The $8000 tax credit quandary.
I have mixed feelings about the homebuyer’s tax credit. The initial idea was to help first-time homebuyers qualify to buy homes, but in a more organized and reasonable manner than through the questionable loans thrown around five years ago. The hope was that by encouraging this group of buyers, the overall housing market would be ‘stimulated’ nationwide and that would be a good thing.
If the program can be measured by increased sales and reduced inventory of entry-level homes, then it is a success. A pretty huge success, frankly. In Denver, the $8000 stimulus absolutely contributed to a huge reduction in the number of homes on the market below $250,000 – from a total of about 30,000 available homes in early 2007 to around 19,000 now. The switch by almost all first-time buyers from the so-called ‘toxic-loans’ to FHA-backed loans had a huge impact on this too. Together, FHA loans and the stimulus acted as sort of a “one-two” punch to significantly change the low end of the market.
Investors bought up all the trashed, foreclosed homes; updated and cleaned them up, then sold them quickly to these new buyers at great prices, using government-guaranteed loans that had fixed, rather than variable rates.
The buyers, though generally getting 100% loans, have a much better chance of keeping their homes long-term, since the interest rates are low, and will stay that way.
So far so good – homes sell; people buy nice homes they otherwise couldn’t afford; consumer confidence returns, and we’re all happy.
The initial package of these stimulus loans was to end this week. Instead, it has not only been extended, but it has also been expanded to include a new package to help existing homeowners buy their next home – to “move up”.
Again, this is great for the real estate market, for us Realtors, and for anyone looking to buy or sell in the next six or eight months.
My concern is about what happens when the program ends – if it ever does. Clearly it can be argued that every transaction just increases the national debt. Also, it is possible that once the program ends, the revived real estate market will come to an abrupt halt, making the ‘recovery’ just temporary. The flip side is, it is also possible that every transaction will further stimulate the economy through pass-along transactions – new drapes and furniture and so on. If true, then the program could more than pay for itself over time. Maybe this is true. I hope so.
I’m generally an optimist, and I like the stronger real estate market – but I sure hope people smarter than me have a plan for what comes next…
