The Utah Legislature recently passed the Home Run grant, administered by Utah Housing Corporation. In short the grant provides $6,000 if you purchase new construction (single family) in the state of Utah. Why are we encouraging them to buy new homes? Well, its because we have hundreds of homes sitting empty from unsustainable building (encouraged by irresponsible financing and real estate speculation). Some are calling the grant the "Clark Ivory Bailout Bill". Lets talk about the good, and the bad.
THE GOOD
Right now we have hundreds of empty new homes. Empty houses are a target for vandalism and theft. The more empty homes there are the greater the risk. Moving them is good.
Contractors are struggling. They have huge loans on these subdivisions that they cannot pay on....because the borrowed planning on selling homes to pay along the way (fairly standard procedure). This could keep some of them from going under and save jobs.
The grant is for anyone buying a new home, not just a first time home buyer. Those who may be ready to move up could do so, and their cheaper affordable homes would become available to families who should be buying those rather than newer more expensive homes.
The grant requires a fixed interest rate 30 year loan.
Income guidelines are pretty loose.....$75k for single, $150k for a couple.
THE BAD
As noted above, some see this as a bailout for builders who overextended themselves. Are we really helping homeowners or are we encouraging them to purchase overpriced homes?
This hurts homeowners who are trying to sell. A family whose home is being foreclosed upon will have an even harder time selling their home, since the an incentive to buy new is essentially a disincentive to buy existing used homes. This is really poor judgment on the part of the legislature, as it increases the risk of foreclosures in Utah.
Why buy new when there are so many more affordable homes out there? My fear is we are once again encouraging potential buyers to look at homes that are out of their price range. Contractors are not the only ones who stand to benefit here. Lenders and realtors are paid commission based on the sales price. If they can get consumers to buy newer more expensive homes, who are we really helping? Is this an incentive for homebuyers or a subsidy for builders, realtors and lenders?
No education requirement for new home buyers. Of course not. That would make sense.
My overall Impression: Not good. The bill seems designed to help lenders, builders, and realtors. It encourages the purchase of newer homes (most of which are more expensive than existing market options) while hurting families that are already struggling. It does NOTHING to address the issue of households in foreclosure and will probably exacerbate the problem. How many families could we have helped with this money? 1,600 grants for new homes...... The amount of help it will provide, cash incentive to borrowers, commission to realtors/lender, bailing out builders, compare to the costs; higher risk of unaffordable loans, money "lost" in higher commissions on higher home sales, and the collateral damage caused by a disincentive to buy existing homes that are in trouble. I touched on the real costs of foreclosure in a prior post, we are talking tens of thousands of dollards (minimum) for each foreclosure, and over a hundred thousand dollars when you consider the collateral damage to credit, surrounding homes, crime etc. Now imagine 1,600 of those homes foreclosing because some one purchased a new home instead. Who is the Utah legislature looking out for, their constituents or an aggressive lobby by real estate professionals? I think the answer is clear.
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I agree with your overall assessment. Builders here in Logan have gone crazy, especially those in the high end market. I could not believe it when I saw home after home go up just east of our development. We have 3 homes in our neighborhood that have been on the market nearly a year now. There obviously is little need for $400,000 homes.
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