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??