November 24th, 2009

All Good Things Must Come to An End



It’s safe to say that when it comes to government programs — whether they be consumer incentives (tax credits), industry overhauls (credit card and financial reform), or economic initiatives (stimulus, loan mods and refis) — we at are skeptics. Our first reaction tends to be one of query and ‘guilty until proven innocent.’ Over the years we’ve come to realize that government intervention brings change — both good and bad — and our mission is to investigate how that change will impact the bottom line; what is it going to cost consumers?

We stopped just short of saying “I told you so” when the National Association of Realtors (NAR) released a survey that said only 6% of home buyers within the past year noted the tax credit as their sole reason for buying a home. To a certain degree, this survey had verified for us what we had suspected all along: Washington is paying people to do what they would normally do anyway.

However, we continue to see more news stories and reports that suggest the home buyer tax credit is mostly responsible for boosting, or at least stabilizing, home sales.

The NAR, the same group that reported that 94% of home buyers would have purchased a home without the tax credit, reported yesterday that the 10.1% increase in existing home sales in October — a 23.5% increase from a year ago — was “Driven by the first-time buyer tax credit.” Personal finance experts Ken and Daria reported a few weeks ago that the strong upward trend in home sales in their home state of Florida was also partially thanks to the tax credit.

While all these reports can’t possibly be 100% accurate because they can’t interview every American home buyer, if the tax credit is (at least partially) responsible for the increase in home sales, the fact remains that the credit won’t last forever, and what will happen to home sales when it’s gone?

We tend to remain in the camp of experts that feel the stabilization in housing (note that we’re not quite ready to classify it as recovery) has been largely greased by extraordinary low mortgage rates and cheap real estate. If only the job market had a leg to stand on, we’d likely see an even greater interest in housing.

Unfortunately, the same dark cloud that’s hanging over mortgage rates is hanging over the home buyer tax credit: they can’t last forever. What will happen to the housing market when they’re gone? We’ve said before that we’re more interested in seeing what happens when the government’s support for mortgage rates ends than when the tax credit expires. If the tax credit is as influential as some claim it is, the market will come to a virtual stand still when it goes, regardless of the price of mortgage money. Our concern is that if mortgage rates rise and the job market hasn’t yet improved in 2010, much of the momentum in housing could be lost, tax credit or not.

In your opinion, how influential is the home buyer’s tax credit?

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About the HSH Blog's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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