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Just when the home building industry seemed to be bouncing back, news from California raises troubling questions. The California Building Industry Association says its members reported a significant drop in traffic to their developments in July because the state stopped taking applications for a $10,000 tax credit for new home buyers.
The $10,000 credit was authorized by the state legislature last February as a way to jump start California construction jobs. The credit, coupled with the $8,000 federal new home buyer credit, had been a big reason why builders in California saw a jump in sales this past spring.
Now with the initial funding exhausted, buyers are less eager. “Activity stopped as quickly as it started, which is bad news for housing and the broader economy,” says Robert Rivinius, the builder association’s president. The trade group is lobbying to get the credit extended.
That the expiration of the state tax credits already seems to be dampening buyer enthusiasm in California doesn’t bode well for the home building, real estate sales or auto manufacturing industries nationwide. As the initial boost from government incentives ends, those industries could post poor sales numbers again.
Overall home sales increased 12 percent in July in California compared with the same period a year ago. But a lot that may be due to the still-in-place federal tax credit. (The state credit applied only to buyers of newly-built homes).
“The federal tax credit for first-time buyers played a critical role in the purchase decision of many buyers,” says California Association of Realtors President James Liptak. “Nearly 40 percent of first-time buyers said they would not have purchased a home if the tax credit was not offered.” Realtors are lobbying Congress to extend the federal credit beyond its Dec. 1 deadline, and to include all buyers, not just first-timers.
According to statistics compiled by the Construction Industry Research Board, California homebuilders pulled permits for 2,045 single-family homes in July, down 29 percent from June. The research board also announced that it is revising its home building forecast downward from 40,000 total units to 39,500 in 2009, which would be by far the lowest total on record.
BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.