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June 29th, 2010

Homebuyer Tax Credit Influences More Than Just Sales



With the pending expiration of the homebuyer tax credit about 36 hours away, we’re getting closer and closer to seeing what the true state of the housing and real estate markets will really look like when the credit is no longer in place.

**Poll: Do You Support the Extension of the Homebuyer Tax Credit’s Closing Deadline?**

Earlier today I was discussing the upcoming expiration with a colleague when she asked me, “What happens to the housing market without the homebuyer tax credit?” I proceeded to tell her that May’s dismal home sales numbers have already given us a taste of just how bad the falloff from the tax credit has been and will be.

April’s home prices report — which came out today — provides us with another glimpse to the approaching downturn:

Home prices rose 0.8% in April compared with March and were up 3.8% from a year ago, according to the S&P/Case-Shiller Home Price Index of 20 major housing markets.

That good news is tempered by a couple of factors. First, the one-year comparison was against a low-ebb mark. In April 2009, prices were just above a five-year low. Overall, prices are off 30% from their peak.

Furthermore, since the tax credit’s (contract-signing) deadline was at the end of the month, April’s numbers likely reflect the influx of borrowers rushing to take advantage of the homebuyer tax credit (emphasis added):

“Other housing data confirm the large impact [of the tax credit], and likely near-future pullback, of the federal program,” said David Blitzer, a spokesman for Standard and Poor’s.

Once the tax credit fully expires, home prices are likely to take a beating, according to Pat Newport, a housing market analyst for IHS Global Insight.

“The housing glut and foreclosures will drive the national Case-Shiller index down another 6% to 8%, with prices bottoming in 2011,” he said.

There are two schools of thought you can have when reading about the homebuyer tax credit’s influence on demand: 1) It’s necessary but disruptive; or 2) disruptive and ultimately detrimental (how can we get a true picture of the housing market when the credit continues to cloud the natural process of recovery?).

Readers: Which school of thought to you ascribe yourselves to?

We’ve received a blitz of comments and votes from concerned readers who have explained their own individual circumstances and why they’re either depending on the tax credit, why they support it or why they disagree with it. We want to thank all those who voted on our poll and commented on our posts.

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4 Responses to “Homebuyer Tax Credit Influences More Than Just Sales”

  1. David Gaby Says: June 30th, 2010 at 7:49 pm

    We find the credit a bit disruptive but keeps our market alive in the midst of the foreclosure craziness. Given the available policy options its a very good program.

  2. Dave Says: July 1st, 2010 at 6:44 am

    Disruptive? Only to the extent that any govt action is. Let’s look at this pragmatically. For people buying/trading up into 400K homes, this is nothing, they’ll use it to upgrade their wardrobe or something minor. With standards and reviews tightened, the lower end of the market is where we see the benefit most. This credit won’t help anyone unqualified get into a house, but it has encouraged a lot of renters to buy and will make a difference on renovating a lot of those short sales that have been sitting empty, expanding the home owner pool, stabilizing neighborhoods and existing values, and quickly getting back into circulation via HomeDepot, etc., as people look to get the most bang for those bucks.

  3. Tim Manni Says: July 1st, 2010 at 9:59 am

    David Gaby,

    Thanks David! Good to hear from you,

  4. Tim Manni Says: July 1st, 2010 at 10:09 am


    Disruptive in the sense of our natural recovery. Look at the sales report that came out today. Every home sales report (pending, existing, new) all skyrocketed in April and went into a nose dive in May. Government incentives (Cash for Clunkers, the tax credit) disrupt the natural flow of demand — they borrow from tomorrow’s demand.

    “This credit won’t help anyone unqualified get into a house” (at least it shouldn’t…I actually read reports that the deadline rush has caused some lenders to push marginally-qualified loans through).

    Another great comment, thanks!


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

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