Today's KCM Blog Post: "The Cry for Another Tax Credit"
Friends, I believe we are standing atop the second hill of a rollercoaster. I know another dip is coming, though I am not sure when. I think it might be a steep drop, but I am not sure how steep.
The KCM Blog frequently explains why the market has another bottom to reach (shadow inventory, bank-owned properties, interest rate fears, and such). Today, I want to send out my plea to cyberspace for government preventive action rather than reactive action (after the decline resumes).
There are Three Primary Reasons for the government to reinstitute the tax credit:
1. Though the government gives $8000, it doesn’t cost them $8000.
It costs them about $3000. Why? Because the government is going to collect income taxes from all the people who receive income directly from the transaction. On a typical $200,000 purchase, typical revenues approximate to be:
- Real Estate Commission (5%) – $10,000
- Mortgage Company Compensation including fees (3.5%) – $7,000
- Homeowners Insurance Premiums, Appraisal Fees, Credit Reports, Settlement Company Fees, Home Inspections, Termites Reports, Etc. – $3,500
- Non-HUD-1 Expenses (Attorneys, Moving Companies, Etc.) – $2,500
- Say 1 in 6 Buyers spend $12,000 in home improvements, the average is $2,000
Most of these costs wind up contributing to payroll, either at the point of expense (like commissions) or being spent in overhead (like copy machines) who, in turn, hire employees. If 80% of these expenses become payroll, and the average tax rate is 25%, the government is collecting $5,000 in increased tax revenue for each $8,000 expense.
