3 Reasons Why Congress Should Extend the Home Buyer Tax Credit for Brooklyn

the State of central Brooklyn Real Estate as of April 2010

The Home Buyer Tax Credit is about to expire.

Anyone interested in buying a home must have a signed contract of sale dated on or before April 30th 2010 and close on their purchase by no later than June 30th 2010.

If you have the above in order, then your close to being eligible to receive $8,000 as a First Time Home Buyer or $6,500 if you’ve been a homeowner 5 out of the last 8 years.

While a buyer’s income and other factors will also determine eligibility, those eager to become homeowners are rushing to make offers and contract their purchase before the deadline.

But are there enough people buying in Brooklyn to purchase the excessive number of homes for sale?

Brooklyn, we have a problem

Despite the property sales reported in New York City over the last 12 months, the numbers from trulia reveal something different happening in central Brooklyn.

And it should make policy makers and legislators at every level of government pause for what could become of these neighborhoods, and others like it in New York City, who saw hard won gains in home ownership at the beginning of the new millennium and now face a reversal of fortunes on a scale last witnessed during the Great Depression.

So what do the numbers tell us that’s happening in Brooklyn real estate as of April 2nd 2010?

central Brooklyn neighborhoods

• There are 1,710 homes for sale in central Brooklyn,
• a total of 739 homes have sold year to date,
• and 864 homes are in foreclosure (and counting)
• 50% of all homes available For Sale in central Brooklyn are in Bedford Stuyvesant
• for every 1 Home Sold, there are 2 Homes still on the Market, with Prospect Heights (3.8 to 1) and Clinton Hill (3.3 to 1) experiencing severe inventory glut.

And while Clinton Hill and Prospect Heights have managed to escape being a part of this statistic (for now), the following neighborhoods have seen that for every property sold a new home enters into foreclosure;

• Brownsville 1.813 new foreclosure to 1 home sold
• Bushwick – 1.236 new foreclosure to 1 home sold
• Bedford Stuyvesant – 1.231 new foreclosure to 1 home sold
• Crown Heights – 1.041 new foreclosure to 1 home sold

With the available pool of home buyers shrinking due to layoffs, including those announced by the Bloomberg Administration since 2008, the lack of home purchasing by the City’s municipal work force is a contributing factor to the problem in 2 ways;

• Employed municipal workers are delaying their home shopping and choosing to increase their savings in case their laid off.
• Unemployed municipal workers are choosing to default on their mortgage and save their payments for present and future cash needs.

But even if there were stability in the supply of homes for sale, with more employed buyers that were ready, willing and able to purchase, mortgage lending remains constricted and restrictive.

Banks have become more conservative by tightening their underwriting criteria on 15 year and 30 year conventional mortgage products.

The FHA has followed suit in response to the risks of insuring mortgages for marginal borrowers in a fragile economy by increasing the up front cost of buying a home in Brooklyn and throughout the country.

And since the block grants awarded by HUD to New York City for neighborhood stabilization are woefully inadequate to address this crisis, Congress MUST extend the home buyer tax credit to

1. Stabilize neighborhoods with Homeowners

Bushwick, Bedford Stuyvesant, Crown Heights and Prospect Heights were neighborhoods that had a high percentage of absentee ownership during the 1970′s and 1980′s.

During that period, landlords notoriously neglected small multi family properties (2 to 4 unit buildings).  As a result, poorly managed properties became the locations where criminals engaged in drug distribution.

When drug use became epidemic among neighborhood residents, violent crime soon followed where muggings, armed robberies, car jackings and home invasions terrorized law abiding citizens.

Crime is the most destabilizing factor for a community because it affects commerce, academic achievement, emergency and municipal services delivery, which all culminate into a poor quality of life, lower property values and fewer home owners.

Focus on providing financial incentives to attract home buyers that will occupy their property is the key to fending off a return the bad old days.

2. Create affordable housing for Renters

While New York City has public housing, or Projects (as they’re affectionately known), as part of it’s housing mix, the inventory is inadequate to meet the demand by individuals and lower middle income families.

Tragically, most gainfully employed NYC residents making $40,000 a year or more earn too much to lease an apartment in public housing.

Yet at the other end of the spectrum, apartments found in row house multi family properties (2-4 units) lease at higher rental rates due to the cost of providing services (heat, water and hot water), maintenance (repair and up keep) and monthly mortgage payments with escrow requirements for property tax and hazard insurance.

Central Brooklyn has the largest inventory of row house properties built before 1939 and are the dominate housing stock available for lease to the public.  A typical brownstone lined block in Bedford Stuyvesant could have as many as 60 2 family properties, with at least 60 units to rent.

As home values continue to decline, home buyers will see the largest cost factor of ownership lower as compared to a similar homes purchased in 2006: the monthly Mortgage Payment.

Brownstone properties that sold above $600k from 2004 to 2008 are now selling at or slightly above $450k, representing lower principal and interest payments.

New homeowners could offer their rental units to the public from $125 to $200 less in monthly rental payments than their neighbors can who purchased at the height of the market.

3. Increase tax revenues for NYC and NYS

New York City and New York State are heavily dependent upon revenues that occur from real estate transactions.

And real estate transactions represent more than 20% of budget revenue projections for both.

From the closing table to quarterly payments, both the City and the State levy taxes on every kind of real estate sale and from property taxes collected.

Budget shortfalls experienced since 2008 are due to unemployment, lower property values and Foreclosures (with the later exerting a wrenching toll on city and state governments).

As home shoppers take advantage of incentives to purchase, it would create revenues for both City and State at the point of purchase (through property transfer tax and mortgage tax) that are collected at the closing table, and through ongoing charges (property tax and water/sewer service charges) that are collected quarterly.

While ongoing property tax revenues will not come close to what was collected at the height of the market, an adjustment of priorities will require New York City to “right size” itself to meet it’s obligations to deliver services to it’s residents (hopefully).

Will they do it?

There was talk back in 2009 of increasing the tax credit to $15,000 for first time home buyers.

My hope is that in 2010 they’ll view extending the tax credit AND increasing the benefit as the right kind of deficit spending the economy needs to return to prosperity.

And if they do, it just might keep New York City from a return to the 1970′s.

(trust me, you don’t want that to happen)