Home Buying in 78701>Question Details

Ben Graham, Home Buyer in Austin, TX

What is going to happen to home prices when the home buyer tax credit expires?

Asked by Ben Graham, Austin, TX Fri Feb 26, 2010

The Worker, Homeownership, and Business Assistance Act of 2009 has extended the tax credit of up to $8,000 for qualified first-time home buyers purchasing a principal residence. It also authorized a tax credit of up to $6,500 for qualified repeat home buyers. This is set to expire May 1, 2010.

The question is what happens to home prices then? All other things being equal, will demand go up or down?

Help the community by answering this question:


There's no way for the end of the tax credit to NOT impact the market. However, the market is influenced by a number of other factors, including both national and local conditions.

If nothing else changed, and ONLY the tax credit was removed, there would be downturn in demand. But, realistically, the dynamics of the market are always in flux and points mentioned, such as mortgages not being purchased, FHA guideline changes, interest rate changes are all conditions that will impact us.

Those are the national issues, but each local market has conditions which offset or augment the direction and influence of the larger picture. From the reports I read and hear, Austin seems to in a more favorable position than other locations.
0 votes Thank Flag Link Sun Mar 7, 2010
Deborah Madey, Real Estate Pro in Brick, NJ
Dear Ben,
According to the Austin Chamber of Commerce there are still 1000 people a week moving into Austin. That is what is keeping prices solid during a down economy, IMHO. Prices follow the law of supply and demand, plain and simple.


Betina Foreman - Realtor
Keller Williams Realty
Austin Texas
Web Reference: http://BetinaForeman.com
0 votes Thank Flag Link Mon Mar 22, 2010
Sales increase when prices fall right? Increasing sales are a function of lots of buyers and sellers agreeing on the clearing market price. Increasing sales in this market is probably bad for sellers and good for buyers.
0 votes Thank Flag Link Thu Mar 18, 2010
Ben, I wouldn't expect the market to change much. The credits are expiring at the height of the spring selling season. The economy probably plays a bigger role. And interest rates are expected to creep up as the Fed stops buying mortgage backed securities. Today ABOR announced closed sales were up in February vs. last year and vs. January. Pending sales were up even more. The trend is towards increasing sales.
0 votes Thank Flag Link Thu Mar 18, 2010
Jumbo purchase will move in the opposite direction of the unemployment numbers. Conventional purchases will go down as did the car market when the cash for clunkers stimulus came to a halt. Sometime in July or Aug conventionals will start trending back up provided the job markets doing well.

Cheers Ben
0 votes Thank Flag Link Mon Mar 8, 2010
Deborah is right. I'm isolating only the effects of those inputs to prices. I can say this though, current market prices reflect market participants' expectations about FUTURE events. That is, anybody making an offer now is taking into account removal of government support, rising unemployment, socialist federal government, massive debt and deficit...as well as the brilliance of the American entrepreneur to sidestep it all.

So, you should feel free to make offers now, just look for recent comps and tax values. Then make your guess about future events and offer a price. If you are bearish, low ball, if you are bullish, offer the asking price.

I'm personally bearish for anything over 450k. Very bearish.
0 votes Thank Flag Link Sun Mar 7, 2010
When demand goes down, prices fall. The government is a significant portion of demand. Econ 101.
0 votes Thank Flag Link Sat Mar 6, 2010
Not solely linked to the tax credit, we are seeing demand for homes all over Texas on the rise. We have a large corporate base in our state, no state income tax (although our property taxes are quite high), a reasonable cost of living, affordable housing, and we're a great location from which to start over if owners have had to lick their wounds in other states due to short sales or foreclosures, and need to amass a new empire. Just this month, a few of our larger home builders in Texas put through price increases. This is typical for the first quarter of the year. In my personal opinion, the cost of buying a home is going to go up in 2010. I do believe what I've read about interest rates possibly rising sometime in 2nd quarter. I do believe that many builders are in re-build mode on their own bottom-lines, and will negotiate less than they did in 2008/9. I do believe the demand for suburban leasing will continue for another couple of years. Austin and DFW were not immune to the economic downturn, but demand for housing in these areas stayed pretty constant. We just had to jump through a lot more hoops to meet tighter lending rules. I do believe that some of the people who want the first-time home buyer tax credit need to stay in an apartment setting until they can follow lender counseling on paying bills on time and raising their credit scores and credit capacity over time. Not every person who wants to buy has the emotional maturity yet to be a buyer.

One other thing I believe will happen in 2010: I believe that owners will realize that the downturn has changed the way we're going to live for a long time. Many of those owners will move up, or move down, in 2010 and settle back into the life they want. This is America. People will make sacrifices when they need to, in the short term. But, eventually, if their lifestyle is too far above their means, they will make moves to get back the lifestyle they want.

Obviously, I wish we had a crystal ball on the situation, but based on how I saw sellers and buyers in Texas behaving in 2009, I feel very confident with giving my opinion in this public setting. I hope you found it helpful.
0 votes Thank Flag Link Sun Feb 28, 2010
I'm not sure about the prices but I know the interest rates are going to go up when the Government stops buying mortgage backed securities next month.
0 votes Thank Flag Link Sat Feb 27, 2010
with up to 2.5 million foreclosures hitting the market over the next 12 momths my bet is that the tax credit gets extended. Of course the extension won't be announced til July so we have to restart the pipeline and lose July and August.
0 votes Thank Flag Link Fri Feb 26, 2010
Below is a house price prediction site. Austin is one of the rare places expected to go higher.
A strong high-tech job market and first home buyers taking advantage of the government tax credit boosted the Austin market. The state capitol city may be the most stable housing market in the state as a result of its more diversified economy and has only seen a slight drop in housing values. The market is forecast to see slightly higher home prices by the end of 2010, averaging 3.1% appreciation.

Speaking on a more nationwide basis.
Many people have been using the $8k as a down payment (thanks for the "gift" uncle, pay you back when I get the check)
The federal reserve is going to stop buying mortgage backed securities in march. That should increase mortgage interest rates by 1/2 to 2% Some think a lot higher than that.
Unemployment. How is it is your area? The more unemployment the fewer people buying houses.
Foreclosures, are there many expected in your area? There are tons in the process now. When released they could drop prices greatly.
Tighter credit standards. Fewer people are able to get loans. That should lead to lower prices.

(Again nationwide) When free money $8k goes away and interest rates rise i expect to see people drop out of the buying market.

When interest rates rise from 5% to 6% or 7% you lose 11.9% and 23.9% buying power respectively.
What happens to the buyer who could buy a $200k house 2 months ago but now that interest rates are at 7% can only afford a $152k house? Does he buy the $200k house? I think not. Either the buyer decides not to buy as everything just went out of his price range OR prices drop.

Is the price prediction site above correct? Maybe, they say most places will drop in price, just not your area.
Am I correct that prices should drop nationwide? Time will tell. I can only see the factors in play. The final result logically follows my scenario above. Sometimes, things do not go as expected, sometimes they do.
0 votes Thank Flag Link Fri Feb 26, 2010
The real estate market is influnced by many factors. It's probably not the tax credit ending that is going to be as much of a concern as the massive number of "short sales" that are clogging up the process.
0 votes Thank Flag Link Fri Feb 26, 2010
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