I knew it was coming, but I guess I was hoping it wouldn't be quite so tunnel-visioned. The Realtor's chief economist, Lawrence Yun, released his Housing and Economic Forecast this afternoon.
The extension and expansion of the first time home buyer tax credit was the lead, as expected, with Yun claiming it would bring not only home sales but home prices back out of the basement in 2010.
“Given the success of the first-time buyer tax credit to date, and the need for qualified buyers to continue to absorb inventory that will include additional foreclosures over the coming year, we are hopeful about the impact of the expanded tax credit because it will stabilize home prices,” he said. “In fact, the credit is working better than first projected – it now looks like we’ll have 2.3 to 2.4 million first-time buyers this year.”
I'm not sure the first part of that even makes sense. Yes, the credit was successful this year, as the Realtors' own survey finds a record 47% of home purchases were by first time buyers, but "the need for qualified buyers to absorb inventory" is not a reason for a run on homes.
The fact is that the large majority of activity in the housing market is on the lowest of the low end homes, many (21 percent) well under $100,000. This is why foreclosure inventory is falling dramatically in the hard hit states that have accounted for the bulk of the housing crash. Yes, these cheap homes are attractive to first time buyers, but they're even more attractive to investors, who are, in some cases, just keeping them vacant because the rental market is so bad right now. Investors can't qualify for the tax credit, but they can make it very difficult for first time buyers to get to those cheap homes, because investors are paying cash, which the banks quite prefer (the banks being the owners of all these homes). Remember my friends who tried to buy in Las Vegas??
The tax credit only goes through the end of April, which is just the beginning of the traditionally busy season in housing. I'm sure we'll see another surge of sales before the new credit expires again. Perhaps it will be enough to bring confidence back to the overall market, but if what I'm hearing from all of you who write in to the Realty Check (on the blog and off), the mid to high end of the housing market is still in real trouble. I'm not talking about million dollar homes, I'm talking of the $250K-$750K area.
I hate to say it, but I don't think the tax credit extension is going to cure all the ills that continue to plague housing. I do believe we're going to begin to see real recovery in some areas in 2010, and declines in prices will moderate. An improved economy will do wonders for confidence and consequently housing, but there's still too much temporary government stimulus in the mix, not the least of which is the Fed's program to buy everything Fannie and Freddie have to offer. That ends at the end of March, and mortgage rates won't like that.
It will be a slow climb back, and the tax credit is just one small engine.
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