Did home buyers get screwed with the Federal Home Buyer Tax Credit? You make the call.
During the time the period of time the tax credits were in place interest rates nationally hovered around 5.0-5.25%. Immediately and precipitously after the expiration of the home buyer tax credit in April 2010, mortgage interest rates began falling steadily. As of November 1st, rates now sit at around 3.75% and are down overall 1.25-1.5% since the program expired April 30th. Based on a 1.25% interest rate spread on a mortgage amount of $200,000 the Federal Home Buyer Tax Credit is wiped out by additional interest payments in just 32 months and at a 1.5% interest rate spread the tax credit is wiped out in just 27 months.
Also, during the time period when the home buyer tax credits were available, the median sales price increased dramatically. For example, in the Twin Cities market the median sales price in April 2010 was 11 % higher than it was in April 2009 translating to over $16,000. The median sales price continued rising through June (another $10,000) until all the related pending sales were cleared through the system. Since then, the median sales price has fallen off the cliff by $14,250 (so far). This means many of these home buyers may already be underwater on their new home purchase.
By contrast, if you were to purchase a home today with a $200,00 mortgage at todays’s current interest rates a home buyer would save $12,380 in interest in just five years based on a 1.25% better rate and $14,835 based on 1.50%. Add these interest savings to a lower purchase price of say $14,250 and the $6,500/$8,000 credits are not looking so good. The tax credits also have strings attached requiring home owners to stay in the home a minimum of three years.
Did the Federal Tax Credit prop up residential real estate prices and interest rate artificially? The answer seems fairly obvious. Had congress not gotten involved with the home buyer tax credits residential home prices and interest rates would have most certainly been lower, which would have benefited home buyers instead of BIG banks. BIG banks were the main recipients of both the higher resale prices and the higher interest rates. Washington figured out yet another way to give billions more to BIG banks at the expense of consumers (e.g. tax payers).
So there you have it…BIG banks were the BIG winners while home buyers (and tax payers) got screwed again. What do you think?