"Last Chance! Don't Miss Out on the $1,500 Tax Credit!"

Overpaying $3,000
to Get Back $1,500?

I fielded a call this week from a client -- her mailbox filled with flyers touting the expiring $1,500 tax credit -- asking how much a forced air furnace should cost to heat her 1,700 square foot townhome.

My answer: anywhere from $3,500 to $4,500, depending on the make, capacity, and number of "bells and whistles."

Which is interesting, because the vendor she called -- in response to their ad pushing the $1,500 credit -- quoted her about $8,000.

I don't know that other vendors are doing this, but as always, it pays to shop around, and get multiple quotes.

Crying Wolf

Aside from the occasional overcharging contractor, vendors who've been bombarding the public with "Last Chance" ads have, I suspect, a "crying wolf" problem: even though the credit really does expire on December 31, they've been pushing the credit's "imminent" expiration for the better part of two years now (in other words, ever since it was enacted).

It's also the case that the federal tax credit is "up to $1,500"; if you read the fine print, it's actually 30% of the total outlay.

So, if you spend $4,000 on qualifying windows, a new furnace, etc., the total credit would be $1,200.

Missed the Tax Credit? Lucky You

Did the Late Bird Get the Worm??

Although I take issue with some of the math underlying the analysis, there's no denying that the drop in interest rates since April 30 -- thanks to the Eurozone crisis -- has at least partially offset the benefit(s) associated with now-expired home buyer tax credits.

Missing the tax credit deadline might have seemed like a big mistake to some home buyers, but waiting could have been the smartest thing to do. Interest rates have fallen so dramatically since April 30th that the typical purchaser of a $350,000 home, financed with a $280,000 mortgage, would have saved a bundle by waiting until May.

At April’s average rate of 5.34 percent, a home buyer would have locked in a 30-year fixed rate loan with a monthly payment of $1,561.82. The same borrower could have snagged a 30-year fixed rate loan at a rate of 4.625 percent in May and paid $1,439.59 per month. That’s a $1,467 annual savings. Over 30 years, it’s a $44,003 savings, dwarfing the tax credit.

--"Post-Tax Credit Buyers May Save Money"; Daily Real Estate News (5/27/2010)

So what's wrong/incomplete about the above analysis (at least if you live in the Twin Cities)?

Three things.

One. The average home sale in the Twin Cities currently is about half the $350,000 cited in the foregoing excerpt (no doubt written by a journalist in New York or LA).

So, cut the monthly mortgage savings from $95 to $47.50 -- making the tax credit that much more valuable.

Two. The average home buyer doesn't stay in their home for 30 years.

In fact, seven years is more typical.

Three. The calculations don't discount for the time value of money (why people prefer "a bird in the hand to two in the bush").

In plain English, most first-time home Buyers would rather have an immediate $8,000 (or $6,500, for move-up Buyers) than an extra $95 every month for 30 years.

However, the whole episode does serve to underscore that the decision to buy a home depends on many variables, including interest rates, prevailing home prices, financial incentives, etc.

Vicissitudes of Timing

The post-tax credit drop in interest rates also shows how (fickle) market conditions can trump . . . everything else.

Case in point: I worked with a client last year whose plan was to buy a newer, bigger home, then sell their existing home. That strategy made sense because their current home needed quite a bit of updating -- work that, realistically, could only happen once it was vacant.

Part one went off without a hitch: my client got a great deal on a very nice Plymouth home, and proceeded to move in.

However, part two suffered delay after delay.

So, instead of having their home ready for sale in February, at the beginning of the "Spring" selling season, my client's home wasn't on the market until May.

Did the delay hurt them?

On the contrary, several homes that were competing with my client's home all got snatched up in the interim.

As a result, my clients were able to raise their asking price -- and got it, in the first two weeks!

Stale Listings -- Late Spring Edition

Is it Too Late to Get an Extension?

OK, so it's not quite as bad has having an exterior shot with snow on a day that the Twin Cities hit 95(!) sticky degrees.

However, given that April 30 was one of the most hyped deadlines in the housing market the past year or so, I was taken aback to see a listing today that blared, "Still time to get tax credit!! in both the agent and public remarks fields.

Too tired to do an MLS-wide search, but I'd guess it's got company . . . .

Official Time of "Birth": 10:17 p.m. on 4/30/2010

Under the Tax Credit Deadline (Just!)

Communities large and small traditionally attach a lot of fanfare to the first birth of the new year.

So, the proud parents of little Susie or Tommy, who arrived at 12:03 a.m. on New Year's Day, typically rate a mention in the paper or news (and often a free year's supply of diapers from an obliging sponsor!).

Is it too late for Realtors to do that?

My client and I (and his Seller and Realtor) were no doubt beat by at least a couple other deals that cut it closer to the wire.

However, the official "Final Acceptance" on my client's Minnetonka townhome purchase -- marking when all the necessary signatures have been obtained, and the executed documents delivered to the Buyer's agent (me) -- was officially 10:17 p.m on Friday night.

Just in case the IRS comes calling, I subsequently faxed the executed Purchase Agreement to my client, generated a time stamp, and scanned and emailed that to him as well.

FRIDAY(!) Open House

Tax Credit Countdown

When: 4-6 p.m. today
Where: 4121 W. 28th St (28th & Inglewood Ave. So.), in St. Louis Park's Fern Hill neighborhood
What: 4 Bedrooms (all up), 3 Bath 1937 Colonial with 3,000 square feet
How much: $549,900
Who: listed by Ross Kaplan, Edina Realty City Lakes

Will there be a burst of last minute home purchases ahead of today's tax credit expiration?

We'll find out.

Just to give procrastinators one last opportunity, I'll be at my listing at 4121 W. 28th St. (28th & Inglewood) in St. Louis Park's Fern Hill neighborhood from 4 - 6 p.m. today.

Highlights -- besides the value, location, and curb appeal -- include a beautiful, wood-paneled Family Room; four Bedrooms up; formal Living and Dining Rooms; and a ton of charm and character throughout.

Oh, yes: and an attached, 3-car garage with tons of extra storage space, plus a Gazebo in back.

P.S.: For more on whether today's deadline is a big deal or not, see "It's a mad dash for home tax credits," in today's Pioneer Press. Reporter Chris Snowbeck surveys several local agents -- including yours truly -- about whether the tax credits are going to expire with a bang or a whimper.