Home Front

A blog about the economy and the Sacramento-area real estate market.

November 6, 2009
Explaining that federal homebuyer tax credit
Thanks to Mike Lyon, head of Sacramento's Lyon Real Estate, for clarifying a critical ingredient of the homebuyer tax credit extension and expansion that has passed Congress and is expected to be signed today by President Obama:

I understood the extension of the $8,000 credit easy enough. First-time buyers get another six months of eligibility now.That should prevent an acute winter slowdown in sales.

What I could not get my head around based on reading press reports was the $6,500 credit for people who have lived in their homes for at least five years.It sounded for the life of me that anyone who has lived in a home that long would get one just for being alive.

Not so, said an amused Lyon.You have to buy another house to get the credit, he said.

The aim there is to break up the huge excess of supply in the middle of the market.

There is plenty of competition for lower- end homes, but the middle of the market is extremely lethargic, he said. This credit may spur older people to move out of big houses into smaller ones or to retirement communities. It may spur people who are divorced to sell and buy elsewhere. It may spur people who have outgrown their existing home to move up.

So bottom line: there is no free lunch. You get the $6,500 tax credit for existing homeowners if you move up or down - or sideways. It's designed to get a whole new class of people off the fence and into the market.

Incidentally, here an analysis of what might happen now
from Stan Humphries, chief economist at Zillow.com

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