What Happens When $8K Tax Credit Ends (foreclosed, investment, percent)
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There's a lot of reasons to think the 8k + fear of inflation/higher interest rates/tighter lending standards/contracting credit are causing people to front-end their purchase.
So, yes, home sales are up now, but it remains to be seen (when the credit expires) whether home sales remain steady once adjusted for seasonality, or if we were on a temporary plateau and the market continues it downward descent.
Personally, I fail to see how anyone can make a good case for housing recovering without the job market recovering, and last time I checked, we are still bleeding jobs at a terrifying rate, except now it's warp 7 instead of warp 10.
But, we'll see. People have short memories. That may save housing or it may bring it down further.
I don't think it was designed for people who can't afford to purchase without the $8000 credit. It is incentive to induce first time homebuyers to make a purchase. I've had 3 customers that qualified for the credit, and they are thrilled.
I do know there are situations now where the $8000 can be used as down payment. That may be where you start getting into trouble of putting people who can't afford to buy in a home. A lot of renters though really can't save a down payment in my area and many others because rent is high. This credit could be the opportunity they needed to make the purchase.
Anyone who is dependent on an $8K tax credit to by a home CANNOT AFFORD TO BUY A HOUSE.
Whoever said they were dependent on it? The $8k is an incentive (can be a pretty big one at that).
After this housing debacle and with the current economy, people are hesitant to purchase anything. The $8k is definitely promoting some real estate sales.
Anyone who is dependent on an $8K tax credit to by a home CANNOT AFFORD TO BUY A HOUSE.
I can't afford to buy a house without the 8k, but I'm buying one now with it.
I'm getting an FHA loan so 3.5% down is well within the 8k limits and I even have some leftover to cover closing costs. My mortgage is going to be lower than my rent currently is, so really I can afford to buy a house more than I can afford to continue to rent. All because of the free 8k
a) even people who don't qualify for it (either they make too much money or they aren't a first time buyer) has at least made people THINK about purchasing, which has a positive psychological impact on the market
b) it will likely be similar to a "promotion effect" that you get when you buy any other product - after the promotion ends there is a short term reduction in sales (but not necessarily prices) - that will likely last until early 2010 - also keep in mind there will almost certainly be a seasonal price decrease in the winter (real estate is a seasonal business to a large degree)
c) the credit is probably too small to have a significant impact on the prices themselves, although declining sales and demand might cause the lower end of the market to push to the downside some bit, but a lot of the lower end of the market is investor driven, so I don't think there will be much of a price impact
Personally, I fail to see how anyone can make a good case for housing recovering without the job market recovering, and last time I checked, we are still bleeding jobs at a terrifying rate, except now it's warp 7 instead of warp 10.
But, we'll see. People have short memories. That may save housing or it may bring it down further.
I see your point.
However, never in the history has housing called an economic collapse.
It's always been the other way around. Previously a bad economy has caused people to lose their jobs and the trickle down was that people lost their homes because of unemployment.
In 2007-2009 and current, it's the housing market that's the sole factor for causing the economy to go down. This has never happened (in our lifetimes before).
The easy lending standards (with ballons, ARM readjustments, no downpayments etc) is what caused the credit freeze.
In the great depression, the stock market tanked and that's what cause housing prices to collapse.
In this current depression (yes it's safe to call it a depression (we are not in a recession but a depression), the housing collapse/credit freeze is the primary cause.
The difference is that you actually had to have money to invest in the stock market. The housing boom was caused by all this fake money and people have very little skin in the game. And investment banks/lenders/mortgage brokers/RE agents all in for a big cut of the gains.
To get back to the main question. The $8K credit needs to expire or expanded to let everyone in on it (remove income limits, remove first time homebuyer status). This is what's wrong when the government gets involved. They do things so half hearted; it doesn't have an real effect. Sure it looks good on paper (yeah there $8K tax credit for "regular folks") But the end game is that the people who can most afford homes and really stimulate the housing market are left out and they have no incentive to buy back into the market.
The way the $8K credit is designed. It's like a kid's very messy room. Mom tells kid to solve the problem. Kids proceeds to throw all his mess into his little closet. Room looks cleaner but mess is still there, ready to blow up again.
However, never in the history has housing called an economic collapse.
It's always been the other way around. Previously a bad economy has caused people to lose their jobs and the trickle down was that people lost their homes because of unemployment.
In 2007-2009 and current, it's the housing market that's the sole factor for causing the economy to go down. This has never happened (in our lifetimes before).
The easy lending standards (with ballons, ARM readjustments, no downpayments etc) is what caused the credit freeze.
In the great depression, the stock market tanked and that's what cause housing prices to collapse.
In this current depression (yes it's safe to call it a depression (we are not in a recession but a depression), the housing collapse/credit freeze is the primary cause.
The difference is that you actually had to have money to invest in the stock market. The housing boom was caused by all this fake money and people have very little skin in the game. And investment banks/lenders/mortgage brokers/RE agents all in for a big cut of the gains.
To get back to the main question. The $8K credit needs to expire or expanded to let everyone in on it (remove income limits, remove first time homebuyer status). This is what's wrong when the government gets involved. They do things so half hearted; it doesn't have an real effect. Sure it looks good on paper (yeah there $8K tax credit for "regular folks") But the end game is that the people who can most afford homes and really stimulate the housing market are left out and they have no incentive to buy back into the market.
The way the $8K credit is designed. It's like a kid's very messy room. Mom tells kid to solve the problem. Kids proceeds to throw all his mess into his little closet. Room looks cleaner but mess is still there, ready to blow up again.
Believe me, you are preaching to the choir. The only way out of this mess is to allow debts to be paid down from the government down to the individual, and given the amount and variety of debt out there, it can easily take a decade, perhaps many decades. Businesses need to fail, institutions need to fail, home prices need to fall, and households need to go bankrupt.
To your messy room comparison - it's OK for the kid to make the room and pretend the mess has been cleaned, because you can always punish them by making them eat Alpo.
And once all these problems come home to roost, the discussion won't be what happens after the latest government stimulus program expires, but will be what's the best way to cook my Alpo because that is the only food I can afford to eat.
Believe me, you are preaching to the choir. The only way out of this mess is to allow debts to be paid down from the government down to the individual, and given the amount and variety of debt out there, it can easily take a decade, perhaps many decades. Businesses need to fail, institutions need to fail, home prices need to fall, and households need to go bankrupt.
To your messy room comparison - it's OK for the kid to make the room and pretend the mess has been cleaned, because you can always punish them by making them eat Alpo.
And once all these problems come home to roost, the discussion won't be what happens after the latest government stimulus program expires, but will be what's the best way to cook my Alpo because that is the only food I can afford to eat.
I believe we are on the same page. It's too bad our local and national Congressmen/women are out to save their jobs and jousting for votes by doing a crappy job of pretending to fix problems when the main issues are not address.
You're right, we needed to wipe the slate clean on all the things that cause this housing mess. AIG needed to go under (people need to know that their real insurance business (home, auto, life) was always protected because it was regulated. The other part of their business was/is still non viable. AIG should have taken Goldman and the rest of the big investments down. We all would have lost money (including myself) but it's a lot better to rebuild with a clean slate instead of bailouts that don't punish those at fault.
I highly doubt the government will extend the housing tax credit. It's costing them money and overall doesn't help with foreclosures or people underwater on their mortgages.
My thought is that the $8,000 incentive is just a stop gap measure to make people feel good about buying now and take the presure off if prices continue to decline. I for one see prices dropping in my area anyway another 10 to 20 percent, if you believe or listen to the local economist, the paper, those in the know ect. Not that any of them are right. If prices were to decline as I expect them to, then the incentive doesn't mean much to me. A 10% decline on a $300,000 home would bring the price to $270,000 and make that $8,000 incentive not much of a deal. Of course interest rates are a factor as well. Kind of like the automotive program where you turn in your "junker" From what I see none of the cars on the list are junkers.
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