Extension, expansion of tax credit for homebuyers come as welcome news
| Monday, Nov 09 2009 05:33 PM
Last Updated Monday, Nov 09 2009 05:33 PM
Most real estate market watchers in Bakersfield are greeting warmly news that a soon to expire federal tax credit for homebuyers was not only extended but expanded last week.
"I know some people think of it as a subsidy, but I can tell you there were a whole lot of people scrambling to get deals done before that tax credit went away, so it was making a difference," said Nance Fillmore, owner of Fillmore Realty and president of the Bakersfield Association of Realtors.
President Obama signed the Worker, Homeownership and Business Assistance Act of 2009 on Friday. The law extends an $8,000 tax credit for first-time buyers that was to have expired this month. It now covers homes purchased or under contract through April 30 of next year.
The law also created a new $6,500 tax break for people who have lived in their homes for at least five years and want to upgrade, and extends a similar credit until May 2011 for military members whose duty takes them overseas.
Some have criticized the original homebuyer tax break, as well as its renewal and expansion, saying it doesn't create new buyers but merely assists those who would have bought a house anyway.
The law does both, said John Emery, dean of the Cal State Bakersfield School of Business and Public Administration.
"It's going to mean some people who've been on the sidelines will get off the dime and enter the market, and it's also going to help out people who would have bought either way," he said.
The latter is not necessarily a bad thing, Emery added.
"In entry level economics we talk about sprinkling cash from airplanes," he said. "It doesn't matter how the money gets into circulation, as long as it's circulating. That helps the overall economy, because once it gets in people's hands it stimulates demand and increases consumption."
Because more than half of mortgages in Bakersfield are upside down, there is a limit to what the new tax credit can do for homeowners who want to step up, said Raul Rodriguez, a mortgage broker for Mary Cruz Realty in Bakersfield.
"Obviously they'd have to sell their old house before they could buy a new one, and a lot of people can't sell their homes right now," Rodriguez said.
The law was still a good idea, he said.
"Six to eight months ago it was basically the end of the world," Rodriguez said. "Anything anyone can do to get us back on track is a good thing."
Rick Roper, executive vice president of Golden Empire Mortgage in Bakersfield, said he doesn't think the policy will have the same bang for its buck as, say, the Cash for Clunkers auto incentive, but he said it will stimulate home purchases and strengthen the economy.
"The housing market is what started this recession, and housing is what's going to end it," he said.
Real estate agent Fillmore said both tax credits are critical to the Bakersfield area because much of the inventory here is lender-owned and was vandalized or neglected by the previous owner.
"This tax credit gives buyers some money to make repairs, or it creates a buffer zone for them to replenish the savings they used to make a purchase," she said.
The new law doesn't only affect real estate.
It also expanded the number of businesses allowed to count their losses this year against the taxes they paid in prior years. That benefit previously had been limited to small businesses, but now applies to larger companies, as well.
Another provision provided an additional 14 weeks of unemployment insurance to most of the country. Residents of California and other states with unemployment rates above 8.5 percent will get a 20-week extension.
Kern County's unemployment rate in September was 13.9 percent, according to the California Employment Development Department.
