April 30 or Bust
The real estate world is all abuzz with the latest deadline about to be thrust upon us: April 30 is the looming deadline for home buyers to be under agreement if they intend to take advantage of the tax credit (up to $8000 for first time homebuyers and $6500 for everyone else). They have until June 30 to settle on the property, but they must be under contract by April 30 if they hope to collect their little piece of the government’s stimulus package.
Talking to agents around the country, it seems this tax credit incentive has had mixed results. Some swear it is boosting their bottom lines this spring, while others say they barely have noticed a blip on the radar. For my brokerage, personally, I can say we see it helped the first quarter of 2010 numbers, but not significantly.
I just went through the files of closed properties since the program started in 2009. We did see a handful of sales in September, October and November that we can attribute to the first time homebuyers program. A few I worked with personally were already looking and were prodded to get off the fence last fall with the $8000 incentive. Every one would have eventually bought, but they did so in the final months of 2009 thanks to the extra cash dangled in front of them.
When the tax credit was running out, we had a few buyers in a bit of a panic. They were rushing to find “the property” before the November 30 end, and may have taken their time if they knew the program was being extended, which it was. Besides being extended, the government wisely opened it up to non-first time homebuyers as well, although at a smaller credit.
December and January were a bit slow, then we saw an uptick in buyer activity again starting in February through April. This time we are not seeing many first time homebuyers. It’s the move-up buyers who are taking advantage of the drop in home prices around us, and the extra $6500 credit in their pockets.
Now there are less than three weeks left for these buyers to find a property, and again we see the panic setting in. Will they settle for “almost right” just to scoop up that credit money? Or will they take their time and miss out on the $6500? I know a few of our buyers who are likely to stop looking April 30 if we are not under contract by then.
With a Bang or a Whimper?
And that’s the great fear right now amongst real estate agents. Anywhere you have a group of agents talking, this topic seems to be hovering in the background. One today told me she’s scared to death her buyer traffic will fall off a cliff on May 1. Another told me his accountant advised him to make sure he is stashing money away for the May/June/July drought that is coming.
Besides the expiration of the tax credit, we are sure to see rising interest rates, and many are predicting a double dip recession. What else could go wrong, if you’re a real estate salesperson?
Sure the strong will survive, and there were agents who made money when we had 14% interest rates in the late 80s and early 90s. The world will NOT end with a bang on April 30 as 5 p.m. approaches. But it just may whimper.
Buyer traffic may dry up and many agents already on the brink of getting “real jobs” may go running back to the corporate world. The herd will thin as it gets harder and harder to pay the bills and real estate closings become fewer and farther between. Already statistics are out there that only 20% of real estate salespeople make the bulk of their earnings from real estate. That means the other 80% already have second and third jobs.
Cold Turkey or Phase Out?
While I was not a big fan of the $8000 credit in 2009 when it first came out, I believe now that we cannot just cut the cord. I wish there was a phasing out of the credit, where we weaned buyers off it over the next 6 or 12 months. Cutting it off cold turkey is scaring both buyers (who are panicking if they haven’t found the right house yet) and the entire real estate community at large. Instead, phase it out over time.
That might still keep this real estate train chugging along, and not send the buyer traffic over that edge … and real estate agents following them like lemmings over that cliff.