To summarize current government policy in health care and housing in a sentence: the house is on fire and we’re repairing the car.Remember the ’60s (if you can — I know for many folks who lived then it is a blur): in response to growing poverty in the cities, the Johnson Administration commenced a “War on Poverty”. Our nation was going to fix it once and for all. Affordable, quality housing was made a priority. The government began building high rises in the most impoverished areas so our poor people could have decent shelter. These high rises quickly developed an affectionate nickname “The Projects,” which translates to housing hell.
With quiet capitulation, these projects have been returned to rubble… a failed policy costing in the hundreds of billions. Unfortunately, we lost the “War” years ago, but that hasn’t stopped the government from interfering in the marketplace to the point of creating the largest bubble in history — rather like England in World War I, which continually sent its young men into the breach, resulting not only in a lost generation but in the death knell of its empire.
Why was the War on Poverty lost? The government ignored Bill Clinton’s axiom “It’s the Economy Stupid”. Lacking the basic common sense that it is a good, adequately-paying job that drives affordable housing, the government invested tax dollars on the result — adequate housing. One could get into a McMansion, but if he didn’t have a job, he couldn’t stay.
The government ignored the outflow of manufacturing in our cities and the jobs that went with them, failing to provide incentives for businesses to stay and prosper. So after transferring the poor to the projects, there were no jobs to pursue. The blue collar jobs had long dried up.
Now, continuing its policy of history be damned and there is nothing to learn from it, we have the government’s response to the popped housing bubble. Again, ignoring basic economics that someone who makes $50k a year cannot afford to live in a $400k home, the government stubbornly puts out incentives in the hopes of sustaining and even increasing the price of housing when it clearly is priced beyond what people can afford.
Not only is it a failure, but it continues to take savings from the people who could have invested in creating a better job growth environment. And that is the real cost of all these horrendous government programs.
And so with that introduction, I bring you the new and NOT improved Housing Credits program that now applies to existing home buyers as well as first time buyers. If you plan to buy a home in the next few months, I hope you enjoy the bailout. At least you’re getting something for the trillions that have been squandered and wasted.
(Worker, Homeownership, and Business Assistance Act of 2009)
Highlights
- Extension of $8,000 homeowners credit
- New rules on properties that qualify
- Now, current home owners are eligible if the house sold is less than $800K.
- Fraud crackdown — the IRS wants proof: demands HUD form, must be at least age 18 to qualify
- Price Tag and Impact
I. Extension of $8,000 homeowners’ credit
- First-time home buyers’ credit deadline was set to expire on Nov. 30, now extended to May 1, 2010
- The legislation defines “first-time home buyers” as anyone who has not owned a principal residence in the three years prior to making the purchase.
II. New rules on properties that qualify
- Home buyers must have a signed sales contract before May 1, 2010, but they have until the end of June to actually close the transaction.
- New law raises the annual income limits from $75,000 to $125,000 for singles and from $150,000 to $225,000 for married couples.
III. Current home owners eligible, if
- Primary residence purchased for less than $800,000
- They lived in their home for five consecutive years over the previous eight
- Home was purchased between November 7 and the end of April 2010
- They signed the sales contract on a home before May 1, 2010, although they have until the end of June to close the sale
- Income limits for current homeowners are the same as those for first-time home buyers
- If they use the property as their primary residence for three or more years after the purchase, buyers don’t have to pay the tax credit back
- Tax credit allowed of up to $6,500 when they purchase their next primary residence.
IV. Fraud crackdown
- Current Fraud — Treasury Department has identified hundreds of millions of dollars in questionable claims
- Taxpayers who claimed the first-time home buyer credit even though they had previously owned residential property within the past three years
- Taxpayers who claimed the credit before actually purchasing the home
- Hundreds of taxpayers younger than 18 years old — and at least one who was just four — also claimed the credit.
- New IRS cracks down
- Proof of Sale required: copy of HUD-1 Settlement Statement must be submitted to prove that the sale has closed.
- No one younger than 18 years can claim the credit.
V. Price Tag and Impact
- Priceless [?] The cost of the current program is something like $10 billion as of August 22 and the new program is expected to cost another $10 billion.
- Eligible homeowners include more than two-thirds of current homeowners and nearly all first-time buyers, or 70 percent of current homeowners.
- Is it the best use of the money? The financial blog Calculated Risk estimates that the February first-time home buyer tax credit cost the government roughly $43,000 for every additional home sale it generated.
1) Don’t buy just because the Prez says so — It’s nice to have $8k if you qualify, but be careful about taking on new debt.
2) First Time home buyers new purchase rules — Signed sales contract on a home before May 1, 2010, but have until the end of June to close the sale.
3) Current home owners can play too, get Tax credit up to $6,500 if — residence purchased for less than $800,000 , lived in their home for five consecutive years over the previous eight, used the property as their primary residence for three or more years after the purchase.
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