pretty significant market which could be about to change as the tax credit goes away.
What is the Tax Credit in a nutshell? There is an income qualified tax credit from the IRS of up to $8000 available for first time home buyers closing on a home before 12/1/2009.
It was a move intended to spur the US housing market, and when it seemed that it wasn’t getting enough traction, the FHA changed its rules to allow buyers to use this future tax credit as a downpayment to purchase their first home.
Will the $8000 tax credit deadline extend? There are several proposed legislation changes which aim to expand the tax credit – into 2010 / 2011 and to remove income qualifications, first time homebuyer requirements and more:
- H.R.2801 – Home Ownership Moves the Economy (HOME) Act of 2009
- H.R.2606 – Home Buying Credit Expansion Act
- H.R.2905 – Homebuyer Tax Credit Expansion Act of 2009
Nothing appears to be happening with any of these as far as I can tell. If the government is trying to bring people into the house buying market with an “offer ends soon!” message, then it might not help them to also have other messages saying “but the offer might extend!”.
When should I start looking for a home to get the credit? The best time to plant a tree is 20 years ago, the second best time is today. What do I mean by that? A typical duration between having an accepted offer and closing on a home in Austin is 30-45 days.
So if you want to close on or before 11/30/2009, you’d want an offer accepted by 10/16/2009. To give yourself more room to negotiate, you don’t want to be under the gun. If a seller knows that you have a strict deadline to meet to gain $8,000, they may use this to their advantage in negotiations.
Not all contracts are successful. It takes most first time buyers several weeks or more to get their financing in place and to find a home. If you think that the government’s “offer ends soon!” and you don’t want to be held over a barrel in negotiating the best deal, then it really pays to start looking today rather than next week.
When should I sell my home to take advantage of the tax credit? If your home is a good target for a first time buyer, then you may consider preparing and marketing it soon, so that you can get a contract by the middle of October.
What will happen to the Austin market after November? It’s hard to predict what is going to happen to the first time buyer market when the tax credit goes away. It might be that demand reduces and housing inventory goes up. The first time buyers’ market in Austin has seen less of a drop than the higher end since the tax credit announcement.
In summary, the tax credit may well be going away, so buyers and sellers who want to take advantage of it are acting now. Check out Brian Martin’s Northwest Austin homes blog for his take on the right steps to take to get the tax credit.