Home Depreciation & The $8000 Tax Credit

Home Depreciation & The $8000 Tax Credit

The hot news out today from the Stimulous Bill is that “new home buyers” will receive an $8k tax credit if they close on a home between Jan. 1st 2009 and Nov. 30th 2009. There are some stipulations on this money, as the definition of “new home buyer” only means someone who hasn’t owned a house in the last 3 years, and the full $8k is only available to single people making less than $75k/year and married people making less than $150k/year.  Despite the stipulations, it seems like a lucrative deal.. but is it really?

Some of you may know that I recently got married, and as such, have been thinking about getting into the housing market. My conclusion currently is that it is way too early, but this tax credit made me think twice about my position. A free, almost no strings attached $8000 is a lucrative deal, but is it a financially sound decision to buy a house in this market? My conclusion is as follows:

Housing prices have been falling for the better part of a year and a half now. Data Shows that “Median Sales Price of Existing Single-Family Homes for Metropolitan Areas” have fallen 12.4% over the past year, and there has been no appreciable increase in housing prices according to the NAR since late 2006.  For those who are math averse, lets do the calculation to see how much your house would be worth if you bought a $200k house in 2008 and have now experienced the 12.4% median price depreciation.

200,000 – (200,000 * .124) = $175,200

That.. looks painful. For those that do the math, it is clear that even IF the rate of depreciation slows to a meager 4%, if you buy a house for $200k, that $8k will barely cover the depreciation you will most likely see this year… Unless you know a specific market where the value of houses is going up, it is probably a good idea to wait it out, even with an $8k carrot dangling in front of your nose.

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