Life After The Home Buyer Tax Credit

February 25, 2010


Panic at the Bank

Panic at the Bank

There have been a lot of people speculating on what will happen to the market once the Fed stops buying mortgage backed securities and interest rates start to rise… It is logical for me to think that once the tax credit is over and the interest rates start to climb that buyer’s will be scared away from making a purchase. However, I cannot help but notice that often buyers and their buying habits are illogical and therefore I am moved to wonder if buyers will react in an illogical way to the news that it is becoming more expensive to buy a home.

I have had similar concerns as Robert John Anderson’s Article, “Up UP and Away…” and the more I read on the subject the more I start to wonder how much I may be caught up in a trap of logic. For instance, I read a significant amount of blogs from homeowners that are worried that their house is upside down, and want to walk away from their mortgage even though they had no plans to do so before the “bubble burst.” As any seasoned agent will attest real estate is a long term investment. If the home owner stays put and keeps making their payments they will probably weather the storm except in extreme cases. People’s houses are only upside down if they try to sell in this market. Buying high and selling low is a byproduct of panic and doubt in a market driven by hype.

Have We Hit the Bottom?

I wonder if once interest rates start to go up and housing prices continue to rise (in some markets) will people see that the bottom has passed them by and RUSH to catch the “up trend” before prices and rates get too high. I find in may ways people are largely motivated by the taxation of their own procrastination and as such, once they see what their procrastination has cost them in interest rates and housing prices, they may move quickly to avoid missing out even more.

Think of it like this: Joe Smith gets a parking ticket for parking on the North side of the street during the second harvest moon of a leap year (Joe lives in Chicago). Knowing he has time to pay, he does nothing. Then he gets a reminder in the mail a week later telling him he owes the city $60 and he still does nothing. After a couple weeks go by, Joe gets another reminder from the city telling him that in a month the ticket will double. Knowing he has a month Joe still does nothing until the day before the ticket is due and he finds the reminder buried under a pile of other documents and then, with the thought that his procrastination is about to cost him even more money he decides to pay.

In this vein, I hope that Joe Housebuyer starts to see the rates and home prices going up and decides, “gosh I’d better buy that house I’ve been meaning to buy before things get too expensive and I ‘miss out even more.'”

Home Buyer Tax Credit Helps Spur on Sales

As I don’t believe in coincidences, here are some things I have noticed – last year, entering real estate’s slow, season the government announces the first Home Buyer tax credit. At a time of the year when sales usually slump many people hit the market to take advantage and right before it expired there was an enormous flood of buyers pulling the trigger. Then, right in the middle of the slow season, the government decides to extend the credit and even open it’s doors to repeat buyers. Even though buyers were given five months we didn’t see an immediate reaction from them (December and January were slow). February has already started to pick up and it just so happens that this extension will end right at the beginning of what is traditionally the “busy” season in real estate. I’m sure we can all agree that March and April will be a very busy for the same reason that October and November were. I wonder if the flood of last minute buyers that hit the market will pass the baton to the buyers who have been waiting to shop for nicer weather (if anyone doubts this look at any year’s sales numbers Summer vs Winter when a huge tax credit wasn’t involved). These same buyers may also be motivated by the fact that the bottom passed them by while they hibernated over the winter.

Another thing to consider is that even though the Tax Credit is going to expire, many people will still be looking for a home. I have several clients now that, even though they qualify for some portion of the tax credit, have made it clear that finding the right home is more important to them than claiming their portion of the tax credit (many people do not qualify for the full $8,000). In addition, this tax credit has attracted a huge number of people to the market who have no chance of qualifying to buy a home simply to try and “get that money!” After the tax credit is over, many of the “buyers” that decide not to buy will be those people who had no hope of buying in the first place. This could be a boon for us going into the summer when the number of buyers is traditionally higher because agents will not be distracted by “dreamers” and can focus on serious buyers who actually qualify to buy without the hopes of an $8,000 bridge loan, etc. All of this on top of the enormous amount of low-priced Short Sale inventory on the market and even more to come, combined with the Short Sale Guidelines set to kick in on April 5th of this year (another timing “coincidence”) I predict that buyers will have enough motivation to keep the trend on an upward rise and the policies in place to make their purchase go more smoothly.

While there are too many variables to be sure… I remain hopeful.

We would to thank Dominic’s Pics for sharing today’s photo vie Creative Commons License
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About Randy Whiting

Randy Whiting is a respected Chicago real estate agent at Lucid Realty a full-service brokerage that offers discounted commissions to sellers and rebates to buyers. With plenty of experience on both sides of the transaction and all type of sales be they conventional, FHA, short sale, or foreclosure; Randy has an experience-driven comfort level that usually rubs off on his clients. In addition, his experience working with developers allows him to provide an in-depth understanding of new development and gut-rehab properties as well as re-sales. Outside of his work as a realtor, Randy spends his time writing and performing music and enjoying the outdoors as often as possible. You can contact him at

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3 Responses to “Life After The Home Buyer Tax Credit”

  1. Hahahaha Says:

    When the interest rates rise and first time homebuyer credit expires, it will cost more per month for the same house.
    Net result: Home prices will decline even though the monthly mortgage payment will remain the same (due to higher interest). If house prices were to rise or even stay the same with higher interest rates, the monthly mortgage payments would be beyond many buyers.


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