The Pundits Missed Something! and How’s That Tax Credit Working?
You read/heard it where?
December 2009 Real Estate Results
I do not agree with the way that the December real estate results are being interpreted by most of the media. The theme seems to be that the extension of the first-time buyer tax credit should have caused December results to meet or exceed the results of prior months. The problem with that conclusion is not having considered how long it really takes to get from contract to closing. (more about that in a subsequent post) That time has increased with new underwriting and appraisal requirements so what we formerly could always do in 30 days is now taking longer. By the time the extension was approved, there simply were not enough days left to get a transaction closed in December and because the new deadline was April 30th, there was little incentive to move quickly.
“Cash For Clunkers” and “First Time Home Buyer Tax Credit”
What these two programs have in common is that they seem to have adjusted only the timing of most purchases, not the actual decision. Edmunds.com evaluated the CARS program and, adjusting for the autos that would have been purchased regardless of the credit, found that the cost per car to the taxpayers was about $14,000. The anecdotal history in our office for home purchases is similar. Of about ten first time buyer transactions following the announcement, only one person seems to have purchased because of the credit. When you think about the process, it just makes sense. The $8,000 could not be used forthe purchase and most of these first-time buyers are short on cash so the buyers had to be consumers who had already accumulated their needed funds. In terms of timing, once these clients had decided to purchase, the tax credit certainly was the carrot to get them to close by November 30th.
Unintended Consequences
As we approached mid-October, probably the latest a contract could be written with a guarantee of a November closing, we did observe that sellers with homes that were ready realized the date predicament and became less negotiable. I had to tell several buyers that they may have just “financed” the $8,000. Still a pretty good deal at 5% or less!
Going forward looks better. With the credit now decreasing at $2,000 per month after April 30th rather than just expiring, we should see less desperation on the part of buyers and more market-driven negotiations.
Have Questions or Comments?
Please leave any comments or questions. I am interested in your experience as a buyer or a broker (on either side of the transaction)
If you are thinking of a purchase in the Denver area in 2010, please contact me. I am an experienced Exclusive Buyer’s Agent (EBA) and will always be your advocate.
Russ Murray russ@buyerbroker-denver.com 303-721-1100, ext 1