Why the Home Buyer Tax Credit Won't Be Extended

The clock is ticking on the Home Buyer Tax Credit with only 11 days left for buyers to enter into contracts. While some may believe there isn’t enough stimulus left to boost the housing market, many including the National Association of Realtors and National Association of Home Builders are no longer pushing for an extension. This is a sign that the market is stepping back in and taking the place of federal stimulus.

Recently spokesmen both NAR and NAHB said they will not push for further extension of the Home Buyer Tax Credit. The existing credit will likely boost the market somewhat through spring as people entering into contracts have until June 30^th to close on the properties. Despite an extension losing the backing of NAR and NAHB, a recent HSH poll shows consumers are overwhelmingly for a further extension. But with significant opportunity to purchase over the last 6 months, it would seem as though many buyers are still on the sidelines waiting for home prices to decline.

NAR Chief Economist Lawrence Yun thinks with the recent Pending Home Sales Index surging 8.2% over January and 17.2% over year-over-year in February, enough inventory could be absorbed to further stabilize the housing market. “The rise in buyer contract activity may signal the early stages of a second surge of home sales this spring. The healthy gain hints home prices are continuing to flatten,” Yun said. “We need a second surge to meaningfully draw down inventory and definitively stabilize home values.”

Some states like California have created their own home buyer credit, offering qualified buyers who make a purchase between May 2010 and August 2011 a credit for 5% of the homes purchase price up to $10,000 over 3 years. California expects this to be a boost to the State’s general fund.

With foreclosures rising 7% in the first quarter of 2010 and federal stimulus expiring, buyers will have to get back in the market to absorb inventory although I believe they already are. The question remains, can they absorb enough to offset the rise in foreclosures? With California and Florida accounting for nearly 40% of the nation’s foreclosures, the problem hardly seems to be a national one. Maybe California offering an additional credit isn’t such a bad idea after all.

While the home buyer credits haven’t offered a provision for real estate investors, many including myself have taken advantage of the opportunity of renovating houses to place on the retail market. The opportunity in this niche seems to be most visible in the average sales price range of homes. I believe this is because there is little home-building taking place and many consumers are opting for an existing home, preferably something that is like-new.

This trend may slow with the home buyer credit expiring but people will still be purchasing homes. The homes investors are renovating can stand out in the neighborhood if the work is done correctly. For investors in California, you have the advantage with another 18-months to reach tax credit buyers.

Overall, despite the fiscal concerns of the Home-buyer Tax Credit, many believe it to have boosted confidence in consumers. This has prompted some who wanted to wait to purchase when the economy has needed it most.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.