Home buyer credit: effective or not?
Since the federal home buyer tax credit was extended and expanded in November, has it (a) been the major driver of the market or (b) had precious little effect?
You'd think experts could agree on this one, but I keep hearing both answers.
The Federal Reserve's March 3 Beige Book, for instance, says most parts of the country "attributed stronger home sales to the home-buyer tax credit, with several contacts apprehensive about future sales once the credit expires on April 30." And many of the Baltimore-area real estate agents I've talked to say lots of their buyers are first-timers eligible for the $8,000 credit.
But a Citigroup analyst following Pulte Homes says the extended credit hasn't done much for the builder's sales, the Associated Press reports. And mortgage giant Fannie Mae says the extension has been more bust than boom because many first-time buyers bought last year, though it does expect a flurry of last-minute purchases.
The Wall Street Journal, reporting on Fannie Mae's credit musings, says the financier considers the $6,500 credit for repeat home buyers a definite flop -- it's not a big enough incentive, "given that current homeowners generally must incur commission costs to sell their current homes, a cost not incurred by first-time home buyers."
I've sure answered a lot of questions from people hoping to qualify for the $6,500 repeat-buyer credit, but I don't recall anyone saying the money was the push they needed to buy. Anyone? Bueller?
Either way, I'm curious what you think of the overall tax-credit program. Is it having an effect?
Categories: First-time buyer tax credit, Repeat buyer tax credit
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Comments
The tax credit is like a sugar rush; once it expires, we crash back to the real state of the housing market: horrible.
I hope the people buying homes will be able to sustain their purchases, as we have learned, merely "qualifying" is not good enough. The tax credit should require buyers to complete a pre-purchase housing counseling program, much like the recently announced City $5000 program.
Robert J. Strupp
Community Law Center
roberts@communitylaw.org
www.communitylaw.org
Posted by: robertjstrupp | March 21, 2010 9:54 AM
I recently sold my home in PA and my buyer got the credit. The buyer of their house also got the credit. I know it was a factor in both of their decisions to purchase now. I don't qualify so I'm purposely waiting to buy in MD until the credit ends hoping the prices continue to drop and there will be less competition for sub-$250K homes. For what it's worth, my Realtor told me the tax credit is one of the primary reasons she is still in business.
Posted by: BA | March 21, 2010 9:25 PM
I'm looking for a home in the Columbia area right now and the competition is fierce. Houses that have come onto the market go under contract in a matter of days. The deadline for the tax credit is coming and everyone is scrambling for it.
Posted by: Matt | March 22, 2010 9:53 AM
The combination of the tax credit AND low interest rates are the only motivators for first time home buyers. Let's face reality, if the tax credit were not available, many would be first time home buyers would still be renting and trying to save their money to buy a home. The repeat buyer tax credit is not as much a factor due to the fact they still have to sell their home. It is more of a timing thing for them. I think they would rather get a higher price on their home with no credit then drop their price for the credit. Also, you have to keep in mind it is the number of sales that have increased, not price. There is still a year over year decline in prices which has been somewhat stabilized due to the influx of first time home buyers, who by the way, are mainly purchasing homes under 250k.
Once the tax credit expires, this influx will diminish and the demand for housing will decrease. The only way to bring buyers back to the market when it expires will be with lower prices. Also, factor in the subsidized interest rates which are due to expire the end of this month. That also will have a negative impact on home sales. The combination of both expiring almost at the same time could prove to be extremely detrimental to the housing market.
Another factor that will harm the market is the new HAFA Program, which supports short sales and deed in lieu of foreclosure. Instead of going through the foreclosure process that could take a year or longer and control the supply of housing on the market, these homes will be released earlier in the process. We could very well see that shadow inventory come to fruition in the spring and summer months as lenders try to unload their inventory during the peak buying season. Sure, sales may still increase, but prices will decline. As more supply hits the market, buyers will be able to pick and choose which properties to purchase. The homes that will be sold will be those that have the greatest discount. Sellers will have to drop their price in order to compete for the sale when demand for housing shrinks.
Posted by: Frank Rizzo | March 22, 2010 9:59 AM
The repeat buyer credit motivated me into buying and probably others who also like me are divorced and have been renting after owning a house for 20 yrs. Without the credit I would not have been able to purchase my new home. I had to sell my house in 2008 due to my divorce. So I qualified for the $6500.00 tax credit and yes it was a big help. So the repeat buyer credit might help more of the folks who are divorced and no longer owning a home and do not have the realtor cost to spend if selling the home. I did not qualify for the $8K as it has not been 3 yrs since I last own a house only been 2 yrs so I qualified for the repeat credit. The catch to getting the credit is having 5 yrs of 1098 statements which meant I had to go back to 2003 - 2008 since I sold my old home in 08 as you need the last 5 yrs worth from time of buying new home and living in previous home 8 yrs or longer.
Either way it is what made me financially able to purchase my new home.
Posted by: Sharon | March 22, 2010 1:31 PM