If you set up a program to give away free money, would you be surprised if a large amount of people wanted to sign up for that program? Well, it seems a number of California legislators are surprised by how quick their hundred million dollar first time buyer program has been accepted.
The hundred million dollar cap on this program may be reached within another month or so.  If you are interested in this program here are a few of the details: This is a tax credit that spreads across three years, in three equal payments and it only applies to new homes. One of the requirements is that the home has never been previously occupied. After purchase, it must be occupied by the taxpayer for a minimum of two years. It must be a single family residence, detached or attached, and the credit is $10,000, or 5% of the price, whichever is less.
This program was passed in February, at a time when the state of California is in essence, bankrupt. It is amazing that the state of California would set aside $100 million for such a program when many school districts, including San Diego, are having to cut music and physical education classes because of budget shortfalls.
With this hundred million dollar program almost totally allocated, guess what the bankrupt Sacramento legislators are considering? There are two new bills pending in Sacramento that would add an additional $200-$300,000,000 to this program. In my opinion the original bill was unconscionable, considering the state of the California economy. To double or triple the original giveaway is totally incomprehensible.
These actions should definitely earn California an award for the greatest “tax and spend†state in our short history. I question why this bill only applies to new homes. If the state of California really wanted to help out the real estate market, why wouldn’t this bill apply to any home purchase?
It may be cynical, but could it be this just applies to new homes because the California new home builders contribute millions to the reelection campaigns of our state legislators? What would be extremely interesting, would be to look at the public record in one year from now to see how many state legislators who backed this program, received campaign contributions from new home builders.
For California homebuyers, especially first-time buyers, that qualify for the federal $8,000 credit as well as the California $10,000 credit, this is a great deal. But, is it really fair that tax payers are picking up the tab? Would it not make common sense if California wanted to pass such a program, to have it apply to all home purchases in order to reduce the current oversupply of existing homes? This program is doing nothing to lessen the supply of existing homes, vacant homes and bank foreclosures.
With this California new buyer’s credit, the pending new bills to escalate the funding, the recent extension of the foreclosure process by 90 days, and last year’s extension of foreclosures by another 30 days, one can see that California legislators are hell-bent in meddling in the real estate industry. I’d much rather see them finally pass a credible budget, before dreaming up new programs to give away taxpayer money.
Homes will always be unaffordable to the average person in high priced CA as long as government subsidize home owners in the form of mortgage tax deductions, and Fannie Mae bailouts. Remove the interest tax deduction and watch the prices correct 50%. This place a bottom on home prices and increase home ownership than further government meddling. The issue is affordability, not unemployment. Prices are still too high due to government tax policies and bad lending practices.
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Given the ratio to income to sales price in California the foreclosure crisis will be a California problem for many years. Until the recent bubble lending 3 times income was a good yardstick but now it ranges from 6 to 10 times income and this has become the norm. A good example would be the city of Santa Rosa BMR problem that has a cap of 50K income for houses costing 304K using the FHA 3% down program. Low income cannot afford a 300K home; only in California is this type of thinking keep alive by local and state government. In fact the State yesterday wants to give low income families 100% financing for foreclosure homes in the most impacted parts of the state. These homes require extensive rehab which low income citizens do not have and will again provide a new wave of foreclosures in the coming years.
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If you are going to buy a home that you are planning on living in, buy one that you can afford, taxes and insurance and maintenance included. The “asking” price does not tell the whole story, nor does the “adjustable” loan. People paid too much thinking they could flip the house, found no buyer and the adjustable loan was “adjusting”, just like they’d been warned. Of course, no one fore saw the gas prices, the electricity prices, the food prices going through the roof, and all the unemployment.
If you could not afford to buy a house then you should not have. Plain and simple.
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