Apparently the Government’s 1st time homebuyers tax credit is BACKFIRING on the people who took advantage of it. Obviously NO ONE ON EARTH could have foreseen this. Why is it our Government and Elites CANNOT grasp the ramifications of anything they do?
It is obvious that the Government is trying to create a seller’s market and a buyer’s market in Real Estate AT THE SAME TIME. This is not sustainable. It is another example of the Cargo Cult mentality. Once housing prices have gone up and people have an EXPECTATION the Government twists itself into knots trying to support the status quo irrespective of the damage it does elsewhere in the market. Their chosen method of “keeping home values” up was to try to sustain the Demand side with monetary assistance but what they completely failed to grasp was that WITHOUT THE EASY CREDIT afforded during the boom there was NO way for most of the type of person who cared about $8000 (lower-income, FHA buyers) to buy a home because they couldn’t qualify for a mortgage! The people most able to qualify for a mortgage were smart enough to WAIT until the spike in prices jinned up by the artificial demand of the credit subsided–I had more activity a month after the 5/31/10 deadline than during the credit period and the buyers were more qualified AND were buying more expensive houses!
The tax credit caused a lot of irrational behavior among customers. Of course, everyone in Real Estate already knows that sellers are insane, refuse to understand economics, all think their houses are made of gold and think that their home’s Value is a Platonic Form floating in the ether unrelated to market forces, but the credit period showed that many of them were simply nuts. There were sellers who refused perfectly good offers at the cut off date (or who stood pat on post-inspection repair requests and LOST THE DEAL) who refused to understand the IMMEDIATE drop in prices that would follow in the wake of the credit’s end. There is no talking to them. That sellers have WAY too much input in the pricing of their homes is part of the problem–their criteria for judging their homes value is rarely objective and they are very emotional about it.
On the Buyer end you have people’s irrational belief that paying 6% more for a house to get “cash back” for closing is a big bargain for them. It is very likely this practice that causes many lower-income people to immediately lose value in their homes the second they close. It is also another distortion in the market that is keeping home prices artificially high–as the seller only nets the amount AFTER the assist but the APPRAISERS value you the homes based on the final price including the assist. If the Government really wanted to help poorer people buy homes in a way that didn’t distort the values as much it would figure out a way to help them with the outrageous closing costs which are usually 1.5-2 times the FHA DOWNPAYMENT in a lower priced starter home.
The Government’s incessant tinkering with the Real Estate market has to end. Houses are overvalued–period. You know how we know this? LOOK HOW MANY HOUSES ARE ON THE MARKET. When Walmart has too many of a certain type of socks they go in the bargain bin. Real Estate need a clearance sale.