How important is the $8,000 tax credit? Maybe less important than you think.

With the $8,000 tax credit scheduled to come to an end at the end of April, word on the street is it will not be continued. I am on both sides of the fence of this issue. From a real estate agents perspective it would nice to see it continue to encourage 1st time buyers to buy a home. On the flip side as a tax payer it has to end to keep us as a country from going even further into debt.

So the down side if it ends you have missed your opportunity as a 1st time home buyer to get the tax break. However there is a big upside to this in the short term. The home affordability is through the roof right now and the interest rates are still incredible. Both of those factors are bound to change sooner or later. If some of the buyers fall out of the market because they don't understand the opportunity, several things could happen.

The amount of buyers per home will go down, which will increase you leverage as a buyer. In the Minneapolis/St. Paul area as of February 2010 there are 4 homes for every buyer. That is where we as agents like to see the market because it is balanced. If buyers drop out and inventory goes up your options improve. If the interest rates go up a good rule of thumb is to remember that for every percentage point the interest rate increases, you lose about 10% of your purchasing power. Meaning if you were to buy a $250,000 home at 5% and the rate goes up to 6%; the same payment will now buy you a $225,000 home. Once we have hit the bottom of the market and it is acknowledged by the press, it will already be on its way up again. Prices as well as interest rates can change quickly as we have seen in the past.


This is a wonderful time to buy a home with or without the tax credit, so get out there and find a home for yourself!

As always please consult a real estate attorney with any legal questions you may have and your accountant for any tax questions.

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