Home "SELLERS" better act fast before the tax credit ends!!

Market Vacuum: Effect of the Real Estate Stimulus

The Real Estate Stimulus with its $8,000 tax credit has been very effective at getting buyers who have been sitting on the fence to jump off and purchase.  Inventories have been dropping in the Treasure Valley and beyond, prices appear to have stabilized for the time being and many new home owners are enjoying the benefits of home ownership.  Many of them probably would still be waiting to see how far the market could fall.

Now the House and the Senate have passed a bill, attached to the unemployment extension act that President Obama is sure to sign.  It will extend the $8,000 tax credit for first time home buyers who purchase by April.  In addition, if you have owed a home and have occupied it for 5 of the last 8 years, you are eligible for a $6,500 tax credit if you purchase a home by April of 2010 and close by July.  These measures are sure to reduce inventories further.

Remember Cash for Clunkers.  That stimulated the auto industry.  It didn’t accomplish the desired goal of reducing gasoline consumption in the US because the guidelines were to loose.  The majority of the autos purchased were pickups and SUV’s, but it helped the auto makers and dealers reduce inventories.  Now that the program is over, auto dealers are experiencing a severe slump in sales.  Just like the Europeans experienced when they used the same tactic to stimulate auto sales in the 90’s.  Future car buyers were sucked out of the market so they could enjoy the tax break.

When this Real Estate Stimulus ends in July of 2010, the Real Estate Industry will suffer the same effect as the Auto Industry.  Future real estate purchasers are being sucked out of the market because of the stimulus.  Buyers that would have purchased in the last half of 2010 or 2011 will have already made their move based on a tax stimulus with an expiration date.  Remember, this started in the last year of the Bush administration, so when the stimulus ends it will have been in affect for almost three years.  Three years in which many buyers would have waited had it not been for the tax credit.  The market consequences will be painful for anyone wishing to sell after July of 2010 and the correction from the stimulus will take a while.  My advice to sellers is; if you want to move in 2010, you to need to act now. The market will be slow in recovering from being over stimulated.

 

Dan Frison

Real Estate Professional, Team Leader & Co-Founder

of the Advantage Real Estate Team