Friday, March 26, 2010

A Different Kind of Double-Dip

By way of Jim the Realtor's excellent blog, the California First-Time Homebuyer tax credit has been extended. For about a month, if buyers time things perfectly, they may be able to "double-dip" and receive both tax credits. From the WSJ:

Tuesday, we told you that the (financially troubled) state of California is poised to offer home buyers up to $10,000 to get off the fence and to the dotted line. The $200 million program, split between first-time buyers of existing homes and new units, should keep the Golden State’s sales moving along post spring-selling season.

But, it might not get off to a peaceful start on May 1: Get ready for a stampede early on as some buyers rush to overlap with the federal tax credit that’s dangling as much as $8,000 to buyers. (Yes, that’s up to $18,000 for buying a house.)

For the federal incentive, contracts must be inked by April 30, while closings have to happen by June 30. The California credit covers closings on existing or new homes on or after May 1, leaving a short window for double dipping. “We already anticipated increased contract activity in March and April due to the federal tax credit with scheduled closings in May and June,” writes Credit Suisse builder analyst Dan Oppenheim. “These buyers will now be eligible for both the federal and state credit and will likely consume a significant piece of the state credit given the first-come, first-serve allocation.”

There is apparently no income limit for the State credit, but there is for the Fed ($75,000 for individuals, $150,000 for couples I believe).

Here is some more information:

Ultimately, you're not knocking a whole lot off the price, but if you're set on purchasing this spring anyway you really have no excuse. It's free money (care of you, your kids, and your grand kids as they like to say).

Odds are that by August the home price will go down by at least as much as you "saved," but like I said, if you're poised to buy soon regardless, why not just have some free loot to furnish your new pad?

P.S. Expect home sales to jump substantially in California during the next few months.

P.P.S. Sales will need to rise substantially to absorb the (finally) growing inventory. Plus, I expect a lot of sellers, hibernating for the winter and hoping for a better tomorrow, to throw their properties on the market this spring. If that results in improved quality of inventory (it is absolutely dismal out there as it stands), you better believe I'll go out and kick some tires too.


  1. "you better believe I'll go out and kick some tires."

    Yeah, and you'll notice that homes will be priced at WTF!!! +$18K.

    Or is that me being too cynical?

  2. so I checked Redfin for 90808..

    91 properties for Sale, added MLS Foreclosure Sales and the result didn't change.

    did a free foreclosure search on IHB for 90808

    167 properties in some sort of foreclosure.

  3. Carl,

    Not cynical at all -- that's basically what's going to happen, and it's the main reason those in denial will believe this Spring will finally be the Spring to save them.

    Once the subsidies are gone, you can expect prices to drop by around that amount.

    Straight up, I'm tired of waiting. The .gov wins. They stopped the crash. And I'm ready to get on with my life. Even though I know prices will continue to drop a bit, the tax credits seem like a reasonable justification to get off the fence.

    And great info about the foreclosure activity. Interest rates will be low for a while most likely, but the inventory is the potential game changer.

  4. El Bee, do I detect some naughtiness in the title "Double Dipping", and this being post # 69?

    Shame on you!

    Have a great weekend.

  5. With this news, you got me reviewing the listings again... this one's a little out of my price range, but I think it's pretty nice:

    Any opinions?

    Maybe one of y'all can afford it.

    Do you think it's worth the price?

    HOA fine is only $230.

    The listing says something about saving $200 a month on tax? Parking status is omitted though.

  6. Mike,

    I dig it. I especially like the white wood paneling. Classy. But it appears to be a studio! Deal breaker!

    Here is some Mills Act info:

    P.S. This is a 2003 price.

  7. Dag check THIS out:

    It already has a pending offer, but this is an example of a REALLY good deal (at least I think)!

    LOT of square footage, good location, and very good price.

  8. Mike, I smell fraud.

    The bank loaned out $420,000 2.5 years ago and is now accepting a $220,000 haircut?

    Just three days after popping up on the MLS it was under contract and delisted?

    Something's fishy.

  9. You know WAY more about all this stuff than I do El Bee... Always love to read your analysis.

    Curious if you think the studio is worth the 279K.

    I really like the layout and the kitchen.

    I guess I might get tired of it being cramped and a studio, but was just surprised at how nice the place was. For the very small amount of square footage, it seems to really get the most out of it, with the layout.

    Oh and thanks for your feedback on the second place. Now I don't feel bad like I missed out! haha

  10. El Bee,
    One of your favorites is now listed as sold...
    1720 BLUFF Pl- 1.24mill. Though it looks like a bank took it back Redfin lists a buyers agent?
    Any thoughts?

  11. Every time some boneheaded flagrant give away to the bloated real estate industry (like this one) goes through, another year gets added to the time of eventual bottom. I used to say 2012, now it's more like 2014. The truth will out!

  12. I have some strong (OK, allegedly strong) arguments against fundamentals. Lets start with neighborhood median (sometimes average) incomes. Better neighborhoods are fairly established. There are lots of older folks, who didn't abuse their credit, they owe nothing to banks, and live on fixed, substantially below median income. The market is not for them, and they don't even care. There are lifetime renters with lower incomes too. There are no official statistics, but -my guess- the median income of buyers is about 30% higher than neighborhood median incomes.
    Now, lets investigate rent to mortgage payment comparisons. They make sense in rental areas. Do you want to live in a dominantly rental neighborhood? Obviously not. So pick a mortgage payment including property tax and mortgage insurance: $2,400.00 (+$300 HOA fine?). First, you need to live in some place, rent or your own. If you plan to live in your first home for about 10 years, the real cost is the cost of interest, property tax, mortgage insurance, maintenance and HOA (if applicable). The average real monthly cost after tax deductions for 10 years become about $1,400.00 (+HOA). The rest of your mortgage payment is like putting money in the piggy bank, even in a flat market, instant equity. Think about rent increases in the next decade, it's a sweet deal. You can do some remodeling (no such thing in rentals), beside enjoying a nicer home, you're building more equity. If you have the money, go bargain hunting. If you don't, even another 10% slide of prices will make no difference.


  13. Olajuwon,

    All excellent points, and ultimately buying can never be a purely financial decision. Emotion is thoroughly involved and frankly I'm ready to get emotionally involved in where I live. Even if it costs me a little (or quite a bit) more per month, there is a certain intangible feeling that goes along with ownership.

    Great input.

  14. That should say "Olaj" but my iPhone seems to think "olajouon" makes more sense.

  15. Olaj,
    el bee makes a good point about the emotional connections to home ownership. Your numbers indicate one way that things could go but there's plenty of debate about which way is better if you're purely looking for ROI. If that's the case, historically there's no argument - ownership of a home is not the best way to wealth assuming that there's discipline involved in investing. Something like 2% over 100 years for housing and 5% for investing and this doesn't take into account the mistake most homeowners make when assessing their ROI after a sale - inflation adjustment.
    Anyway, not saying that home ownership shouldn't be part of a wealth-building strategy but simply that it's not the best way to grow your net worth.
    See the NY times rent vs buy calculator and for the purpose of the comparison, don't assume 2% rise in rent every year (as it defaults)- this will not happen in this country for the foreseeable future!


  16. I was very careful choosing my words. Investment is absolutely not part of my argument. Your own home in my books is not part of an investment portfolio, it's a place to live, period. As you slowly, but surely pay off your mortgage debt, a growing proportion of your payment become yours. It's technically nothing else, but a forced saving, but saving, it's real money. If the real estate market flat during the first period of your home ownership saga, there is no interest paid over your saving. Simply saying, money in the piggy bank. But any positive real estate market change pays a hefty interest for being smart, not throwing away money for rent. Obviously buying a home during a real estate bubble blows up the concept, but most of bubble buyers did it for other reasons. Motivated by greed and pure stupidity, their completely forgot the purpose of a home. Home buying became real estate "investment" for the next generation of filthy rich real estate moguls. Well, I guess, they were wrong. Buying a home at or near bottom is safe, just don't even think about making it part of your investment portfolio, unless you already have a home and plenty of cash to invest.


  17. If you choose a 30 year mortgage, after 10 years, only about 10% of your principal is paid off.
    If you choos a 15 year mortgage, after 10 years, the house is roughly 50% paid off.
    After the 15th year, you only have property taxes to pay.

  18. Wow, you guys are educating the heck outta me, and I love you all for it, and pray that you are all blessed for sharing your wisdom and insights!

    And that last post by Anon was pretty darn interesting, considering that after 10 whole years, you're only 10% up. Wow...

    Personally speaking I am a renter. I have a GREAT deal, as I've been in the same place for a long long time, and am blessed with a very kind/good-hearted owner.

    My place is perfect for a bachelor, but as I'm getting older, I am trying to build a retirement vehicle.

    If I could buy a property somewhere, my plan is to do as Olaj stated, and have that payment as a "forced savings".

    I also see that over the course of 10 or 20 years, property values seem to really increase... but I'm pretty noobish to the real estate world, so my smarts on this is limited.

    One thing I think about, is buying a place here in California, versus a place like Vegas, where in Vegas I can get a pretty nice 4 bedroom 2,000 square foot home for 140K. Even here in "affordable" Long Beach, 140K hardly gets you squat!

    So to me, I'm thinking why buy an expensive home here, instead of someplace where one can get much more value for the dollar (square footage, back and front yard, house versus condo, newly built, etc..)?

    My plan is to continue to rent with my cheap rate, and try to also afford a payment on a cheaper place somewhere else.

    Of course, if I were to buy here I could put my rent into the mortgage payment, but even with that, the deal is much better in other places.

    Just some random thoughts...

  19. Just a quick comment on planning/counting on RE appreciation to fund retirement. Keep in mind that over time there have been extended periods of very low or no appreciation in these assets. As mentioned by others here, a home is a place to live. It may work out that your home appreciates significantly while you live there, but we should always be aware that there are some things beyond our control.....such as neighborhoods changing over time(Compton, Detroit etc) rendering your 'investment' less desirable when it's time to sell.
    I just see too much downside risk to engage in 'forced savings' strategy. Too much risk of LOSING that 'savings'. Paper equity means nothing, it's what you can actually sell it for that counts...just my opinion, of course.

    Oh, and as mentioned earlier...15 year mortgage is the only way to go.

  20. El Bee, please don't buy a house. That is what happened to my previous favorite blog writer, and he killed the blog shortly thereafter.

  21. "Anonymous said...
    If you choose a 30 year mortgage, after 10 years, only about 10% of your principal is paid off."

    It's a little bit low guess... But there are other options. Obviously the 15 year mortgage was not designed for a typical first time home buyer. Probably the least stressful road is to go for the 30 year mortgage and pay it back on the biweekly schedule. This concept will shorten the life span of the mortgage to 25 years, also, by the tenth anniversary of your first home purchase you pay off 25% of the principal.


  22. L_Thek...

    While we're speaking of mortgages...Was reading the other day how some fiscal conservatives were very concerned in the 30's that mortgage lengths were offered at up to TWELVE YEARS. The standard mortgage at the time was FIVE!

    Now we have mods looking at 40 year payment schedules. People have to wake up.

  23. LOL at Anon telling El Bee please don't buy a house. haha