What message are you sending home buyers when you ask the government to prop-up the housing industry with a tax credit? Are you telling them that real estate is a bad investment?
I’ve seen several tweets today saying something like “Existing home sales rebound to highest level in 2 years”, and I wonder why the data is a big deal. The news shouldn’t be shocking to anyone, I’d argue that an increase in home sales was a guarantee, and that we’ll see the same thing for October next month. The news does scare me though. How low are sales going to dip when the tax credit ends? How much confidence in housing will be lost when reports in December say sales dropped and prices continue to decline? These things will only highlight weaknesses in housing.
The tax credit for first-time home buyers is set to expire soon, and buyers don’t want to miss out, so they buy – it’s that simple. Some buyers bought prematurely; others got an incentive for doing what they would have done anyway. If I was thinking about buying in the next year or so, I’d probably jump-in now to take advantage of the credit, wouldn’t you?
Outside of falling prices (yes, there are markets that are doing great), buying conditions for a new home are incredible; if your market is stable, foreclosures in your area are low and you’re ready to buy, it truly is a great time to buy a home.
There’s talk about renewing the credit, please don’t do it…
The $8,000 tax credit ends December 1st 2009, I say let it die. In my opinion, the tax credit is short-term, and it does little, if anything to establish long-term health in housing.
Did You Know: Our government spends nearly $400* billion every year on interest payments – enough is enough.
Cash for clunkers killed sales in the auto industry after it ended, and sales will probably stay down for some time because workers are still losing jobs, confidence is still low and future buyers already bought. Will home sales drastically dip when the tax credit ends? Regardless of whether it ends next month, or next year, it will end and it will cost billions.
Incentives won’t create lasting demand, not to mention that demand isn’t the real problem…
We’re attacking the housing problem as if increasing demand by a tad is going to solve anything. We need to slow down foreclosures and short sales, and stabilize prices – this will increase demand. Buying a home is an investment, who’s going to invest in a home if prices aren’t stable? Could you imagine your financial analyst recommending that you make a long-term investment in something that is losing value, over supplied and is getting temporary help from the government?
Did you know: (depending on the report) About $1.4 million home buyers took advantage of the tax credit, but only 350,000 of those buyers reported that the tax credit made the deal happen; in August 2009, Realty Trac reported that “foreclosure filings — default notices, scheduled auctions and bank repossessions — were reported on 358,471 U.S. properties” – so the incentive that lasted several months created enough demand to match 1-month of foreclosures, default notices, scheduled auctions and bank repossessions.
It’s obvious that the main problem is supply, foreclosures are killing the industry and making homes a terrible investment, we won’t have a healthy market if home’s don’t become a good investment, it is that simple. People will buy a home if they can afford it and if they think it will retain and grow in value. As an industry, and as a nation, we should focus our attention on stabilizing home prices and decreasing foreclosures, tax credits aimed at increasing demand are a waste of money. It’s silly to support initiatives that cost billions and do little to make a real difference.
When was demand for housing the highest, yep, when people thought they were making a good investment and when supply was low. Quit thinking about making it to next month and start thinking about rebuilding a real estate market that can survive without government intervention.
A List of Pros and Cons
If you read my post earlier in the month with reasons why the $8,000 tax credit should end, you’d know that I’m not a fan of the program; I’m not a fan of any government spending, we’re broke. It’s not because the tax credit won’t be good for me, I know several people that depend on the new housing industry, if new homes get sold, we all stay employed. For me, the tax credit is a bad thing because it costs the government money, money we DO NOT have, it sets the industry up for a hiccup when it ends and it focuses on demand, when it’s extremely obvious that-that’s not the problem. Did I mention it hinders recovery?
There are good things that the tax credit does and there are bad things that it does. I’m going to create a pros and cons list to see if I can change my mind about wanting the extension to fail. Let me know if any pros and cons are missing.
Pros of extending the tax credit
1. Increases home sales
2. Sweetens the “pot” for home buyers
3. Decreases the Supply of new homes
4. Keeps some construction and industry related jobs
Cons of extending the tax credit
1. Adds more debt to our already outrageous deficeit
2. Creates artificial demand
3. Sets us up for less sales when the tax credit ends
4. Gives an opportunity for some to commit fraud
5. Could be unfair to some home buyers
6. Gives a credit to buyers that would buy anyway
7. No free market
8. Creates a false sense of recovery
9. It attacks demand, supply is the main issue
Vote no on a home buyer tax credit extension
Sources:
*Federal Budget Spending and National Debt
Just let the homebuyer tax credit die
Foreclosure activity remains near record level in August
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Love it or hate it, the tax credit is a source of heated discussion. The real estate industry did well for decades before the tax credit and it will do fine without it.
.-= Augusta New Homes´s last blog ..All Brick 4 BR 2 BA In Columbia County =-.
Not sure that I agree on the tax credit because I see it as more of a good thing. Housing sales spur the economy in many more ways than just generating a mortgage and a home sale as there are many other costs incurred when people move into new homes. Furniture sales for example. I saw one report that cited as much as $60k in additional money into the economy with each home purchase. Now personally that number seems high to me, but I think one needs to think big picture on this issue and I feel the long term benefits far outweigh the negatives. But of course I could be wrong, that is just my opinion.
It was a good thing when it come, it create hope for people, it brake – slow down the foreclosure a little and I agree what Denver Homes said – every sales, create also many more job and good tax money back to the Government. But it must stop the 1 December, the market don’t need it any more.
I have to disagree. Granted, incentives are short lived. BUT we need some growth in the short term right away. Inventory needs to be trimmed down, not allowed to balloon up again. If it takes a government handout to get people off of the fence to buy, then so be it. I think the credit motivated a lot of people to buy…our post about it has generated quite a few comments about it.
.-= Chas@Las Vegas Real Estate´s last blog ..Time Running Out for the First Time Home Buyer Tax Credit =-.
@Augusta New Homes – it certainly is a heated discussion, and for good reason. I think we’d do fine without it.
@Denver Homes – You’re right about home sales spurring the economy in other ways; I think I saw the same report that mentioned $63k was generated from each home sold. I think the amount includes everything that a home generates – taxes, income for workers, product sales etc. I certainly think home sales are a great idea, but it’s not the government’s job to give out tax credits, they already back loans and facilitate an incredible interest rate.
@Sundream Estate – It has been good for the market – thanks for chiming in
@Chas – I can agree that inventory needs to be trimmed and that it needs to stay down, but I don’t think the government needs to keep handing out money for buying things. If people aren’t going to buy, then they’re not going to buy. I think a portion of this mess was caused because we tried getting more people to buy a home.
I saw your post awhile ago; it did generate a lot of comments – http://www.lvrealty.net/news/first-time-home-buyer-tax-credit -
I think we are going to see drastic drop in sales once this expires or even if it does get extended. This credit has prematurely pushed a lot of buyers into the market who would have waited until next year to buy. I predict a big drop in sales after November.
@Mike – I definitely agree. The only way we won’t see a drastic drop is if they do a short-term extension. Either way, there’s going to be a drop sometime and that’ll just send a wave of bad news.
My biggest fear is that they’ll continue with the tax credit, then when it’s set to expire next year, they’ll raise interest rates around the same time. That would devastate the market. If they end the credit now, we still have low interest rates
@Jayson – I don’t see the Feds raising interest rates anytime soon and they have made that clear many times. You definitely won’t see increased interest rates until the jobs return.
I think the credit should be extended (only for the short term) and even opened up to “move-up” buyers. No jobs are creating the foreclosures, but at least the tax credit is helping people buy them up instead of sitting on the market dragging down values even more. I know in my market, foreclosures account for more than 50% of the sales!
@Matt – I hope they don’t raise interest rates, but you can’t trust anything those folks say. There are more than a few reasons why they’d have to raise interest rates without “wanting” to.
I understand why you’d want the credit extended, I would too if we weren’t flat broke. Bottom line is that we can’t afford bubble gum let alone a billion dollar/month program.
They need to be addressing those foreclosures if anything. The problem is much more supply side than demand side.
thanks for stopping by
Well, I personally think this is a great idea. Yeah, one could say that it is adding to the deficit. But I think it might help it. The government may be 8 grand out initially, but many people buy so many things after purchasing a house to outfit it that it will reduce that amount greatly as well as stimulating the economy in other ways. This will increase spending in other areas, and eventually lead to more tax money for the government.
I don’t think $8k credit is a bad idea that much. You will see success as long as you are transparent with your clients.
I don’t know how I feel about the tax credit in general, but what I do know is without it we will see both a substantial fall in sales from where we are today, continued price declines in most markets, and a return to price declines in a handful of others. I mean lets be honest the tax credit did not only spur sales to first time home buyers it also helped move up buyers make their change.
Having the credit will assure that we see a large number of buyers purchase early which will lengthen the time before we see a real recovery. Trouble is if we don’t sell new homes we will see a huge number of new layoffs. What a sticky situation heading forward. At this point with as high of unemployment as we have I would say we are damned if we do and damned if we don’t. That could be the perfect reason not to do anything by not extending the credit.
.-= James Wheelock@Houston Neighborhoods´s last blog ..Montrose Neighborhood Introduction =-.
@James – the tax credit did help sell some homes, but I’m not sure if it was substantial. I can’t imagine anyone saying “oh, let’s buy a home so that we can get $8,000″, at it’s best, it may make people buy earlier.
I think foreclosures will drive home prices down even if there’s a tax credit. It certainly is a damned if we do and damned if we don’t situation.
I just can’t stomach getting our kids into more debt, we’re fiscally irresponsible and we need to wise up. Just my opinion though; thanks for chiming in.