I’ve been watching the banter back and forth for several days now. Should we keep the $8,000 tax credit, or let it expire. There are two very strong and very opinionated sides to this discussion and I can sympathise with points on either platform.
I have found, for the most part, that many economists as reported in the Boston Globe and the Washington Post feel that prolonging the First Time Home Buyer Tax Credit will prolong recovery.
According to the Washington Post Article, the $8,000 tax credit was a “Make or Break” decision making factor for only 350,000 transactions (a statistic they credited to the National Association of Realtors). Many argue that the vast majority of people who bought homes with the tax credit, would have bought them anyway. Furthermore, comparing the $8,000 tax program to the “Cash for Clunkers” program, many feel there will be a similar “slump” in sales as the population that would have bought cars through the 2009 sales year, rushed to buy them during the “Cash for Clunkers” promotion. The post article claims “… dealer traffic slowed to the lowest level in nearly three decades after it ended … ” Could this be what’s in store for the Real Estate Market?
I don’t think so. With the “Cash for Clunkers” program the vehicles had to be recycled ending the lifecycle of that vehicle and providing newer (more energy efficient) vehicles for the new buyers. First time buyers (unless buying new construction – and I’d love to see some stats on that if anyone has them) typically displace an existing homeowner when they purchase a home, or in many cases purchase an investment flip. Either way they are generating a transaction in which money changes hands.
Now let’s look at the first scenario: First Time Buyer Couple buys Existing Home Buyer Couple’s Home. Existing home buyer couple now needs a new home and will create an additional transaction that may or may not lead to them displacing another “Existing Home Buyer Couple II, III and IV” and perpetuating the cycle. The NAR’s statistic of 350,000 transaction (even if 50% of them create an average of 3-4 perpetuated sales) could have added a million transactions we would not have otherwise had.
Scenario two: First Time Buyer Couple buys New Construction or Flip. Cash changes hands, and if they’re like any investor I know they will want that money working for them soon, and with prices lower, now is a better time than any to re-invest those proceeds either into the economy through capital purchases (for builders) [not to mention jobs created or saved], or new flip projects by investors.
Either way looking at the 350,000 transactions quoted by the NAR as a failure is a glass half empty attitude, the residual wave effect of these transactions may create a over a million transactions that wouldn’t have otherwise have occured. Every person who buys a home that wouldn’t have bought one previously has an exponential effect on home sales.
What do you think? Were you a first time buyer that took advantage of the 8,000 tax credit. If so, would you have purchased regardless of the credit? We want to hear.