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Friday Question of the Day – Would the $5,000 First-time Home Buyer Credit Affect your Decision to Buy in DC?

by Prince Of Petworth January 17, 2013 at 10:22 pm 57 Comments

Photo by PoPville flickr user Mr. T in DC

A few folks have sent me links to this story – Popular $5,000 DC Homebuyer Tax Credit for first-time buyers not renewed for 2012 tax year:

First-time homeowners in the District of Columbia, who purchased their principal residence after Dec. 31, 2011, will not be able to take advantage of the popular $5,000 DC Homebuyer Tax Credit when they file taxes this year.

The tax credit that has made homebuying affordable for thousands of DC residents since it was first introduced nearly 15 years ago was axed from legislation during negotiations over the fiscal cliff and was not included in the American Taxpayer Relief Act signed by President Barack Obama last week, according to a spokesman for Congresswoman Eleanor Holmes Norton (D-DC).

An attempt to make the credit retroactive for 2012 purchases and extend it into 2013 was unsuccessful, but the congresswoman is working on a plan to get the credit reinstated, he said. There’s no specific plan of action or timeline in place yet.

And in yesterday’s GDoN post some readers were concerned that they were being priced out of the DC real estate market. So for this week’s Friday Question of the Day – I’m wondering how many of you who are considering buying a home in DC would be more inclined to do so if the $5,000 tax credit were reinstated for 2013?

  • Anonymous

    I think it’s pretty well shown that such credits just increase the sale price by a corresponding amount. I say this as someone who got the $8,000 tax credit myself. A $5,000 credit would up the settled sales price by just a little less than $5,000 in a competitive market like DC.

    These programs really help sellers and (mostly) agents.

    • Nicoli

      Is there any data available on who actually benefits from the credit? What type of residences are purchased and where? Just seems like a lot of baseless opinions on this thread about what the credit’s impact might be….

    • Anonymous

      I think the credit still helps lower income people to afford real estate here, which is probably a group that we want to encourage to buy in the city. Since the credit phases out at higher incomes, I don’t think it really encourages the whole stock of housing to increase in price.

  • Es

    My wife and I bought in 2011, and with combined income of about 130k were ineligible for the credit. The people who can afford much of what’s on the market today weren’t qualifying anyway.

    • Same here, my husband and I did not qualify for the credit.

    • Anonymous

      Ditto, screwed too.

      • Anonymous

        “Screwed” because you made too much money? It’s like the system is out to get you, huh?

        • amen

        • Anonymous

          It depends on how you justify the tax credit. I’ll caveat at the outset and say I don’t know what the rationale for it was/is. But if the idea was to encourage investment in and thereby “re-seed” parts of the nation’s capital that had become under-populated or blighted, then income shouldn’t matter. Buyers who make 500k can do that just as well as buyers who make 50k, perhaps even better. My guess is that this probably is/was the BEST rationale for the tax credit; otherwise, it’s hard to see why it makes sense as national tax policy. [I felt the same way about the hybrid/electric car tax credits — it perplexed me why they’d have income cut-offs if the idea was to drive demand to create economies of scale for manufacturers, such that price would come down for everybody. People with more money are more likely to be early adopters and/or have the werewithal to pay the premium for those vehicles.] If the idea was to aid a particular group — DC people making less than the cut-off amount, then it’s probably a program of limited utility that is hard to justify as anything other than a giveaway, and one likely to be ineffective, at that. In light of the housing market here, it does seem like this was well on its way to becoming a boondoggle for a very limited subset of people in DC: namely, employed single people with middle incomes who made enough money to afford a mortgage payment but probably were incentivized to buy based on, essentially, 5k in help on the down payment. I can’t see who else would be incentivized to buy based on a marginal 5k, at least in light of the average home/condo price in DC.

          • Anonymous

            Yeah but buyers who make 500K are going to buy whatever they want wherever they want and DC offering 5K is not going to make any difference whatsoever in their decision. In that case giving the money to high income people is not only a waste, it is political fodder for their opponents to accuse them of giving handouts to the rich.

    • Anonymous

      Ditto, we bought in 2007.

    • beabeth

      I am really glad someone asked about this. I have written both Norton and Obama. I bought in 2012 and was lucky to find a house on short sale that I could afford in Manor Park, DC. The home is a fixer upper and I’ve been busting it for the past six months because I believe in urban revitalization.

      I qualify for the $5,000 tax credit, but now will not receive it due to this negotiation. That $5,000 was not wrapped up in the cost of my house. Rather, I planned to put it back into the economy by continuing to hire contractors and buy materials to fix up my house. Now, my already low budget is even lower.

      What I want to know is — why is this wrapped up in the fiscal cliff negotiation? Isn’t this a DC tax budget issue? And how much is it really costing the District? I mean, how many other people like me are out there who can afford to buy in the District with an income of less than $70,000?

  • Boom

    I dont think its going to dissuade someone all that much. If you are looking to buy in DC you’re going to buy in DC, the tax credit was just an added incentive.

  • Anonymous

    government handing out money to homebuyers just raises prices. anyone who has studied economics knows this is incontrovertible fact. unfortunatley, most of the country has not studied economics and believes the lie that government handling out money for housing is actually helpful for the poor, when in fact it increases prices.

    • Yes, yes, yes. At this point, it’s just a giveaway to the real estate brokers.

      When it was enacted in 1997, it made a lot of sense. You really needed to incentivize people to live in DC. And among the people currently here at the time (ie. low and middle income African-Americans, for the most part), getting them to switch from rentals to owner-occupied units would give them a greater stake in the community. It’s certainly helped to turn things around in DC.

      However, the tax credit probably should have been ended 5 years ago or when we enacted the ZIRP. All its done is push prices correspondingly higher.

      There’s no such thing as a free lunch, folks.

  • We got the 5k back in late 2004 when we moved to town. We really knew we wanted to live in the city (vs in laurel, for example) and Petworth had stock we could afford.

    The 5k was just a nice bonus, but i don’t even think we were aware of it before filing our taxes the following year.

  • We bought in DC, b/c we wanted to live in DC. Not VA or MD. The DC credit did not affect our decision to buy here.

  • Anonymous

    I definitely took the credit into consideration when buying back in 2005. As someone who bought an as-is fixer uppper, the credit most certainly helped out.

  • Ward One Resident

    The purpose of the tax credit has sort of run it’s course at this point in time. It was created to encourage home buying in the District when no one wanted to buy a home here. Now the District has one of the hottest housing markets in the country.

    • Agreed. And as communist as I am, i’m not sure that it’s really “fair” for everyone else in the country to support (via their taxes) an incentive program just for DC.

      • Anonymous

        Seems more fair than paying more in federal taxes than we are allotted or paying fed taxes but not having representation.

  • As a single person who was working with a $200K budget, I purposely limited my search to DC based, in part, on that tax credit instead of looking for more space or a newer unit in MD or VA (neighborhood and convenience being other considerations). While it may not have effected those that make $130K or more and were in a comfortable position to purchase a more expensive home, I had hoped to use that funding to pay down the expenses I have incurred in updating my condo, a process that will now take significantly longer than I had hoped.

    • More Is More

      I completely agree. I bought in DC in 2011 on a small budget of $200k. The $5k tax credit was enough of an incentive to prevent me from looking at larger places in MD or condos in VA.

  • hma

    It’s horsepoop. If you make any kind of money, you are no longer eligible.

    • Anonymous

      I can only hope you’re joking.

  • Anonymous

    i bought in 2011, used the credit with an FHA loan. If you’re too rich to qualify, go cry me a river.

  • T

    Seems like a bit of a giveaway to an already flush realtor community in DC. As previous readers note, it mostly just serves to push up the price of studio and 1 br condos.

  • KenyonDweller

    We bought in 2001 when I was in grad. school and my wife was not making much money. The home credit certainly factored into our planning.

  • I managed to JUST qualify, and it didn’t incentivize my purchase – I had saved for years to buy, and knew where I wanted to buy. But it allowed me to quickly supplement my just-drained savings, and gave me some cash to put back into the house – cash that I spent at local stores, like Georgetown Carpet. So it was a win-win.

  • Just a point of reference…

    This federal tax credit for home buyers in the District wasn’t passed in 1997 to make housing more affordable. Anyone who was around back then can attest to the fact that DC had the most affordable housing stock in the DC Metro region and in most cases it cost more to buy similar homes in Mclean, or Vienna VA as it did Cleveland Park or Georgetown.

    It was passed as a “gimmie” to the District Government as a way to stem the massive exodus of population from the District that had been ongoing for ~40 years that point, nothing more.

    At this point it is nothing more than a freebie to people with means anyway. It is an easy thing to let disappear.

  • Phoebe

    I was sufficiently low-income when I bought my Park View house in 2000 that I qualified for a five-year real property tax abatement (in addition to the $5,000 credit). The property tax abatement definitely helped, because on a month-to-month basis my payment was lower since the property taxes weren’t being put into escrow. Does that program still exist? (Though I can’t imagine anyone who can afford a house these days would be at the income level to benefit. …)

    • TC

      I recentlly purchased in the general Brookland area and qualified for the credit and the tax abatement. So yes, it still exists.

    • My husband and I (at around $50,000 income) also qualified for the $5000 and the 5 year property tax abatement when we bought in 2011. They were both very nice perks, but the ultimate thing that pushed us to buy in the District instead of MD was the significantly lower property taxes and a much shorter commute.

  • Sounds like alot of sour grapes here….

    We bought in 2009 in Parkview. Received the $8,000 from Federal Gov and the $5,000 tax credit from DC .

    It did not “increase” the price we paid. As a matter of fact, after our appraisal, we found the house valued at almost $40,000 more than listed.

    We bought in DC for many reasons but the credits made the difference for us. Most if not all of that money went back into renovating.

    It was all spent locally. How’s that for stimulating the local economy?

    • Anonymous

      I thought that people who took the $8k Federal credit weren’t eligible for the $5k DC credit? You may not want to mention that to the IRS.

    • IsoTopor

      Tax credits available to a significant portion of potential buyers in a competitive market always increases the amount of money those potential buyers are willing to bid on an asset by roughly the amount of the tax credit. So unless the tax credit was available only to you, or you were the only person interested in the property among all potential buyers, the tax credit increased the price of the home.

    • If you took the $8k federal credit, you were not eligible for the $5k DC credit.

      • That was my understanding, too. We bought in 2009; took the $8K federal credit over the $5K DC credit, since it was unallowable to take both.

        I don’t think the credits impacted the price of our house (a foreclosure in need of work, which meant that most competing offers were investors), but that money did enable us to do critical upgrades that would have been a potentially insurmountable burden to our relatively modest budget otherwise – overhauling electric systems, patching the roof, etc.

  • anon

    I bought in 2010 (post-expiration of the federal credit) and definitely took the DC credit into account when calculating how much I could afford to spend, particularly on repairs that had to be done immediately and required cash out of pocket rather than being part of the mortgage.

  • I’m looking to buy in DC and the credit would be nice to have. But it’s not going to sway my decision one way or the other. $5K is nice, but not enough to make me live somewhere that I wasn’t interested in living in already.

  • Richko

    So the place I bought in June was marked up $5,000 by the seller because they assumed I was getting the credit that I now can’t claim? Wow, sucks to be me. Waaaaahhhh.

  • Anonymous

    Everybody is looking at it from their own perspective, not an overall perspective. If YOU NEED 5k to help you buy your house, should you be buying a house? Isn’t that what they said got us into the sub-prime mortgage situation, people buying more house than they could afford? Fair is equal to all, this was not equal to all. 90K in DC is not 90K in podunk Idaho. A single person living in DC with the cost of a condo here who also has utilities, car payment and 50K in student loans to pay back (because he also did not qualify for “assistance”) puts a person who has struggled his whole life, worked his butt off to put himself through college and save a few pennies along the way in a hell of a crunch when trying to buy a home. Think about it, that guy is in the same situation as the person in section 8 high rise, accept he didn’t get to live right by a metro station for the past 5 years, he did not get a free ride to college and he is not gonna get down payment assistance from DC and a 5K bonus in his pocket. DC is a hand out gvt, the less you do the more you are given and there in lies the problem.

    No the 5K would not affect my decision either way, as was mentioned above it was to tempt people BACK into the city. I did qualify for the 8K though but did not find a condo I could buy in time to get it.

  • anon

    I don’t think this has the 1-to-1 effect on home prices that many think it will. With the expiration will we see an immediate $5K cut in asking prices for homes that qualifying buyers would be interested in? Not likely. Offers may come in a little lower in a small segment of properties, but not across the board.

    We actually took advantage of the $8K first time buyers credit in 2009 (which expired shortly thereafter). Did it have any effect on our house hunt or the price we eventually offered? No. We weren’t going to see that money for over a year anyway due to tax filing. What it did allow us to do was upgrade some ratty old furniture the next year and not 2-3 years down the line. I think the impact is overstated.

    • Prices are “sticky”, meaning that they are slow to adjust. However, they will come into equilibrium in due time.

      People don’t actively think, “Oh, I will bid $5K higher since I have that tax credit.” Instead, it gets factored into the comps and asking prices. When the seller goes to put her home on the market, the comps affect her pricing. Those existing comps have factored the $5K credit into their pricing. So she lists her home to meet the comps, since that’s the going price. It’s an incestuous cycle.

      It’s a wealth transfer from existing homeowners who owned prior to the tax credit implementation and renters to new home buyers. The only thing it does is pad up the comps, thus giving brokers higher fees. Brokers LOOOOOOOOVE local tax credits and the mortgage interest deduction.

      The temporary property tax abatement for first-time home buyers is a much better solution for incentivizing home ownership.

  • It was nice getting a huge refund the next year, but in terms of the public good, this is not money all that well spent. I haven’t seen the scoring for this expenditure, and I can’t imagine it’s very high at all, but really — is DC real estate so depressed that people need subsidies?

    I’ll go out on a limb and say every neighborhood in DC is seeing settled sales price:offering in the very high 90%’s.

  • L

    I’ve been thinking about buying in the next 1-2 years, and not having a $5,000 credit certainly wouldn’t affect whether or not I will, but I could see it affecting my budget.

  • elitist

    I don’t mean to sound elitist, but if you really need that $5k to buy in DC, you should be looking else-where. This city has gotten to be too expensive for you to buy in.

  • Anonymous

    anyone with even a passing familiarity with basic economics knows that this tax credit only increases prices at the low end, doesn’t help anyone to buy.

    also, making a tax credit that’s intended to stimulate demand RETROACTIVE is the height of absurdity.

  • TKDC

    I just bought a house and I had been hoping to get these funds so that I could use it to buy furniture. I wasn’t counting on it though. Then i recently read about how it was structured. The income limits are very low. I think the household income had to be below $70,000 to receive the full amount and if above $90,000 you didn’t receive anything at all. Not many of the people who can afford to buy in DC have household incomes under $90,000. Anyway, it’s not like this money can be used for down payment or closing costs so I don’t see it being a huge difference in whether people can buy.

    The race is on for the last few relatively safe and affordable neighborhoods in DC. My vote is for Takoma DC east of the Red Line. Homes there are still under $300k and walkable to downtown Takoma and the metro. The postwar homes have charm on the inside but not the outside.

  • Anonymous

    We bought on the Hill in Dec 2009. Used to credit to help re-do our kitchen. But even if we didn’t get the credit we would have still bought in DC

  • No. I bought a house this past November, fully aware that I would get no such credit. I would not have changed my offer if the credit would have available to me, either. Don’t get me wrong, I’d rather have the credit than not have the credit, but it wouldn’t have impacted my decision at all.

  • sbc

    we bought last month. we were hoping for the credit, but would have bought even if we’d known it would be cancelled. we wanted to be in DC.

    but we would have used that money towards home repairs and improvements that we will now postpone. That means less money to DC in sales tax, wages for contractors, etc.

  • My fiance and I bought in 2011, and I qualified for the full credit because we were still filing as single (this is legal). Not sure if it affected our house value, since we got the seller to grant a $5k subsidy. We used the tax credit towards redoing the bathroom.

    As for the comments regarding how people shouldn’t buy in D.C. if they “need” the $5k are ridiculous – much of this market is propped up by FHA loans – are all those people unworthy of buying homes since they are unable to save $100,000 for a down payment? With the tight restrictions for loan qualification these days, along with D.C. residents’ ability to pay high rents, I don’t see any issues regarding who should or shouldn’t be buying a home.

  • Will

    This tax credit should die. At the current prices that most homes in DC sell for, there exists the following paradox:

    If you make enough money for a bank loan, you make too much to qualify for this credit.

    If you are in the income range that qualifies you for the tax credit, you will most likely not qualify for a bank loan.

    I agree with many commenters who note the distortions this creates in the market for homes in the qualifying range, and it simply serves to slightly inflate prices there, and maybe on the margins push away another buyer who might be just out of qualifying for the credit.

  • Jindc

    Te tax credit was a nice help for metro balance the taxes I’d be paying on my assets I sold for te down payment…bought in 2008 with a $290k budget while single.

    It did help a bit in that regard.

    • cookie

      I used the credit in 2004 and despite the folks who said it doesn’t have an impact on decisions to buy, it did for me. My 5K credit was combined with my employer tax forgivable loan for about 20K. So combined it gave me 25K for down payment/closing. I put 10% down on a 230K coop that had languished on the market (so I doubt it pushed up the price). Without the 5K I would not have purchased because I did not want an efficiency, and 230K was the lower level for a 1 bdr at the time. I still had about 50K cash in the bank at the time, my personal required safety net. I would not have ever spent every last cent on buying a place. I’m smart enough to know that my financial situation can change at any time.


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