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.
Panic Buying?
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.
Benn Rosales
April 13, 2010 at 8:04 pm
If the tax credit was life support for the economy then agent survival was only a side effect and never the intention. Agents shouldn’t be promoting the end of the credit and the hurry up and buy mentality because they are setting themselves up for failure. Instead, they should be promoting other helpful incentives and guidance on making the decision to buy when the buyer’s time is right. Hurry up and buy got us in this mess in the first place.
I say pull the plug.
Jason Sandquist
April 13, 2010 at 11:23 pm
Agreed
Down with the “hard sale tax credit” mentality
Ashlee in Fort Worth
April 13, 2010 at 8:06 pm
It is amazing how many people are waiting till the last minute to decide to jump off the fence. Now us agents are having to run around like chickens with our heads cut off to find all these people homes! April will def. be a good month for sales!
Erica Ramus
April 13, 2010 at 8:07 pm
Benn you are right. The buyers themselves seem to feel the panic. They want the credit and don’t want to lose the “free money” and yet they want the perfect house.
I am no fan that this started in the first place, but now that it’s here the public is becoming dependent on it, like it’s another entitlement to them.
Erica Ramus
April 13, 2010 at 8:08 pm
Ashlee — I think it’s human nature to procrastinate, or wait to see if something better comes along.
Kathy Bibb
April 13, 2010 at 8:36 pm
Last year, I put some first time buyers in their first homes. I can honestly say that the extension of the credit into 2010 has been less than a blip on the radar screen. It has done little in this market to boost consumer confidence. With the job market and the economy being what it is, a tax credit is little incentive for folks who have little confidence in what their future may hold.
Erica Ramus
April 13, 2010 at 8:48 pm
Kathy–I can account for a handful of sales from it, but nothing significant. And most would have bought eventually, but had the extra incentive of the cash from the government. Nothing of statistical importance, in my book.
Lisa Heindel
April 14, 2010 at 7:42 am
Despite agents touting the tax credit, NAR running ads and umpteen gazillion news reports, many consumers did not/don’t understand the credit, even today. I received a call from a potential buyer this week who asked me “don’t I get $10k from Obama?”
Erica Ramus
April 14, 2010 at 10:10 am
The funny thing is, LISA that the NAR “tax credit is extended” ads are still running. A client heard one this week and called to tell me the good news! It is confusing the public even more. That ad started running in November. Time to change the script!
Fred Romano
April 14, 2010 at 10:06 am
I am happy the credit is ending… it’s all the tax payers filpping the bill to push newbie homeowners to buy and “keep the real estate market alive”, and it needs to end. People will still buy without it. Let’s end this nonsense spending… I sometimes think I should have voted for McCain 🙂
Erica Ramus
April 14, 2010 at 10:12 am
I wish it never had started, but it did. And now we’ve conditioned the buyers to expect money for buying a house. It’s their “right” now, like free money.
I think weaning them off it is the smartest move, but I guess we’ll see what happens in May!
Patrick
April 14, 2010 at 10:23 am
Tax Credit ending…when did it even start? Waste of time and money! Yikes…somebody needs his second cup of coffee!
Jonathan Benya
April 14, 2010 at 11:02 pm
I think the tax credit was well intentioned, but what we’re anticipating is a sudden drop immediately after and then a return to better rates of purchase. The buyers that were planning to buy this summer are rushing to get it done now, but anyone looking to buy 6 months in the future isn’t allowing this tax credit to be a “purchase or bust” situation.
Weaning the public off of it would have been a better option, IMHO, but we’ll see what happens in a few weeks!