Bought with a first-timer tax credit, underwater now?
If you bought a house with the first-time buyer tax credit, you soon may be able to sell it without a penalty.
The three-year holding period for first-time buyers who cashed in with the $8,000 federal tax credit back in 2009/2010 will have run its course by next spring.
But while you soon won't have to worry about paying back Uncle Sam, if you used the tax credit to buy a house and want to move up to something bigger and better, you may be in for a rude awakening.
You may very well be underwater right now.
The Massachusetts median home price stood at $331,150 in June 2010. By this October, it had fallen to $287,000, according to the Massachusetts Association of Realtors.
Even factoring in the $8,000 credit, the average buyer who snagged a house in the waning days of this foolish gimmick could be nearly $40,000 in the hole.
The tax credit, instead of sparking a real estate recovery, instead fueled a mini price bubble as buyers sped up their plans in order to grab what seemed like a government giveaway.
But as a result, they probably ended up paying more than they ordinarily would have in what was still largely a depressed market. And now it could be years before some of these first-timers who bought with the federal credit are in the black.
Still, some brokers are watching and waiting, hoping the end of the three year holding period will trigger a fresh crop of sellers in a market where inventory is pathetically anemic.
The bet is that many of these first-timers "under bought," settling for smaller homes in order to grab the credit.
Of course, a lot depends on location. A small suburban starter home bought in the spring of 2010 is more likely to be underwater right now than say a condo in Cambridge and environs.
Maybe the rock heads in Congress think the $8,000 first-time home buyer tax credit was a great success. Frankly, that wouldn't surprise me.
Let us just say it's not a widely shared opinion.
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