Georgia House Considering It’s Own Housing Tax Credit Stimulus – H.B. 261

Georgia CapitolH.B. 261 has been introduced by several Georgia representatives in an effort to create a tax credit to stimulate the Georgia housing market.  While I applaud our representatives’ initiative to pass a stimulus that makes an impact on our local housing market, I am concerned that as it is currently proposed, this bill may create a negative effect on the market.

Please note that this bill has not been passed or voted on as of this posting.  I am also attempting to get clarification on some of the terms so some of my assumptions may turn out to be inaccurate.  If course, you can read the bill for yourself and see if I am missing something.  In any case, I will outline the key facts of the bill as I understand them and note my concerns.

1) Applies only to single family residences, owner occupied or foreclosed upon, that were for sale prior to the passing of the bill and still for sale as of the date the bill passes.

Concerns: If you were thinking about selling your home and knew you had to be on the market before this bill passes, you would be highly motivated to put your house on the market.  Currently, we have an over supply of homes.  My concern is that this requirement will result in many more homes coming on the market quickly resulting in more competition and driving prices down.

This bill should apply to any home sold in a designated period regardless of when it was listed.  How many homes not ready for the market will get listed?  Homes not in good condition will sit on the market longer and give buyers more leverage to push for a lower price.

2) Applies only to homes with a purchase price between $40,000 and $300,000.

Concerns: I have a lot of concern here.  First some stats:  there are approximately 45,000 single family, detached homes listed in FMLS.  Of those, 28,000 (62%) are priced in this price range.  Of those 28,000, only 3,000 are priced in the $40,000 to $90,000 range; the remaining 25,000 homes are priced $90,000 to $300,000.   What this means is that the lower priced homes are only a very small percentage (12%) of the homes in this range.  In other words, we need to focus on where the real inventory exists, above $100,000 for sure.  By capping the price, this bill effectively shuts out almost 40% of the houses on the market.  Why cap the sales price of the home?  If needed, cap the tax credit at a certain amount or create a sliding scale.

If the tax credit is capped at the $300,000 sales price, my concern is also that every home priced in the low to mid $300,000 range will be forced to sell at $300,000.  What buyer is going to accept a $310,000 sales price and miss the credit by $10,000?  Every seller remotely close to this cap will be forced to meet it in order to sell.  So, instead of balancing supply and demand with more buyers, we are basically giving buyers more leverage to get a lower price.   This will have a very negative effect on home prices in this range.

3) Provides for a one time tax credit to the purchaser as follows:

a) tax credit shall be equal to 1.2% of the purchase price if purchase occurs during the 6 month period starting the date the bill is passed.
b) tax credit shall be equal to 0.6% of the purchase price if purchase occurs during the second 6 month period.

Concerns: These time frames will also have negative effects on the market similar to my concerns in item #1.   By defining these time periods, buyers may be motivated to buy within the first 6 month period.  However, with the current average days on market near 100 plus a 30 day typical period from contract to close, the current transaction is averaging 120 days.  Houses listed within 75-90 days of the end of the first 6 month period will be much less likely to sell and close before the tax credit drops.  But, these homes will remain on the market keeping inventory high.  Some buyers may continue to be motivated by the lower tax credit but I am sure that many buyers will see this as a missed opportunity and may wind up not buying.  We are seeing this type of behavior with the recent low interest rates.  Even with great rates and a strong buyers market, buyers’ attitudes have been to wait in case something better will come along.

4) Tax credit shall not exceed the tax liability for the current year.  Tax credit may be carried forward to subsequent years.

5) Home must be listed with a licensed broker.

Concerns: I do not have concerns with items 4 and 5.  I think it is good to be able to carry the credit forward so the buyer can get the full benefit of the credit.  I also think the requirement to be listed with a broker will allow the effect of this bill on the market to be accurately measured as all listings are tracked by the MLS.

I will update this post as I am able to gather more information.  I encourage you to contact your state representative and tell them a good tax credit bill could make a real difference but that they need to make sure that the negative effects don’t outweigh the intended outcome.

Related posts:

Silver Lining – First Time Home Buyers To Get $8000 Tax Credit On 2009 Home Purchase

$15,000 Housing Tax Credit Cut From Stimulus Bill

Georgia House Passes Bill To Freeze Property Tax Increases For Two Years