Where Stimulus Meets Reality

The Extended Homeowner Tax Refund

Real estate activity, as always, is being defined in pockets and neighborhoods rather than a consistent widespread demographic. When the First Time homebuyer credit was extended it was generally thought prudent to have a springtime calendar limit connected because it would stimulate activity through the normally slower winter season. When the "move up" portion of the credit was added, many felt this would bring another group of buyers into this market. With the extension slightly over half completed, the antidotal information is interesting.

To begin, the "move up" addition seems to have had very little effect. Some would suggest that this group is too insecure with the economy to make any moves. They are sitting tight until they see a more comfortable future. On the other hand, first timers are out in the market and looking to buy before the April 30 deadline. In most markets this is the majority of the current activity. Estimates range from 50% to 705 of the market activity can be attributed to this demographic.

Some Developing Cultural Dynamics

By nature these borrowers require more education and help to finalize a purchase. This education can come in the form of more credit counseling or the need to view many more homes. In some cases a development must take place from a beginning attitude that "low ball offers" are the norm to an understanding that great houses move quickly. In general this creates a longer process time than a standard market place would indicate.

From the industry side of the picture, realtors that are not seeing the surge from the tax incentive are beginning to focus on the expiration of the incentive. The most pessimistic see a market collapse in the making. Many that expect rising interest rates are beginning to project a year even worse than last year. The next two months begin the spring selling season and we will hope these ideas are left over winter worries.

Inventory Creates A Time Squeeze

The first time buyer has been a great stimulus and that activity continues. As might be expected the inventory available in their price range is being gobbled up. Realtors listing high end properties are not seeing this effect. But in the Midwest the market between $150,000 and $250,000 is seeing it harder to find good quality properties. Many of the properties left in this range are short sale candidates and therein lies the challenge. The seller has no choice on price adjustments since the loan balance is higher than the net revenue from a market sale. So a decision has to be made by the lender holding the mortgage.

The response time from these lenders is notoriously slow. The tax law requires an accepted contract for sale by April 30 and a closing by June 30. Since it can take 30 days for a response from lenders, this will become the new dynamic. The official word is that the tax benefit will not be extended again. I suspect we will hear more about this issue as we come close to the expiration date. We will see how it all turns out.