Monday, August 31, 2009

Home sales may dry up in December

BusinessWeek's Hot Property blog warns that home sales will dry up when the $8,000 tax credit goes away:
Just when the home building industry seemed to be bouncing back, news from California raises troubling questions. The California Building Industry Association says its members reported a significant drop in traffic to their developments in July because the state stopped taking applications for a $10,000 tax credit for new home buyers.

The $10,000 credit was authorized by the state legislature last February as a way to jump start California construction jobs. The credit, coupled with the $8,000 federal new home buyer credit, had been a big reason why builders in California saw a jump in sales this past spring.

Now with the initial funding exhausted, buyers are less eager. “Activity stopped as quickly as it started, which is bad news for housing and the broader economy,” says Robert Rivinius, the builder association’s president. ...

That the expiration of the state tax credits already seems to be dampening buyer enthusiasm in California doesn’t bode well for the home building, real estate sales or auto manufacturing industries nationwide. As the initial boost from government incentives ends, those industries could post poor sales numbers again. ...

“The federal tax credit for first-time buyers played a critical role in the purchase decision of many buyers,” says California Association of Realtors President James Liptak. “Nearly 40 percent of first-time buyers said they would not have purchased a home if the tax credit was not offered.”

15 comments:

  1. I see stories like this and it reinforces my thinking that housing can't be at a bottom (which I base on several fundamentals that I have discussed before). But I also wonder how much its becoming a matter of looking for evidence to support my preferred outcome as opposed to objective analysis of all the data out there. For me it doesn't really matter since I'm not ready to buy for various personal reasons for at least a year no matter what happens. But its definitely tough to sort out my biases from reality.

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  2. The $8K tax credit is certainly playing a large role in my deciding to buy now. I'm under contract to purchase a 2 bedroom in DC. I'm a bit scared shitless, and I think prices have a ways to come down. But I've been renting for 3 years. I was a homeowner before that (but not in DC). and I'm ready for my own place again.

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  3. Rather than let the $8000 first-time homebuyer credit expire, I'm anticipating some sort of wind-down (reduced credit, return to payback-over-10-years credit) now that the freefall in homevalues has apparently ceased. No question, tax credits are contributing to the tenuous stabilization in the market right now, but you can't leave this mechanism in place when you have some markets that have hit bottom even if others still have a way to go.

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  4. Anon, funny, the $8k is playing a role in my decision *not* to buy now. I have to wonder how you put in a contract when you're "scared shitless" and expect prices to fall. And with rents falling, it's never been a better time to be a renter!

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  5. Interesting story out about TARP:

    http://www.businessinsider.com/henry-blodget-hank-paulson-looking-smarter-all-the-time-taxpayers-doing-fine-on-tarp-2009-8

    Ill be honest. I never thought we would see a dime of that 700Billion we lent out - not one. Yet so far we got at least 10% of it back.

    Yes a good percentage of it (AIG, GM, Etc.) is gone for good, but out of curiosity, how much of that 700BB do you all think we will get back?

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  6. The tax credit really helps at the low end, and with foreclosures, but in the higher price brackets it probably isn't having a big influence.

    About the decision to buy, I think you have to look at the particular area you are considering buying into. In some areas around DC/NOVA the prices have come down considerably, say 30%, and to the point that they are close to values extrapolated from before the bubble. There is a floor there somewhere, and while prices might overshoot a bit on the downside, they will adjust back up to the long-term trends over time. Also, low interest rates and the tax credit help mitigate the risk.

    Where prices have not yet corrected significantly...watch out! That is where I think the big risk is. Prices may or may not fall in the end, but there is a considerable risk today that they will drop considerably in the future. You can't be sure what's coming next, so you can only consider whether you are willing to bet on these still inflated markets?

    No one can foretell the future, you can only assign likelihoods to your beliefs.

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  7. "Where prices have not yet corrected significantly...watch out! That is where I think the big risk is. Prices may or may not fall in the end, but there is a considerable risk today that they will drop considerably in the future. You can't be sure what's coming next, so you can only consider whether you are willing to bet on these still inflated markets?

    No one can foretell the future, you can only assign likelihoods to your beliefs."

    Agreed - the only places I see as relatively safe (for high end that is) is arlington and alexandria. True neither of them have corrected much, but considering they have averaged like 4-5 months of inventory for the whole crisis (now like 3 months) - not to mention #1 and #2 income growth in the area, and rising prices, these are the areas I consider safe (i.e. long stagnation, 10% down worst).

    The rest of the high end areas - fairfax, Loudoun, Montgomery, even DC - watch out!

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  8. Who needs the tax credit?

    If you had taken your house down payment of say, $13,000, and bought 1,000 shares of AIG in July at $13, you could have sold them today for $45 or so, grossing more than $30,000.

    Today's lesson: Bubbles are better than tax credits.

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  9. who needs AIG?

    If you would have put your $13,000 on the correct number of the roulette wheel you would have grossed $442,000 in one second.

    Lesson: Gambling can have large payoffs - if you are lucky

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  10. Many may not perceived it but it is actually the best time to purchase a new home because of the advantages it offers such as lower price, lower interest rates, tax savings, more choices etc. So instead of wasting money in renting a place, buying something that can be an equity is far more better option.

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  11. Thanks Peter,

    You just missed Lance...

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  12. I really like your metro charts showing historic home prices. I wish you'd update them soon. (Also, it would be cool if you could include more history, going back further). Thanks.

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  13. The tax credit money is helping to remove a lot of excess inventory such as foreclosures and distressed or fire sales. We'll see how much more foreclosures take place after this tax credit program ends.

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  14. Anonymous said...
    "I really like your metro charts showing historic home prices. I wish you'd update them soon. (Also, it would be cool if you could include more history, going back further). Thanks."

    Thank you, anonymous. Because updating all of my graphs takes quite a bit of time, I decided a while back to just update them quarterly. I usually update them on a weekend. The latest quarterly data came out last week, so my charts are due for an update. Unfortunately, I forgot to update them this past weekend. Thank you for the reminder.

    My national chart now goes back to 1970, which is as far back as reliable data exists. (Prof. Robert Shiller had to be creative to get data going back to 1890.) Extending the individual metro area charts back further would require mixing and matching quarterly and monthly data, which is possible, but more work than I'm willing to take on.

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  15. Yes a good percentage of it (AIG, GM, Etc.) is gone for good, but out of curiosity, how much of that 700BB do you all think we will get back?

    Zero, that money has already been spent. Whatever does com back will go right back out somewhere else.

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