$6,500 Tax Credit – Save More $ by NOT Claiming

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Rather than taking a $6,500 government tax credit and buying now, do we stand to save more money by waiting until the housing market stabilizes itself?

First thing’s first:  I realize that $6,500 is $6,500 any way you slice it, but in an effort to examine things more thoroughly let’s consider how claiming the $6,500 homebuyer tax credit for existing home owners may not be our best option in the long run.

Don’t succumb to pressure to buy!

If we would not buy a home without the credit, then we should not rush out and buy a home just because of this credit.  Doing so is not wise.

While I understand the desire to claim the credit, is it in our best interest to do so?

Let’s take a closer look…

Fiscally responsible reasons to REJECT the Homebuyer Tax Credit

  1. The $6,500 is percentage based. This means that the more we are looking to pay for a new home, the less of an impact $6,500 will have on our actual purchase.  Example 1: if I buy a $150,000 home – $6,500 will give me just over 4% toward my down payment.  That means I still have to come up with the other 16% to even be considered for a loan.  Example 2: if I buy a home for $300,000 – $6,500 will afford me barely 2% down, leaving the remaining 18% up to me.  Bottom line? When considering the purchase of a new home, $6,500 needs to be viewed from the proper perspective and should very seldom be a deciding factor in our ultimate decision to purchase.
  2. House prices are still going down. At the end of the day, this is the concrete reason the federal government is intervening by offering tax credits.  The credits are basically incentives to get us to buy in an effort to artificially stabilize a tumultuous housing market.  Government intervention, especially in matters of economics, is a matter that should be tread upon with great caution rather than reckless abandon.
  3. Government Tax credits create false demand. When we rush to buy homes, motivated in part by homebuyer tax credits, a false demand is created.  Actual demand is met when we buy homes because we need one and are financially ready to buy… independent of government credits.  Sometimes the tax incentive can push a teetering homebuyer over the fence and cause him to buy, but many times it simply encourages those who cannot afford to buy, into buying.
  4. By not claiming the credit prices will continue to fall. If we wholly reject the notion of government intervention by way of a measly credit, and instead choose to let the market correct and stabilize itself… housing prices will continue to fall until actual demand is created – at which point people who buy will likely have saved much more than $6,500.
  5. Our government cannot afford it! Where is all this money coming from?  Good question, I’m glad you asked.  Unfortunately, that is a complicated question and hard to properly answer in a single bullet point.  Suffice to say that they will have to either borrow money or print the money… they do not have it sitting in a savings account somewhere!
  6. You will save more money by not contributing to the false demand. If more potential buyers reject the tax credit, housing prices will continue to trend downward.  The more prices fall, the more money we stand to save when we do go to buy.  It is important to remember that taking the tax credit will work against this natural correction by artificially stabilize housing prices.
  7. Government intervention in “free market economy” is almost always unwise. The doctrines of Laisser-faire teach the aberration of government intervention into economy.  Ofttimes the market is better off correcting itself.  History records for us time and time again how government intervention into the ebb and flow of national economic policy is rarely our best long term course of action.

When considering a home purchase we should be driven solely by our independent need and ability to purchase when ready!

Always seek trusted professional counsel

Hopefully this article has helped you to step back from the attractive shock value of $6,500 in FREE MONEY and grab hold of a more sustainable concept of economic policy in this matter of homebuyer tax credits.

When it is all said and done, opinions are opinions and your best option remains professional counsel.  At the end of the day… the best way for you to make your decision is to immerse yourself in the counsel of those you trust and those who walk daily among the matters at hand.

Would you consider forgoing the credit?

Based on the information given above, would you consider opting out of the credit even if you did qualify?  Could the issues of long-term economic health and proper consumer purchasing overshadow the immediate draw of a $6,500 tax credit?

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DFA is passionately dedicated to helping people break the bondage of debt and work toward financial freedom using biblical principles.



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1 RRCarter

Matt, I TOTALLY hear you about government intervention, and many times have sat sulking by wondering: what would happen if we just let capitalism do it’s thing and let the market decide, chips fall where they may? How can we be so pro-market economy one minute, and perfectly willing to take govenrment money to prop a bursting bubble the next? I am not alone in my opinion that the wall street bailouts were like socialism for the rich. People take risks and they make money doing it, but when they lose money they want Uncle Sam to cover the losses? To me it’s like a large scale example of what happens on a smaller scale with the children of lenient parents who end up never being independent and always counting on mom or dad to bail them out of bad decisions…
BUT – I have to say I plan to take advantage of the credit, as the
houses I am looking at (we’re talking Detroit, here) are about 60k so it’s going to pay for about 10% of my purchase price. Plus, I was planning on buying a house anyway. As far as the housing market sinking further, many housing experts are feeling like sometime in 2010 is pretty much the rock bottom — so in the whole long-term scheme, we’re scaping the relative bottom when you are talking about a 30-year mortgage. And the other part of this big picture is that rates are at levels that could be among the lowest in our lifetimes. So it makes sense to lock-in to your largest debts now, tax credit aside.

2 Evolution Of Wealth

Today we are left wondering what the affect on our futures will be. You make some great points surrounding government intervention. They are pulling from future demand to increase the demands of today. The question remains, where will tomorrows buyers come from if the government is giving them more and more incentives to buy today. Seems to be a short-sided approach. Reminds me of a stock business, how do I boost my numbers today so as to keep the stock price high. Who cares on the effect down the road, deal with it when we get there.

3 Sabrina Bremmer

Here are some links for understanding banking:

7 Page article in The Times on Goldman Sachs
http://www.timesonline.co.uk/tol/news/world/us_and_americas/article6907681.ece?token=null&offset=0&page=1

Article in Rolling Stone on Goldman Sachs
http://www.rollingstone.com/politics/story/29127316/the_great_american_bubble_machine

The great American bank robbery:
http://vodpod.com/watch/2040248-how-to-rob-a-bank

How banks gained control of America:
http://video.google.com/videoplay?docid=-515319560256183936#

How to fix bad commercial banks that take in money from depositors. Simple. People power. The Dutch brought an arrogant bank to its knees in twelve days:

http://news.bbc.co.uk/2/hi/business/8323991.stm

4 Joe Plemon

Matt,

While I totally agree with the premise of your post, I am curious about your assertion in points 2, 4, and 6 that housing prices are/will continue to go down. Aren’t housing prices highly regional…meaning they are going down in some areas of the country and not in others? Just a caution about making sweeping assumptions that may or may not be true depending on where one lives.

Thanks for a great, thoughtful post. When government offers a program, we need to practice kneejerk apprehension, realizing it is synthetic and temporary…and costly in the long run.

5 Matt Jabs

Thanks Joe.

It is a sweeping statement, and one that I firmly stand by. Very firmly. I will not cite specific sources because the evidence of further housing collapse, on a national scale, is overwhelming and all around us… it is simply a question of whether or not we choose to see it.

6 Kevin@OutOfYourRut

Matt, you’re showing great courage in taking aim at this credit. Its being touted all over the financial world as manna from above.

I completely agree with you. The fact that the housing market “needs” this credit does not speak well of the strength of the market. To me it’s just an attempt to get around the largely withdrawn zero down programs, to which the real estate market became addicted and still can’t seem to function without.

As long as buyers have little to no skin in the game, the housing market will be on life support. A truly strong, self sustaining market doesn’t need subsidies to keep it functioning.

Back when I was a mortgage underwriter, we used to say “not everyone needs to own a house”, usually referring to the lack of money for a down payment. If you need assistance to buy the house, what happens when the roof or the furnace need to be replaced and there’s no subsidy to cover it?

Multiplied times millions of homeowners, you get the kind of real estate market we have now!!!

Methinks your comments are self-evident.

7 Investing 101

To paraphrase a famous movie line, you had me at point #1 🙂

Living in NYC, where house prices are notoriously high, I’d be closer to your 2% example. Not enough to push me to buy, thank you very much!

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