Home sales to plunge after stimulus credit deadline on 4/30 ?!

jjellisMarch 7, 2010

Home is currently on the market, just heard someone say that they're expecting sales to plunge once the $8000 and $6500 government credits are over. Could I get some opinions on this, does this mean that if I don't get a contract on my house by 4/30 that I won't be able to sell because buyers won't be out there looking as much anymore. What are your opinions on this?

Thanks

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mdfacc

There was a sharp spike in sales in the run-up to the original 11/30/09 tax credit expiration, and then sales dropped sharply. The 11/30/09 credit probably pulled substantial demand forward, and the current credit will probably pull a little more forward. Thus, there is reason to expect a drop in demand after expiration, but it is more than that.

The Federal Reserve is creating money and using it to buy $1.25 trillion of mortgage-backed securities. This action holds down mortgage rates and boosts the broad economy generally, but the program will end 3/31/10. Further, the FHA has grown from 2%-3% of the mortgage market to >= 30% of the market since the crisis started, but the FHA has taken heavy losses and (slightly) tightened its lending standards in response (beginning this year.

These three government props to the market are important and they will be withdrawn or weakened by the middle of the year, but there is another important problem. There are many distressed sales in the pipeline. It is highly likely that there will be even more distressed sales in 2010 than in 2009 (with an increase in the percentage of short sales relative to foreclosures).

For these reasons, I expect sales volume to fall sharply by summer, and prices will follow sales with some lag. Of course, these projections apply to the U.S. as a whole and local markets will vary.

If you are interested in these issues, you might like to follow developments at Calculated Risk, a very useful blog. Also, Housing Wire has useful news coverage every day.

    Bookmark   March 7, 2010 at 12:16PM
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ladybugfruit

Any ideas from the professionals on the forum as to whether you think they will renew the tax credit one more time?

    Bookmark   March 7, 2010 at 3:17PM
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mdfacc

Ladybugfruit, here is an excerpt from the LA Times:

(December 27, 2009:By Lew Sichelman
Reporting from Washington  Home buyers hoping to take advantage of a new or extended tax credit should not procrastinate: This third bite at the apple will be the last.

Proponents of the $8,000 credit for first-time buyers and the $6,500 credit for move-up buyers made it clear during the debate on Capitol Hill that the benefits would not be renewed when they expire. And a lobbyist for the National Assn. of Realtors confirmed that at the group's annual convention last month.

Lawmakers "made us promise practically in blood that we would not come back" for another extension, Linda Goold, the Realtor group's director of tax policy, told her members.

During the debate, Sen. Johnny Isakson (R-Ga.), a former real estate broker and a longtime proponent of the tax credit, promised his colleagues, "This is the last extension."

And Senate Finance Committee Chairman Max Baucus (D-Mont.) said, "It is important that this tax credit does not become a permanent fixture of the tax code.")

The link to the full article is below.

I think support will be withdrawn, the market will deteriorate, and then the government will return with more support, though it may not take the form of a tax credit.

Here is a link that might be useful: LA Times: No more extensions of tax credit for first-time home buyers

    Bookmark   March 7, 2010 at 9:40PM
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ladybugfruit

Thanks mdfacc. Guess that means the pressure is on to get the house sold AND find a house before April 30th!! ( well, be in contract anyways)

    Bookmark   March 8, 2010 at 8:27AM
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