The Ultimate Tease…

The action was swift. Our esteemed California legislators rose to the occasion, set aside their relentless partisan bickering, and focused their energy on solving “the problem”.

What problem you ask? School funding? No. Crumbling infrastructure? Nope. Unemployment? Nyet. Our government in California enacted a $100 million program to provide tax credits for first time home buyers, which was just recently signed into law by our movie star turned “Call-lee-fon-ya” governor. You see, the federal tax credits for first time buyers (and move up buyers, for that matter) expire at the end of April. So to the rescue rides our dysfunctional, politically expedient state government. Except you just have to wonder if there is really a problem to solve.

Now I’m certainly no expert. All I do is sell houses, day in and day out. And what I am seeing (which is eerily similar to what my colleagues are seeing) is a first time home buyer market that is OVER-HEATED; Multiple offers, bidding wars, low down-payment buyers getting out gunned. And from what I am hearing, this is true for much of the state. Not all price ranges mind you, but definitely in the lower end of the market, where first time buyers generally shop. So offering a tax credit to encourage more buyers in this segment is ineffective and a total waste of taxpayer money. And it is one giant tease.

Let’s look at some numbers. $100 million is allocated to first time buyers in resale transactions, and an additional $100 million is allocated to purchases (all buyers) of new construction. According to one source, the California Association of Realtors estimates that in the resale market there will be 30,000 first time buyer contracts and 25,000 first time buyer closings in May alone. With a credit of up to $10,000, it is highly likely that the allocation for resale transactions will be used up within a couple of weeks. Poof. Gone. So not only are we throwing hard earned tax money at a problem that doesn’t exist, we are also creating mass confusion and giving buyers false hope. It would be easier, and perhaps even more honest, if the Governator appeared on KFOG every day and said the “first 10 first time buyers who call the station get a $10,000 check”. At least the public would know going in that their chances were not very good.

One can make an argument that the tax credit for buyers of new construction is at least more effective, as new homes create jobs, create more transactions, and have a multiplying effect on the local economy (more tax revenue, more permit fees, more money spent on installing landscaping, window coverings, furniture, etc). And the $100,000 million allocated to new construction is likely to last a lot longer since the supply of new homes is limited and there are far fewer transactions.

So at a time when our schools are going broke, unemployment is at record levels, our taxes are sky high, and our economy is limping along, our state government throws money at a “problem” that largely doesn’t exist. “Sorry Johnny, but thanks to budget cuts, you can no longer participate in the school band. But mommy and daddy get $10,000 if we buy that sparkling new house! Isn’t that awesome?”

What a waste.