As to the cash for clunker's effect, I'd say it's a very real risk. These cashback and financing deals (Fed mortgage purchases to lower interest rates) are stimulus. By design they simply pull demand forward. "We know you'll be looking to purchase in the x to 4x timeframe. The Gov will cut you a deal to purchase in this x period to get things moving." There is no fundamental shift in the market, it's simply incentive to buy now rather than later. Good for the 'now' at the expense of the 'later'.
Take a look at Google's stats for vehicle shopping interest on the internet to see the forward-demand effect (ignore the forecast... it assumes no contrived anomalies, which obviously isn't the case)
In my own real-world experience, in the last nine months I know seven households in my area that purchased their first home. That includes four that had been waiting and price drops/financing finally got them into the market, two couples that likely should have waited until they had a bit more job stability or cash buffer, and one couple that -- honestly -- were fiscal idiots for assuming that sort of debt given their circumstances (however, I nodded and congratulated all of them). I also know two households that walked away for their mortgage in that timeframe, and one more considering/planning it.
The interesting thing I've noticed is, aside from one couple who could arguably make a purchase (wife a recently laid-off teacher, but will likely find work somewhere), I now have exactly ZERO friends in my area who I'd consider viable buyers. Seriously, there are none left. No one I know with a stable household income of, say, $75K+ is currently renting except for the two walk-aways. A year ago a common discussion at dinners and parties was timeframe to buy. That's no longer the case -- they all have bought since then.
Now obviously my network of friends is a tiny fraction of Sonoma county, but from what I can see it's clear this market is burning through the first-time buyer inventory rapidly. The only way to replenish that first-time buyer pool is the addition of well-paying jobs. The inverse is occurring.
A final issue to consider here is this: it is not the REO listing agent who decides which offer to accept: itâ€™s the asset managers who are making the decisions.
Traditional Realtors are not seeing many REO sales for one simple fact: there are currently not a lot of REOs on the market. Itâ€™s not that they donâ€™t exist â€“ quite the opposite is true (Google â€œshadow inventoryâ€). However, banks have learned how to meter out their inventory so that they are now in control of the market. Here are a few posts that may help to clarify this:
Mad Dash To The Finish Line: $8,000 Tax Credit Soon To Be Gone
Bank Tactics Causing Repeat Of Crash Conditions in San Francisco Bay Area
Top 10 Things I HATE About REOs: AND 3 Startling Consequences
Artificially Low List Prices Are Wreaking Market Havoc: 6 MAJOR Emerging Problems
MARKET ALERT: Starter Home Prices Rising Out Of Reach?
Lastly, I donâ€™t believe we are going to see a surge of foreclosures to the market any time soon. A quick look at this past bear supports my beliefs. The national foreclosure moratorium was lifted on April 1, 2009. Many, myself included, thought banks would be flooding the market with their pent up foreclosure inventory. Unfortunately, that flood has so far only been a trickle. A very slow trickle, in fact. In the meantime, available inventory has been running out, placing remaining homes at a premium. I believe the exact same pattern will continue through the fall. Banks have learned it is in their best interest to regulate the flow of REOs to the market. If they flood the market now, they will lose their hard-fought gains made over the last few months.
As for the scarcity of buyers after the tax credit, I again do not believe this will be the case. There are simply too many buyers out there right now due to low prices and low interest rates. I personally know many buyers who are in the market but not counting on securing the tax credit. They realize itâ€™s silly to spend an additional $30-40,000 to gain a credit of $8,000.00. They are patiently looking for a home that meets their criteria and will wait into next year if necessary. I DO believe we are going to see a very minor market correction early in the New Year, followed by sustained low inventory and slowly increasing prices.