Despite all the yelling about the need for a government exit strategy
from its massive economic bailouts, real estate welfare is still
cooking with gas.
Last night the Senate voted cloture on a bill that includes the extension of the
first time home buyer tax credit.
While this is not the final vote, it effectively seals the deal on the
plan to extend the $8000 first time buyer credit through April 30th and
expand said credit to move-up buyers on a smaller ($6500) scale.
On top of that, Congress already extended the
higher GSE/FHA loan limits that were put in place to help more buyers
take advantage of lower mortgage rates. And then there's the
"Net Operating Loss" carryback extension, which I
blogged about previously, and which will add more cash to the coffers of the nation's home builders.
Add it all up and it's another big vat o' juice for the U.S. housing market. Or is it?
Builders
themselves say they are more likely to hold on to that NOL cash than to
invest it in new jobs or new homes. And as for the tax credit
extension, industry estimates are that this year's first time home
buyer tax credit added 350,000 home buyers to the market who otherwise
would not have purchased homes. These buyers were almost entirely on
the low end of the market. 70 percent of home sales in September were
of homes under $250,000.
Let's do a little math here, shall we?
A
few weeks ago the Deputy Commissioner for Services and Enforcement at
the IRS, Linda E. Stiff, testified before Congress that between January
2009 and September 2009 the IRS has processed claims from more than 1.5
million individuals or families who have purchased homes. So 350,000 is
a little over 23 percent of 1.5 million. That says that at least 70
percent of buyers would have bought their homes without said credit.
I'm not saying the boost wasn't important, and we already see a bump up
in pending home sales, showing a lot of folks trying to get in under
the wire of when they thought the tax credit was going to expire (Nov.
30, 2009), so I have to wonder about how much "demand" has been pulled
forward from the future into this year because of the bonus credit, and
therefore how much more of a boost are we going to get from the
extension.
Now granted, the extension is also an expansion, giving some move up
buyers $6500 more in purchasing power, but that's only up to the income
cap of $150,000 for single filers and $225,000 for joint
filers...again, covering an awful lot of Americans, but not everyone.
So where am I going with all this?
I still think we're creating a bifurcated recovery. I understand that
much of the pain in the housing market is on the low end, where
foreclosures rule, and that's where we need to do the bulk of the
cleanup work. But I don't think we're paying enough attention to the
move up market, and I don't mean the million dollar market, I mean the
homes between $250,000 and $500,000. This sector is being hit hard by
unemployment, and will inevitably be the new wave of homes going into
foreclosure, because they can't sell.
I'm also wondering how much the tax credit extension is going to help,
seeing as it doesn't extend through the most critical season in the
housing market. Contracts must be signed by April 30th, yes, they can
close by June 30th, but that means the tax credit is ending just as the
Spring season is beginning. I'm not taking any side on government
intervention today, but if you're going to do it, then do it. This
extension is sort of like offering cheap snow boots in July.
Source:Reality Check-cnbc.com
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