As it stands, a majority of activity seen in the first time housing market over the last few months can be credited to the $8,000 home buyer tax credit.
I recently read an article over at Seekingalpha.com about how the ending of the first time home buyer tax credit will effect not only sales numbers, but housing starts as well. The chart below shows housing start rates over the last year.
In regards to recent housing reports, the activity in building is slowing down. As the deadline for the tax credit draws nearer, we are already seeing a drop in home purchases, which means a drop in housing starts.
Slow Downs Are Coming Earlier Then Expected
We all knew that the end of the tax credit would bring a slow down, but many failed to foresee such an early drop. It takes a month or two to close on a new home, which is discouraging to buyers trying to enter the market at this point in time. It will be very hard to close on a home at this point in order to qualify for the tax credit.
Foreclosure Rates are Picking up Steam
The most disheartening part of all of this lies in foreclosure rates. Homes are still foreclosing at alarming rates. Many economists believe that foreclosure rates will hit new records throughout 2010. Here is an excerpt from the Seekingalpha.com article. Included is a chart of foreclosure filings.
But unfortunately it’s not as simple as just the sales side, as unless inventory is kept under control there will continue to be downward pressure on prices. As it stands, even with the tax credit sales are barely outrunning additional supply. In fact, the last reading on inventories from August showed that August inventory of existing homes is essentially flat with January. The reason is people are still foreclosing on their homes at alarming rates, and the onset of a recession and job losses has only made it worse.
I continue to read conflicting stories about the effectiveness of the tax credit. Many economists believe that it is destroying the economy further, but I am still a believer. Here is why….
Why I Believe In The Tax Credit
Over the past few months, we have seen inventory moving that I don’t believe would have without the tax credit. In fact, we are seeing homes sell in some of the more volatile markets right now. The Cosmopolitan Condos here in Atlanta are sitting at a 95% occupancy rate. I believe their success can be contributed to a combination of the housing tax credit and price reductions. They have sold 105 homes over a three-month span.
I am seeing the tax credit work here in Atlanta. It is hard for me to believe otherwise when I see numbers like these.
Regardless of how you feel about the tax credit, the above should provide you with some good facts to base your decisions on. If you are a believer, I suggest you write your congressman and NAHB to get them to encourage Congress to continue the program.
How do you feel about a possible extension of the tax credit?
Tell us how you feel. Do you think it would be a good or bad thing? Leave a comment below.