Leaders in the Senate are currently working to extend and then systematically phase out the $8,000 first-time homebuyer credit. The credit which was originally destined to expire on November 30th, has helped to boost low-end home sales across the country. Under the proposed extension, buyers closing on their homes prior to April 1st would receive the full $8,000 tax credit. The value of the tax credit would then drop $2,000 each quarter until it expires at the end of next year.
Whether or not this extension gets passed, it will be interesting to see how the housing market acts over the next 6 months. One could argue that even if the credit is extended, it has already used up the majority of its impact. If you think about it, first-time homebuyers who were interested in taking advantage of the credit have most likely done so by now. So the benefits of extending it are probably quite minimal. I’ll be looking out for some deterioration in home sales / prices in the upcoming months. As I’ve stated previously, credits like this one and cash for clunkers boost current demand by pulling future demand forward.
If we get through the next few months without a significant lull in housing activity, it would be a very positive signal that we’re seeing a true recovery; as opposed to a temporary improvement caused by government intervention.
Where do you see the housing market going in 2010?
I think we could see some turbulence in the housing market in 2010. There are tons of foreclosures still in the pipeline and we are going to start to get another wave of ARM resets in the new year. If mortgage rates go up then things will get really dicey.