Possibly Overstated, But That’s Okay

November 8, 2009 · Dean Rizzi

Many kudos have been given to the federal homebuyer’s credit for revitalizing the housing market. To be sure, the credit has moved people into the market who wouldn’t have been there otherwise. However, are we overstating the impact? The question is worth asking, considering a recent analysis of the cash-for-clunkers program by Edmunds.com, which found the overwhelming majority of auto sales during the program would have occurred anyway. In other words, sales were simply moved up a little because of the credit.
Perhaps the same situation has occurred in the housing market. Perhaps too many of us are giving too much credit to the homebuyer’s credit while giving short shrift to important economic variables. After all, low home prices and low mortgage rates should be expected to lift the market. That said, no one could say which had the bigger impact, so it is understandable the industry is playing it safe and lobbying for the credit extension. Nevertheless, should its efforts fail (and don’t get us wrong, we’d like to see the credit extended), it’s worth noting that most decisions are based on economic reasons, not tax reasons.
And the economic reasons still suggest now is the time to buy: Home prices remain attractive, though we think they will become less attractive given the recent drop in inventory. Mortgage rates remain low, and we doubt they will remain low as well, especially when considering that gross domestic product posted a better-than-expected 3.5% annualized gain for the third quarter and that more market watchers are expecting the Federal Reserve to raise the federal funds rate in the near future.

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Tags: credit extension, homebuyer's credit, low home prices, low mortgage rates

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3 Responses to “Possibly Overstated, But That’s Okay”

Brian Boisson on November 9th, 2009 9:55 am

Dean,

I think it was wise to extend the tax credits the way they were and the credit for current homeowers will be an interesting one to watch too.

The tax credit along with current attractive home prices and very low interest rates create an almost irresitible situation for home buyers.

Thanks,

Brian Boisson
Larry Franzella on November 9th, 2009 10:38 am

Buyers need to move – rates are great, firstime homebuyr creidt extended and a new move-up home buyer credit created – Why wait!

Larry
Kathy Wall on November 9th, 2009 5:37 pm

I half agree with you. I believe that if someone is ready to buy a house, they are going to buy it whether or not they get the credit. That being said, the credit is just that little extra incentive for people to make the jump now, rather than waiting. I am ever so happy that they have extended the credit and very glad that they have increased the income limits.

Kathy Wall