While some people within the real estate industry are pleased about the tax credit extension, I am still not sure this was really the best way to go in terms of the impact on the economy. Or the market.
First, the deadline factor has been blown forever. The government stepped in to the auto industry with the “cash for clunkers” program and it was considered a success. That deadline came and went. Those that procrastinated and then held off clearly lost an opportunity. The $8,000 first-time buyer tax credit was a government move designed to get more consumers into home ownership. But in this case, the deadline has already been extended. So much for sellers and realty agents putting pressure on potential buyers now. A potential buyer can take his/her sweet time about it now, and there is no rush for those who were going to try for a “last minute” bargain.
This “extension” seems to have been pushed through as a result of pressure instead of on market impact. I was looking at some statistics about home sales for 2009. Because of this “extension” already being in place, we are not likely to see any sort of spurt in first-time buyer sales for the remainder of November. (That is one bad side effect right there!) In keeping with the home sale statistics thus far, it will very likely mean that less than 40% of home sales for the first 11 months of this year will have involved the tax credit. In other words, the majority, to the tune of over 60%, of home sales this year will have had nothing to do with the tax credit. While the result of this program has indeed sparked some first-time buyers, this has hardly been at a dominating pace.
While this thought is not a statistic, my hunch is that consumers saw that the car “cash for clunkers” deadline was NOT extended and this motivated them to proceed as first-time home buyers. Therefore, I do not foresee a significant increase in activity now that the deadline has been extended. Once we get into first quarter of 2010, the $8,000 tax credit wouldn’t go “in pocket” of the participants until 2011. Not that it won’t help, but hardly an immediate boom to the economy.
It is true that this extension also offers benefits to existing home owners, based on income and length of time owning the current home. However, this part of the tax advantage does not necessarily spur additional home sales.
From a marketing standpoint, I have another concern. Thousands of realty agents and brokers have been promoting this tax credit to potential first-time buyers (or should have been!), hoping to use the “act now!” approach because of the November 30, 2009 deadline. So what do they do now?
They can’t put any urgency into the same program, when it was already extended before the originally scheduled deadline. If home prices continue to drop in many areas, these potential first-time buyers will have benefitted by waiting! They would get a lower price for the “same” home, and then the tax credit to boot, compared with if they had listened to the agent in recent weeks. If home prices rise instead, then the tax credit does not make the same home any more affordable at the time of possible purchase. It would still be a matter of homes not being affordable. This could come off as another marketing blunder by real estate agents and brokers.
Why do I blame them? Because I also saw the information that Realtors reportedly spent, get this, more than $12,000,000 lobbying for extension of this tax credit. That’s right. Over $12 million dollars. Money that could have been spent advertising and marketing properties available for first-time buyers. For that matter, also for long time home owners looking to move on up or downsize. Or, money that didn’t have to be spent. Maybe this is where the real tax breaks are going!
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