Market Conditions in 19460>Question Details

Frank  A, Other/Just Looking in Phoenixville, PA

So the 8k first time homebuyer credit is meant to keep the market moving and help stimulate the economy.

Asked by Frank A, Phoenixville, PA Fri May 1, 2009

But is it possible that it might create an adverse affect when it expires and houses are still on the market? Wouldn't that cause housing prices to drop further?

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Answers

34
Frank - The answer to your question is... YES.

Don - Interesting analogy. But let's imagine walking in the shoes of the 40 Million Americans who are living on foodstamps? or the many Americans facing homelessness as a result of foreclosure?

Bottom line: NO Jobs...NO Shoes
If you can't afford to put food on the table, you are not running out to buy shoes.
Oversupply of shoes...limited demand...the shoe salesman has to keep lowering his price or offering incentives to keep food on his table and shoes on his own feet.

The expiration of the federal homebuyer tax credit, the lack of job growth (jobless rate hovered near a 26-year high) and the tsunami of foreclosures still to come ...pose a bit of a damper on the housing industry recovery.

Mortgage rates will inevitably rise. When rates rise, housing prices will fall further.
Hold tight!
2 votes Thank Flag Link Wed Jun 16, 2010
Short-term positive effect and long-term adverse effect. It moved the first time homebuyers in that short time span, but created less overall movement the past few years-resulting in less overall movement and reduced value on homes.

-Mike
1 vote Thank Flag Link Tue Mar 6, 2012
defenitely! Buyers get excited about the $8,000 credit, but as soon as it expires, the general mentality is that i missed my opportunity, so let me wait for another incentive to pop up. It defenitely gave my business a huge jolt of energy the first time around, but as soon as it expired everything readjusted and if anything, got worse.
1 vote Thank Flag Link Mon Jun 27, 2011
Yes.

The first time home buyer credit had a short term positive effect, but the market will readjust. And that likely will mean slower sales in the coming months than if there'd been no credit.

Here's an analogy:
~~~~~~~~~~~~~~~~~~~~~
Consider a shoe store. Most people need shoes. But most people also have a limit on the number of shoes they need and want. They're not shoe collectors. The national average seems to be that people buy about 5 pairs a year. They do own more, but their inventory stays fairly stable. As one pair wears out, they buy another.

So one day a local shoe store starts giving out $8 rebates for every pair sold. And that really spurs demand. Parents buy another pair for their kids. Men and women buy another pair or two. But the program has a finite length. All shoes must be purchased by June 30. So sales of shoes go up.

But after June 30, what happens? People only walk so far a day. They only need a finite number of shoes. And they have other things to spend their money on--food, health care, and so on. So now they've bought all the shoes they need. And they take a break. True, in a few months or more they'll need more shoes. But not now. And even though buying conditions may be good--an ample number of shoes available, affordable credit card rates for anyone who wants to put the purchase on their credit cards--nearly everyone who needed shoes bought them.

Certainly some folks who just moved into town and had never bought shoes in that town are first-time shoe buyers. But now they've stocked up. And although the rebates first were designed for those new shoe buyers, those rebates were extended to people who already owned shoes for awhile. So those folks also bought shoes and now they're in good shape, too.

So, what's going to happen?

Shoe sales will drop. The demand has been satisfied. When the shoes start wearing out, some people will get them repaired. Others will buy new shoes. But, for the moment, they've bought all the shoes they want.

On top of that, now when someone goes into a shoe store and remembers that they saved $8 on a pair of shoes with the rebate, they'll expect shoe prices to cost less than they had pre-rebate. They'll say to the shoe salesman: "Last month, my neighbor bought these pair of shoes for $100 and got $8 back. Now I see the shoes for sale here at $100. I'd like to get $8 back, too. Or at least something. If you want to sell me these pairs of shoes, you'll have to do better than $100."
~~~~~~~~~~~~~~~~~~~~~
See how it works?

Hope that helps.
1 vote Thank Flag Link Tue Jun 15, 2010
Don Tepper, Real Estate Pro in Fairfax, VA
MVP'08
Contact
I believe in my area, the Mid-Town Direct train line in NJ, the buyer credit has had an adverse effect. All economies are supply and demand. When the government starts "fixing" the game the results and the true market conditions cannot be honestly evaluated. I think the tax credit got some buyer's into the game sooner than they otherwise would have and moved the market last year, particularly the entry level homes. Now that buyer pool is completely exhausted the inventory is quickly outpacing the sales. We are DEFINITELY seeing a drop in prices as a result. As usual, the government's "unintended consquences" have a real price to be paid by everyday American's.
1 vote Thank Flag Link Thu May 27, 2010
Frank,
This was a great question and one often discussed around my office. I would venture to say that yes, this can be adverse. There are a lot of Realtors who were using this credit to their advantage to get others to buy and possibly at their max loan amount. Which as you are smart enough to figure out can cause even more ripples in the already shaky waters.
This is where choosing your Realtor can be THE most important thing. I always advise my clients (especially my first-time homebuyers) to buy within their budgets as well as use utilize any money they receive wisely.
Since I am answering this post after it has indeed ended, I can tell you yes, it has slowed the market a bit in my area according to collegues. There was quite a push for soo long that the buyers have almost dropped off and we are left with sellers, which can cause what you said, a drop in home prices.
It was a great incentive, but only if used wisely!
I have never seen such an offer in all of my 16 years of selling Real Estate in South Dakota. And yes, there can be good with the bad!
Wayne Schnabel
Remax Realtor
1 vote Thank Flag Link Mon May 24, 2010
Not at all.It will stimulate the market.If anything it will cause prices to go up.
0 votes Thank Flag Link Thu Mar 8, 2012
long term not good -short good
0 votes Thank Flag Link Wed Mar 7, 2012
The $8,000 incentive did stimulate the market for a time. You can be sure that type of incentive will not be repeated. Too much fraud.
0 votes Thank Flag Link Mon Jan 2, 2012
My take is the tax credit just took the buying that was going to take place six months to two years out and brought them forward. There might have been some net gain. Some folks, who might otherwise still be sitting on the sidelines, might have bought.

If the government was going to offer an incentive to prime the pump, that didn't happen. If it was going to offer the incentive to help the industry navigate a difficult time, that might have happened.

The money would have been better spent as training. Jobs have gone missing for a few years. Don't expect a big surge in real estate activity because consumers are spending more and there is less unemployment. It will take some time for confidence to return. It will take some time for some people to recover.

An aside: Just yesterday someone posted a question in Denver on how to manage her financial breakup with her boyfriend that she combined resources with to take advantage of the tax credit.

I have maintained all along that buying would have to offset the foreclosures. Foreclosures have depressed the market and threaten to sink home prices even further. The needed confidence that would restore investing and purchasing to higher levels is still missing two years after the recession officially ended.

More attention should have been given to preventing foreclosures. The programs that were put in place were failures.

Unless there is a sudden upsurge in hiring, the market will remained depressed.
0 votes Thank Flag Link Wed Dec 28, 2011
The first time home buyer credit has indeed stimulated some excitement in the real estate sector. However, once the stimulus is gone, the market will undoubtedly be left weaker and the homes left will experience another decline in value.
Interestingly, the stimulus for the car industry had a different effect. Once the cash for clunkers cars were bought(by the government) , the industry seemed to recover. However, used car prices peaked because so many cars were taken off the road. Decease supply, increase price.
0 votes Thank Flag Link Mon Jun 27, 2011
Frankly, the best strategy for reviving the housing market would be to allow the market to adjust. No government baliout, no special mortgages, no 80/20 wraps as was the vogue years ago. Require the home owner to have 'skin in the game'. Only when people are confident that the value in which they are acquiring provides stability for resale will they buy houses.
0 votes Thank Flag Link Sun Jun 26, 2011
The bottom line is there are way to many foreclosures. This because of all the greedy lenders out there that was giving loans to anyone that was breathing. I didn't matter to them if the buyers could afford it or not. With the insurance that is obtained with the mortgage, the bank still wins when they foreclose.

Now there are so many forclosurses being sold at 50% of FMV, it's making it hard for home owners trying to sell at FULL PRICE. Therefore bringing property values of the WHOLE area down.

The next time you see Rich Bankers out there, thank them for bringing the economy down to what is is today. Just think, it's not over yet!!! It has just begun. It's going to be a downward spiral for at least another 10 yrs. Don't beleive me, pick up the Newspaper and watch the News!!
0 votes Thank Flag Link Sun Jun 26, 2011
Absolutely, it already has. The Houston market which has always maintained some stability throughout the housing crisis is really feeling the hangover of the tax credit this summer. Sales are down dramatically.
0 votes Thank Flag Link Fri Jun 24, 2011
Put that with the many first time buyer programs offered locally and are on going, no Frank it did stimulate and cause the scare buyers to make a move and it did start the motion of the market to move in a positive direction and it still moves in a positive motion today and is picking up steam, well here in Florida anyway!
0 votes Thank Flag Link Tue Jun 21, 2011
The 8k homebuyer credit did indeed pushed some of the first time home buyers to act on buying a house, some that may have otherwise not made that decision. According to the Arizona Daily Sun housing prices in my area have gone up already. Median home prices have jumped from 270k to 302K. Without the home buyer tax credit this once again puts some first time buyers out of the market to buy a home. So currently I would have to say that the expiration of the tax credit has not lowered prices. This flucuating market is just that and I don't really think anyone know whats going to happen in 6 months. We have not seen the drops in Northern Arizona that have been experienced in the Phoenix area. So will it create an adverse affect- I believe it depends on your area of the country, population, job growth or lack of in some areas.
This is most certainly a great question but, I would be fooling you if I thought I could possibly know the answer in this crazy market.

Sincerely,
Andy Grannan
Flagstaff Real Estate Professional
"Results through Performance"
928.699.1931
Russ Lyon Sotheby's International
0 votes Thank Flag Link Mon Jun 14, 2010
Currently in Orange County CA we are seeing a positive effect from the stimulus or tax credit. It has been gone for a while and the market is continuing to move very well. In fact, our market is on the increase.
Web Reference: http://www.markandtim.com
0 votes Thank Flag Link Sun Jun 13, 2010
What a great question! I don't believe that this is going to have an adverse affect. Everyone needs a place to live and there is nothing better than owning your own home. I think that the tax credit did exactly what they intended it to do which was get people buying homes again. Many people were too nervous to buy homes but this gave them the incentive to buy and now people can see that it is going to be ok!
0 votes Thank Flag Link Fri Jun 11, 2010
Here we go again: ". . . investors manipulating the rules to their advantage." FYI, repeat buyers/sellers make up roughly 40% of the sales nationwide, and many of those repeat buyers/sellers are investors. Investors weren't the only buyers/sellers who learned to work--not game--the system. Why is it "wrong" for investors to play by the rules and to work the system, and not "wrong" for everyone else to do the same thing?

Those incentives helped to front-load--rather than stimulate--sales, because the market correction wasn't finished (as the current data has confirmed). The rise in commercial foreclosures, the unemployment figures, and the amount of properties in the shadow inventory are strong indicators that the market still has more room for correction.

I agree with Sheila's statement, "I have mixed emotions about incentives perhaps prolonging a recovery instead of letting the natural cycles of the market resolve itself." Moving forward the general public and our politicians need to realize that constantly manipulating policy to every whim won't stimulate demand. Good prices/terms, good jobs with fair wages, and sensible policy help to stimulate real demand that's sustainable.
0 votes Thank Flag Link Wed Jun 9, 2010
I remember back in 1988, we had interest rates at 12 percent and a massive number of foreclosures. HUD was buying down the interest rate to 8 percent and offering first home buyers a $500 down incentive. Without those incentives, I wonder how long it would have taken our market to recover. A lot of homes were sold over the last few months and that can only be seen as a positive influence on our market. However, I have mixed emotions about incentives perhaps prolonging a recovery instead of letting the natural cycles of the market resolve itself.
0 votes Thank Flag Link Wed Jun 9, 2010
Yes. Many of the "first time buyers" may indeed have been first time buyers, but many more were investors manipulating the rules to their advantage. The IRS is auditing every one in five returns from those claiming the credit. Many of the "contracts" are phony, and the result will further erode the market.

http://www.thesunnews.com/2010/04/16/1423877/home-buyer-cred…

The government's "Cash for Clunkers" for real estate will create many unexpected consequences, including a further erosion to the real estate market, especially in areas suffering from high unemployment.
0 votes Thank Flag Link Mon Jun 7, 2010
Apparently at least one person thinks it is happening now.
Tax Credit "Hangover Effect" Already Upon us in Palm Beach Gardens
http://www.trulia.com/blog/tompriester/2010/06/tax_credit_ha…

We are certainly expecting a “hangover effect” from the tax credit ending however did not expect to see it impact us so quickly as buyer’s still have until the end of this month to close and qualify if the contract was signed prior to the end of April.
0 votes Thank Flag Link Sun Jun 6, 2010
Hi Frank -
Your question makes sense. However, the low interest rates available now are still a great incentive to buy a home and start building equity even if the tax credit is no longer available.
0 votes Thank Flag Link Sun Jun 6, 2010
Hi Frank, I can speak for the composition of my own business - last year, fueled by the tax credit incentive, I followed the market lead and the composition of my business was largely first time buyers, with my average transaction size reflecting that shift. So while I achieved a similar level of success from the prior year, the transaction count was up and the per transaction $ size down. With the April 30 under contract deadline the first time buyer component of my business fell dramatically, those that had not made the deadline no longer feel the urgency, and while I do believe they will buy in time, I think they will now take their time to do so.

Interestingly, I am seeing a pick up in higher price points in my own business and in our market in general. To some degree this relates to the movement in the first time buyer group, allowing market to continue to move at higher levels - it is after all, all related. As entry level buyers buy, the owners of those homes are in the position to do the same, and so it goes.

There is no question but that the tax credit motivated first time buyers to act. Now NJ and other states are considering similar incentives and brokerages are promoting the idea of encouraging sellers to pick up where the government left off by offering closing cost incentives.

Time will tell the overall effect - I think that the sooner the market is allowed to operate without external intervention, the sooner we will complete the correction and begin recovery.

Best,
Jeanne Feenick
Unwavering Commitment to Service
Web Reference: http://www.feenick.com
0 votes Thank Flag Link Sat Jun 5, 2010
The intial results indicated that the market increased in April when compared to last year. However, the first part of the homebuyer credit was an accepted offer by 4/30/10 which all the numbers are showing a increase in the market in general. But the real effect of the program will be with what closes by the 6/30/10 dead line.

When I reviewed markets in my area I saw that the typical first time buyer markets increased 30+% in april but other markets showed flat to declining sales. It is all going to be a function of the number of months of inventory, compared to the sales activity the rest of the year. Another issue is how the banks deal with all the loans in the modification (hamp program). If the banks start denying mods the listing numbers could increase dramatically.

The issue will be jobs and inventory level. Only time will tell.

Keith Manson
First Weber Group
Certified Distressed Property Expert
Metro milwaukee


http://www.milwaukeebailout.com
0 votes Thank Flag Link Sun May 30, 2010
It might. We will find out soon enough. Usually official statistics take a month to come out. Pay special attention to May statistics that will be out in June. The news is always a month behind.
0 votes Thank Flag Link Sat May 29, 2010
With Interest Rates lower than they have ever been now, the savings on a new home purchase will add up to more than the 8k Tax Credit could ever offer. Buyers need to be taking advantage of these low low rates NOW !!
0 votes Thank Flag Link Wed May 26, 2010
Hi Frank,

It's always possible but, no.

In the short term some 1st time homebuyers might have jump off the fence and went ahead and bought just because of the $8,000. I think that most the sells that are happening now are because buyers are seeing great buys (low prices and great intrest rates).The inventroy of homes seems to be falling (one reason for this is the new home builder are not building homes like they were a few years back). Short term maybe, long term, NO
0 votes Thank Flag Link Sun May 23, 2010
Now that the Federal tax credit is expired, I cannot help but notice that my business has actualy increased. I work in the San Francisco Bay Area and our inventory is pretty low right now, so some buyers are feeling a little desperate again. I know that's not what "they" thought would happen, but it has in San Francisco. The tax credit wasn't that appealing here because so many people's earnings exceeded the limits.
0 votes Thank Flag Link Sat May 22, 2010
Similar to the Cash for Clunkers program, the tax credit may have gotten some buyers into the market earlier than they would ordinarily have done. So yes, it might cause a slowdown for the rest of 2010. Job creation is the key to RE improving and the current administration is not handling that very well.
0 votes Thank Flag Link Fri May 21, 2010
The April 30th deadline to get into a purchase contract did lead to a flury of business last month, and the number of homes going pending has slowed since then, but it appears the historically low interest rates are keeping the market going. Plus, fewer savvy homeowners are choosing to sell now because of the economy, keeping downward pressure on supply.
0 votes Thank Flag Link Thu May 20, 2010
I'm wondering if the Tax Credit for downpayment is a for sure thing or coming up soon, why wouldn't it be in the best interest of buyers to put off buying until they can make use of it?

Wouldn't buyers who now can only raise the 3.5% be better off adding the tax credit to the pot and possibly get a better loan arrangement, better rates?

What would be the downside of buyers waiting?

Dunes
0 votes Thank Flag Link Wed May 13, 2009
Maybe there will be another one. We're buying a house right now because it seems like a very good deal. There might be a better one next year... or maybe there will be none at all. I've read comments from a lot of people who rushed to get a house last year for the $7500 tax credit (that you have to pay back) are upset that there's a better one this year. No guarantees.
0 votes Thank Flag Link Wed May 13, 2009
Anything is possible, and everything is speculative, but the $8,000 is certainly helping more people make the decision to get out and buy a house. Tis incentive, coupled with great interest rates makes it difficult for a first time homebuyer (or someone who has not owned a home in a few years) not to go out and buy something. Even if it is a temporary help to get some existing inventory off the market, it will help the economy in the long run.

The FHA has just announced steps to include the $8,000 as part of a down payment rather than just a tax credit which should further help the cause.

For more information on the FHA news, visit the link below.
0 votes Thank Flag Link Wed May 13, 2009
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