Has the Homebuyer Tax Credit Been a Success in 2010?
by Tim Manni
Through the first three months of the year, the answer so far is “no,” says the National Association of Realtors (NAR).
After writing a post yesterday on the homebuyer tax credit — asking readers just how well they know the tax credit — the question popped into my head: “I wonder how successful the tax credit has been this year in comparison to last year?” I got an answer from one source.
From National Mortgage News (emphasis added):
The homebuyer tax credit has been a dud so far this year, but the National Association of Realtors is hoping it will kick in this spring and drive home sales higher before it expires at midyear. When the tax credit was due to expire in November, the rush by new first-time homebuyers to meet the deadline pushed November sales 45% higher than a year ago. “We would anticipate that April, May, June home sales figures will be high if there is a similar buying pattern as last year,” said Lawrence Yun, chief economist for NAR. But so far the extension of tax credit by Congress has generated only a modest increase in foot traffic, he told reporters. And the expansion of the tax credit to existing homeowners or repeat buyers has not generated much excitement either. “Right now there is nothing to indicate we will get that 40% kick” in May or June, Mr. Yun said. “But we are keeping our fingers crossed.”
What’s behind the lack of “foot traffic?”
Especially with an expanded tax credit in place, why aren’t more borrowers taking advantage of what is being offered? Beyond the minimal activity associated with the winter home-buying season — a slow season made even slower by major snow storms — there’s a consequence to altering the marketplace with cash incentives: it changes borrower behavior.
“Natural demand that would have occurred in December, January and February got bumped up — a certain amount of demand was advanced in November due to the pending expiration,” explains HSH VP Keith Gumbinger.
“That said, you can bet that potential buyers are scrambling once again with the credit set to expire in only six weeks.” (We’ve noted in several posts that “The mortgage process usually takes anywhere between 45 and 60 days.”)
Will a quiet 2010 kill the credit’s chances of another extension?
Not necessarily. If the tax credit isn’t flying off the shelves, than it’s not costing taxpayers much either. However, whether the credit receives another extension or not depends on the amount of political pressure, said Gumbinger.
Don’t expect a decision to come right away. “You’ve to give people time to react,” he said. If the people react, and if the trade groups — such as the realtors and home builders — apply the pressure that the market can’t properly function without the credit, then lawmakers may be forced to extend the program one more time.
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