Pity Anyone Who Took The Tax Credit To Buy A House

[FarCenter]

The government enticed millions of Americans to buy new homes in 2009 and 2010 with credits of up to $8,000.

It turns out this was a trap.

Home prices fell last month 4.4% year-over-year, according to data released by Zillow. The average home has lost around $14,500 in value -- nearly twice the maximum tax credit.

http://www.businessinsider.com/pity-anyone-who-took-tax-credit-to-buy-house-2011-11

[HopeHoops]

1. I took it to buy a house salad. That was pretty tasty.

[Ruby the Liberal]

2. I'll do you one better. Buy in 2008 and get a $7,500 cash back deduction

Unlike the 2009/2010 credit, this has to be paid back at $500 year for the next 15 years. If you sell, you pay the balance in that tax year.

Yay us, right?

[piedmont]

20. You got a no-interest loan big enough to pay off half of most people's credit card debt.

And you're complaining about it?

[Ruby the Liberal]

22. Yep. Sure am.

Tried to put my house on the market several months ago. Not only was it tens of thousands under water, but the outstanding debt/loan would have killed me on closing. Lost out on a job that would have required relocation and here I sit in my underwater house looking for work as I can't afford to sell.

[piedmont]

26. Every house and market is different of course, but have you thought of renting it out?

Even if you don't get enough in rental income to offset the payment every month, the increase in income from the new job should be enough to make up the difference and then some. And since rent usually goes up over time, if you have to hold onto it long enough it will eventually cease being a drag on your month-to-month finances.

[Tesha]

3. Don't a few people *LIVE* in their houses rather than use them solely as investments?

They may be benefiting from the tax credit even if
they've lost equity in their houses.

Tesha

[Uncle Joe]

4. I believe you're correct. n/t

[FarCenter]

5. You can rent a house to LIVE in

Buying a house with borrowed money is making a highly leveraged investment in real estate.

[Uncle Joe]

11. Whether you rent or buy you must make payments, in the case of buying that ends

when your mortgage is paid off 15-30 years and possibly even sooner.

[FarCenter]

13. When you buy, most of the payment goes to interest, insurance and taxes

Very little of the payment goes to decrease the outstanding principle of the mortgage during the first decade of a 30 year mortgage.

And you take the risk that decreasing prices obliterate the equity you have invested.

Plus, there are the high costs if you do want or have to sell the property.

[Uncle Joe]

16. When you rent none of it goes toward decreasing the principle, you can rent for a thousand years

and at the end of that time you will have 1000 years of rental receipts and that's it.

If the property goes up in value, your rent will increase but you won't get any of the profit should the owner sell it, if the property drops in value your rent will stay the same or you will pay the cost of moving and rent somewhere else.

When you buy most of your mortgage payment goes toward paying interest because of the time/value of money ie: a thousand dollars today is worth more than a thousand dollars ten years from now, but with every mortgage payment you make, a little less goes toward paying interest and little more toward paying down the principle.

When you buy a home, you have much more control over your life.

[WorseBeforeBetter]

6. Houses as short-term investments/ATMs...

yep, that really did the country good.

[LynneSin]

7. My house has definitely lost value since I bought it in 2007

But my house is not an investment - it's my home. I plan to live there at least 10-20 years tops, maybe longer. When I'm ready to sell I'm sure the market will come around again.

Anyone who buys a house for short term gains is foolish.

[RockaFowler]

10. Mine, too

We bought in 2006. And we love our house. Won't trade it for anything else. It's our home.

[FarCenter]

12. If you buy a house with 30% down, you lose about a fourth of your money the day of closing

Because it would cost you around 7.5% in realtor commissions, closing costs, etc. to sell the place the next day, even if you could get the same price.

So it is best to spread the high transaction costs of real estate out over a number of years.

[Liberal_in_LA]

29. +1000 - and no weird landlord getting into your business or telling you you cant have dog

[LynneSin]

30. Yeah but I had an $900 bill to have my damn furnace fixed

:cry:

[Liberal_in_LA]

32. yeah, homes cost money to upkeep.

[sammytko]

9. My house is my home, once I decide to move to the beach it's on the

sale block for whatever - It's paid for, so anything I get is gravy. You have to pay to live somewhere.

[frylock]

31. what a novel concept. living in a home..

rather than using it as an ATM.

[sufrommich]

8. My brother used it, if you're planning on living in the house

(which is why most people buy a house) it was a great deal.It wasn't a "trap" no one was forced to buy a house.

[JoePhilly]

14. That is a right wing talking point .... a home is a long term investment.

For that statistic to make sense, you have to assume that all of those people also SOLD their homes and so they actually experienced a loss.

And then of course, with each mortgage payment, you reduce your principle. Even in a down market, your mortgage doesn't go UP.

And then, you get the tax break on the mortgage, which the article neglects to factor in.

Just right wing hackery.

Oh and on edit: This article is a GREAT example of how to LIE with statistics .... let me explain ... first read this quote from the article ...

In other words, based at least on average prices, you’ve lost about $14,500 — nearly twice the value of the credit.

The AVERAGE is the wrong measure of central tendency when examining home prices (or any other data set that is not "normally distributed).

What does that mean?? It means that data on one end of the scale is so large that it can skew the average, pull it higher or lower than reality.

For example, let's say Bill Gates and 9 other people get in an elevator. If you calculate the average salary of the 10 people, that average salary will be HIGHER than the actual salaries of the 9 people who are not Bill Gates.

Same basic thing with home prices. The AVERAGE home price is pulled HIGHER, because home prices are skewed on the high side, which also drags the "average loss" higher than it would otherwise be.

The median should be used as the measure of central tendency. In the elevator example, using the median would provide a truer center point because 5 of the people would be below it, and 5 (including Bill gates) would be above it.

But none of this should be a surprise, the guy who wrote the original also works for the Wall Street Journal. And you can't expect some one who works at the WSJ to understand 7th grade math.

[piedmont]

15. Leave me out of that pity party-- Our house cost $58,000 and our payment is $350 less than apt rent

We're saving $350 a month vs. where we lived but probably $400 vs. a comparable place. We're using the credit to do renovations-- ~8 grand goes a LONG way when fixing up a 2 bedroom, 1 bath house that was is in good shape to start with. And when we outgrow the house, it's the perfect size and in the perfect area for a rental. If we hadn't bought a fixer-upper we would have put the money back toward paying off the mortgage-- that's how they tried to structure the program originally.

Edit: I just looked at Zillow and it says my house is worth $1,400 more than we paid for it. Thanks, Obama!

[Liberal_in_LA]

28. my house purchase dropped my taxes due to the mortgage int deduction

Also paying about what it would cost to rent but payments go towards ownership. I'm glad I bought.

[pipi_k]

17. I just checked Zillow...

and my home actually went up in value from its all-time low in late 2004.

$47,000 more, in fact.

It even rose in value since last year when we tried to sell it during that whole tax rebate deal.


I don't have a big fancy house. I don't live in a desirable city. I live in the middle of the woods in a small rural town.

Don't know what Zillow is basing those values on...

:shrug:

[TwilightGardener]

18. Well, let's assume they needed a house. Not everyone buys a house for investment--

some of us actually want a place of our own to live and raise a family.

[TomClash]

19. Except . . .

. . . Zillow is hardly an accurate predictor of the market price of homes.

[SheilaT]

21. Let's see, I was able to buy a house

in 2009, putting 20% down, and the mortgage payment is about a hundred dollars a month less than my rent was. Plus, I don't have to worry about a landlord caring about how many cats I have. Oh, and I bought one that's a whole lot less than the median price here in my city. I have no immediate plans to sell, and when I do if I simply walk away owing nothing at all I'll be happy.

[jtuck004]

23. Note: The first year the "credit" was a loan. First payment was last

year when most people started paying back $500.

Some of those houses are worth less as well. Btw, there is no walking away from that debt, even if you lose your home.

[FrenchieCat]

24. My daughter and son-in-law took advantage in early 2010.

Considering that they have to live in Saint Louis, until she's finishes her PHD in 2014 at WASHU, it was a good investment. The housing market in St. Louis compared to costs in the Bay Area (where she's from), or Boston (where he's from) is the difference between night and day!

buying a house in a good neighborhood and paying a mortgage instead of rent for five years, I believe was a solid decision. Getting $8,000 cash from the IRS due to it; well that was priceless!

[phleshdef]

25. I didn't get the credit, I got the "loan". And it was extremely helpful.

It wasn't long after that, I was laid off for about 3 months. My unemployment check was not enough to cover everything. That extra money from the deduction was sitting in my bank account. It made all the difference until I got a new job. I have to pay it back a little every year. And thats okay with me.

[subterranean]

27. Most people who got the credit were planning to buy a house anyway.

I doubt there were very many who bought solely because of the tax credit. The only effect it might have had was that some people accelerated their purchases in order to get the extra $8,000 before the credit expired. It cost the government a lot of revenue, but didn't do much for the housing market except to give it a short-term boost by front-loading sales that likely would have occurred without the credit.