Is it too early to get excited about the home-buyer tax credit extension?
If you read the news last week, you’ve probably heard that the Obama administration has extended the Home-buyer Tax Credit from its original expiration date of November 30, 2009 to March 30, 2010. The government also added a provision for current homeowners that would allow them to sell their current homes and receive a $6,500 tax credit when they purchase their next home.
In California, one of the hardest-hit and most expensive housing markets, it may be too early to tell how this extension will affect us in the coming months. Some analysts argue that the tax credit’s impact has generally been overstated and that its impact going forward is likely to be uneven, but the psychological effects for new home buyers could give the economy a greatly needed boost.
But is the Psychological Value Enough to Support the Current Housing Market?
It is estimated that the first-time home buyer tax credit, worth up to $8,000, could cost around $43,000 per home buyer, or around $15 billion for the estimated 350,000 home buyers who wouldn’t otherwise have purchased a home without the tax credit. And around 5% of all sales through mid-October wouldn’t have been possible without the tax credit.
So while the tax credit hasn’t created the huge boost for first-time buyer home sales that was predicted back in March, it has bolstered consumer psychology and positive outlook about the current housing market.
And lending analysts predict that the expanded income limits in the new credit, which went into effect on Saturday and gives existing home buyers a $6,500 credit, could translate into another $150,000 in purchasing power for future home-buyers.
More credits, more buyers, more hope.
Will Looming Shadow Inventory Destroy any Positive Effect The Tax Credit Might Create?
The California housing market accounted for 250,000 new foreclosure filings in the last quarter. And increased Pay Option ARM rates are only going to produce more distressed homeowners and in turn, increase the foreclosure rate across the country, as California already accounts for 25% of the nation’s foreclosure activity.
With this in mind, 5% of home buyers using the tax credit isn’t something to get excited about when the next wave of foreclosed homes reaching the market could be even larger than the first.
But we won’t know what will happen until we reach the end of the deadline and lenders start releasing more bank-owned properties to the market.
We can only hope that this is enough to increase buyer interest and start us on the road to recovery.
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Sincerely,
Mark Shandrow
REO Broker-Associate
Shandrow Group
shandrowgroup.com
