A $7,500 tax refund? Better read the fine print.

Congress passed and the President recently signed into law H.R. 3221, the Housing and Economic Recovery Act of 2008.  There is a lot of good stuff in it, including all mortgage originators (including those that work at banks and credit unions) must register in a national registry.  But there is one part of the Act that might be embellished by originators to generate more loans.

The Act provides for a First Time Homebuyer tax credit of 10% of the purchase price or a maximum of $7,500.  Sounds great, and it is a good thing.  But just like a piece of cake that is tasty and delicious, there are calories to count once you eat it.  The calories for the tax credit is you have to pay the tax credit back to Uncle Sam.  It is not a freebie.  You have to pay the entire tax credit back with $500 added to your taxable income until paid back or if you sell your home and earn a profit, you pay back the remaining tax credit balance. 

I anticipate for the next 6 months you will see many ads from mortgage originators and real estate agents saying “Buy a home today and get a $7,500 tax refund!”  Will the rest be disclosed once the new home buyers are at the agent’s or originator’s desk?  I hope so.  But logic tells me this is another buyer beware and many first time homebuyers will be lured into buying a home based on only a half disclosure.  If you have any questions on this, please call or comment on my site.

Some upsides to the downturn

There is a lot of negative news about the economy to read these days.  Home prices are decreasing (nationally), banks are failing, GDP is down, gas prices are at an all time high and the unemployment rate is increasing.  But sometimes when there is so much news it is easy to lose sight of the forest through all of the trees.  In other words, yes, times are bad, but there are some positive items to note.

First, if you are an investor, stocks are cheap.  Have you ever heard the expression “buy the recession”?  Stocks are much cheaper than they were last year and the stock market has always rebounded.  The bargain stocks you buy now will most likely be worth a lot more next year or the year after when we come out of our bad times. 

If you are looking to buy a house, boy, it sure is a buyers market.  Many sellers are very desperate to sell their homes and giving incentives or dropping prices, or both, to get their homes sold.  Of course you must have good credit to buy a house in this market, but if you do, you can get a great buy right now.

The other good news that we take for granted is the geopolitical situation, which is the underpinning of our financial stability and prosperity, is at least holding steady and maybe even getting better.  We haven’t had a terrorist attack on US soil since 2001.  The North Koreans haven’t set off any nuclear test detonations since 2006.   Andd things appear to be getting better in Iraq.  

And finally, the US economy is still growing.  Sure, the financial markets are taking a beating, but part of the purpose of having financial markets is to act as a buffer for the real economy.  And the real economy keeps chugging along.  It might be a little slower than we have seen in the recent past, but it is still growing.  Anyone who calls this time a recession has to admit it is one of the mildest recessions we have seen.

So keep your head up – there is always as silver lining if we look for it.