The governor approved a plan to provide more incentives for first-time homebuyers in his turf.
Gov. Arnold Schwarzenegger is providing an additional $10,000 or 5 percent of the purchase price worth of tax credit for first-time homebuyers on top of the $8,000 tax relief from the government that was recently approved (Read our related post here .). The qualifications for buyers are more or less the same with the government’s standards. Here are the criteria for eligibility:
The property must be purchased between March 1, 2009 and March 1, 2010.
The buyer must be primary residents of the house.
The buyer must reside in the home for at least two years
The buyer must be eligible for the property tax homeowner’s exemption of the state’s tax code.
The total tax credit for the homeowner must not exceed $10,000 for a period of three taxable years.
The California Franchise Tax Board provides a comprehensive explanation of the application, processing, credit requirements and credit claims for all interested buyers.
But the downside of the plan is that it will be awarded on a first-come, first-serve basis until the $100,000,000 budget has been allocated completely. This translates to only 100,000 beneficiaries (assuming that the 5 percent of their properties’ purchase price exceeds $10,000). That’s not sufficient to depress home values in the state. The December 2008 home values in San Francisco have gone down by 31.2 percent compared to last year while in San Diego, values depreciated by 24.8 percent YoY. In Los Angeles, property prices have plummeted by 26.4 percent YoY.
Another dangerous point here is that builders will be lured to construct more houses that may exceed 100,000 units. Since foreclosed home sales are not covered by the program, builders are sure to gamble on building more properties this time. And as we know it, the more supply in the market, the more the housing values will be pressured down. According to RealtyTrac’s February survey, “California cities accounted for six of the top 10 metro foreclosure rates in January among metro areas with a population of 200,000 or more. Merced, Calif., posted the top metro foreclosure rate, with one in every 59 housing units receiving a foreclosure filing during the month — nearly eight times the national average. Other California metro areas with foreclosure rates among the top 10: Riverside-San Bernardino at No. 4 with one in every 81 housing units receiving a foreclosure filing; Modesto at No. 5 with one in every 84 housing units receiving a foreclosure filing; Stockton at No. 6 with one in every 86 housing units receiving a foreclosure filing; Vallejo-Fairfield at No. 7 with one in every 100 housing units receiving a foreclosure filing; and Bakersfield at No. 8 with one in every 120 housing units receiving a foreclosure filing.”
It’s a good plan but it will always have its hits and misses.