A federal tax credit for first-time homebuyers extended by Congress last week and approved by President Barack Obama could increase home sales in Indiana.While the lagging real estate industry certainly needs a shot in the arm, I am afraid we have forgotten the lessons we should have learned. While home ownership is something that is good, we should not forget that we ended up with an unprecedented number of foreclosures because there were so many loan programs out there that put folks into homes they could not afford, with little in the way of an equity stake in the property. Our own federally-subsidized Freddie Mac and Fannie Mae played a role in that over-extension of credit. Once nestled in these homes, the owners, who were already overextended, refinanced repeatedly taking every drop of equity out of their homes simply to pay their bills.
The tax credit, $8,000 for a first-time homeowner, was set to expire Nov. 30. Obama's signature extends it to April 30 and provides a new $6,500 credit to people who have owned and lived in a home for at least five consecutive years of the past eight years and now want to buy another home.
David Caveness, senior vice president of Carpenter Realtors in Indianapolis, said the credit is essentially worth more in Indianapolis because its homes are priced among the lowest of the 60 largest metro areas in the country.
"So, by theory, it should impact us the greatest -- the credit is a bigger part of the purchase price," he said.
Indiana is among a handful of states with an average listing price of less than $200,000. The $8,000 credit covers a larger chunk than it would in pricier markets.
"That would reimburse a good portion of your down payment," said John Holmgren, spokesman for the California Association of Mortgage Brokers.
One of the lessons we should take from this downtown in the real estate industry is that owning a home is not for everyone. I am afraid that, in our zeal to get the real estate market going again, we are dooming ourselves to repeating the current foreclosure crisis down the road.