This is where is gets interesting…like it hasn’t been already, right?
Now that the $8,000 first-time home buyer tax credit has been extended to loans that close by the end of June, 2010….and there has been an addition of a $6,500 credit for so-called “move-up buyers”-we wait to see what impact it will have on the housing market in the months ahead.
With unemployment still going up, will the tax credit make much of a dent and really help light a spark to juice up the economy?
All along, some critics have argued that the tax credit was used mostly by people who were in en economic position to buy homes anyway and that it really didn’t bring a hell of a lot of people into the tent. And, the Obama administration was not all that keen about extending and expanding the program anyway.
One analyst worries–as do many others–that when the credit eventually does come to an end, and mortgage rates rise, any budding real estate market recovery will take a nose dive.
“…the fear is that rates are going to go up strongly, so a lot of people are trying to get in the door now before that happens,” argues Milessa Cohn of The Manhattan Mortgage Company.
But, she continues, “…once rates begin to go back up and we lose the tax credit, that’s going to slow the real estate market down again,” she told Reuters.
Of course, that is always the problem when the government –or anyone else for that matter–artifically inflates and supports a market: what happens when the air goes out of the balloon?
It may not be pretty. Remember the last story with a balloon?
Photo Credit: Cimexus
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Article Author: Charles FeldmanCharles has written 179 articles for us.
Visit Charles's Website: http://www.thefeldmanblog.com
Charles is currently reporting for KNX Radio in Los Angeles, is the co-author of the book No Time To Think, and can be found commenting about the news on his blog, The Feldman Blog, as well as on The Huffington Post.
Joshua Dorkin
{ 4 comments… read them below or add one }
I really think they should have let the original tax incentive expire and see how the economy reacted. We were already entering recovery mode when the decision was made to expand the tax incentives. Right now we have a false sense of what market conditions are because of the current tax incentives. Until these incentives are done we really won’t know what the condition of the market really is.
Ted Gayer of the Brookings Institute made some excellent points about the negative side of the homebuyer tax credit….including what he determines is the real cost to taxpayers for each buyer (over $100,000), the large number of buyers that would have bought anyway, the artificial market it creates, etc…
Awesome. I’ve been looking for something like this for a while.
All of the first-time buyers that I’m working with would have continued their home search without the tax credit. Of course, they are happy it was extended but they were prepared to buy without it being extended.
I think the move-up buyer tax credit is ridiculous! Fortunately, not that many people will fit in the narrow parameters. For those who do, the credit amounts to nothing more than subsidizing a fairly weathly person to buy a new property. In order to sell, you must have equity or savings so you really don’t need a credit. In order to get the credit you need to buy a home worth more than $300,000–that’s a lot of house and takes a sizeable income to support it so they would not need a credit.
I don’t think the credit is doing much to prop up the market. The biggest proppers (and creators of future risks are: FHA loans with 3.5% downpayment; banks holding on to defaulted loans too long; government intervention like moritoriums, rent-backs, sharing losses with the banks, etc.