Will end of tax credits kill the real estate recovery?
In a news release from the National Association of Realtors, NAR President Vicki Cox Golder says, "With the fast approaching April 30 deadline to get a contract in place for the tax credit, Realtors are working harder than ever to negotiate transactions, arrange services and complete paperwork."
The government's incentive offers $8,000 credit for those buying their first homes and a $6,500 credit for current homeowners who want to change abodes, so long as they have occupied their house for the past five years.
One sales manager for an Idaho Real Estate agency, Kathi McLeod, tells the Associated Press, "Many people who otherwise wouldn't be on the market for a home want to take advantage of these tax credits. You have buyers who have been looking at properties and realizing that it's almost too late, so they're scrambling and jumping into deals."
It certainly seems as if the tax incentive, along with still fairly low rates for a 30-year fixed-rate mortgage (5.07%, according to Freddie Mac), have worked their combined magic.
According to figures released Thursday by NAR, "Buyers responding to the homebuyer tax credit and favorable affordability conditions boosted existing-home sales in March, marking the beginning of an expected spring surge."
Sales of these previously occupied homes went up 6.8% last month, higher than had been anticipated by many real estate experts. In fact, for a period of time, it had seemed as if the tax incentives had lost some of their luster as sales dropped. But nothing like a good deadline, apparently, to get some people moving...literally.
The increases were geographically broad-based,too: existing-home sales up 6.0% for March in the Northeast; 7.2% in the Midwest; 7.1% in the South; and 6.6% in the West, according to the NAR figures.
But the NAR's assessment that we are witnessing the start of a "spring surge" may turn out to be overly optimistic.
Some real estate experts think that once the tax incentive is gone, and mortgage rates continue to rise (some have projected rates as high as 6% by the end of 2010), we will see a sharp drop-off in home sales, unless we experience a dramatic turnaround in the unemployment and underemployment rates (those who have part-time jobs but really want full-time ones).
"This is a temporary surge that won't be sustained," Paul Dales, US economist with Capital Economics, tells the AP. "It won't be very pretty."
It's really impossible at this point to know which so-called expert is correct. If one wants to look on the bright side, in some parts of the nation real estate prices have actually fallen as much as 50% from their peak pre-"Great Recession" years. Is this enough to make up for the government's withdrawal of tax incentives, even with expected higher mortgage rates? Perhaps. But we can't, and shouldn't, underestimate the negative pull of the nation's continued high unemployment rate. And, many major cities and regions are experiencing rates much higher than the national average.
The real-estate crisis began with sub-prime loans to people who, in the end, couldn't afford to pay them (at least, such is the conventional wisdom, still to be tested by the passage of time and the experience of history). The real-estate crisis now is about people who don't have jobs, or have jobs but greatly diminished incomes due to layoffs, cutbacks or a two-income family being suddenly reduced to one income. Such people don't go house hunting no matter what the mortgage loan rates might be.
There are some who are still wishing for yet one more government extension of the tax incentives. I, however, do not read Washington moving in this direction. At least, not in the next week. So, this April 30th deadline to sign a deal for a new home seems set in stone (you do have until June, however, to complete the entire process).
I doubt anything will dramatically change come the morning of May 1. But let's set our iPhone calenders ahead till, say, July 1 of this year and check back then to see which camp of experts turned out to be correct!
Charles Feldman is a journalist, media consultant and co-author of the book, "No Time To Think-The Menace of Media Speed and the 24-hour News Cycle." He has covered and reported on real estate related issues for several years.