Tax credits expiring--what will happen?

Question

The $8000 first time home buyers tax credit and the $6500 credit for existing owners (at least 5 years) are expiring on April 30, 2010.  That is, you must have the home under contract by 4/30 and close by 6/30/2010.

What will this do to the market, especially the under $100K market?  I have a few for sale and feel some urgency to get solid contracts soon.  Not only to get a better price, but I am concerned that the tax credit will cannibalize late spring and summer sales, much like cash for clunkers did for the small car market last year.

What do you think will happen and are you doing anything differently in the face of tax credits going away?

Matt Mathews · Answer

FYI!  Recently the NAR lobbyist once again made a last ditch effort to get the tax credit extended.  FHA/HUD and congress pretty much told them to take a hike and banned them from further participation.  
Second!  FHA has set new guidelines for mortgages (still pending).
  Raise downpayment from 3.5% to 5%
  10% down for FICO under 580
  More buyer documentation will also be required.  The other item on the table is to restrict Seller financing only to the original owner and reduce concessions from 6% to 3%.
Mortgage Bankers Assoc. meeting indicated that since the Tax Credit incentives began in 2008 more than 28% of those first time buyer mortgages are now in default.

Peter Giardini · Answer

Obviously much of the impact will be driven by the specific market.

For instance, many urban markets provide a great deal of assistance to first time home buyers through grants or low interest loans.

With that being said, it is hard to ignore the impact of those buyers who bought prior to the expiration of the tax credit (cannibalization).  I am predicting a minimum of a 20% drop off in buyers and advising everyone to compensate for longer days on market and lower sales prices, by building these factors into their purchase prices today.

Rich Weese · Answer

Matt- no surprise with the 28% in default. Just another form of the sub prime. The govt in all their infinite stupidity stop investors from having more than FOUR mortgaged properties( even though the investor might have an 800 fico, perfect payment record) and give beginners 8K toward purchase. What did they think would happen?

Ted H- Cash buyers will become fewer when the rents continue to fall, as projected for Vegas. They can go somewhere else and get more bang for their buck.

Ted A- just a doomino setup and one strong wind will start them falling.

Michael- I'm more bullish on TX than any other area for many reasons. I've invested heavily there, and am NOT selling anytime soon. Rich

Ted Akers · Answer

It has been known for months to be winding down, but the Fed just formally announced the end of their $1.2 Trillion program of buying Treasuries and Mortgage Back Securities.  This program has helped keep mortgages rates low, or more accurately artificially low.  Discontinuing that program will likely result in higher mortgage rates.  In my oppinion it will not result in noticeably higher rates near term, but if or when inflation appears - watch out.  We have printed massive amounts of money for bailouts and rates could get ugly in the next few years.

Michael P. · Answer

Well I can't speak for the other parts of the country but here in DFW I think the 150k and under market is going to tank.  Maybe not in regards to prices but certainly in regards to volume.  Basically anyone interested in a house in that price range is buying now.  The buyers pool is going to completely DRY UP for I am guessing about 6 months or maybe even for an entire year.  6 months from now puts us nearing the end of the year and lets face it that time and the early parts of the year usually are not amazing buying times.

Going forward I am going to do one of two things.  Either travel the world for a few months to let the market become a true market again(I hate the 8k).  Or I am going to concentrate on higher end homes.  In the DFW area that is pretty much anything over 200k.  At these prices you are not attracting first time home buyers.  Therefore the market will go along trucking identically to what it always is.  The 8k has not affected that market in any manner.

Ted Akers · Answer

Good thread and nice detailed response by Matt.  FHA delinquencies are around 10%, a large number.  Their program changes have been considered for awhile and cannot be long from being implemented.  Tighter lending and an estimated additional million foreclosures versus last year do not bode well for values, IMHO.

Jon Klaus · Answer

California is about to offer their own $10K tax credit.  If your timing is right, it could mean $18K in tax credits.

http://blogs.wsj.com/developments/2010/03/24/californias-tax-credit-will-home-buyers-stampede-for-18000/?utm_source=twitterfeed&utm_medium=twitter&utm_campaign=Feed%3A+wsj%2Fdevelopments%2Ffeed+%28WSJ.com%3A+Developments+Blog%29

So let's guess where CA is going to get the funding for this.

Brian Haskins · Answer

Well it's exactly like it was last time it was about to expire there will be a big frenzy right up until the deadline and then it will cool off until people hear if it will be extended or not.

Brian Haskins

Ted Harris · Answer

In Las Vegas where close to half of all closing are cash, it'll have little to no effect ..... in Portland, Oregon it may slow  starter home sales a bit but interest rates remain at historic lows which helps.

Alex Cortez · Answer

The lower-end market will see a drastic drop in terms of volume due to all qualified buyers with that criteria making their purchases now.  How long will the market be down?  It's hard to say and it could very well be different by locale.  At can only hope that we don't get hit too hard here, but time will tell (my guess would be 6 months).

Tax credits expiring--what will happen?

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