Home Buyer Enthusiasm Fades As Tax Credits Expire

Posted by: Chris Palmeri on August 28, 2009

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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.

Reader Comments

Richard Michael Abraham

August 29, 2009 9:40 AM

Americans, Keep Holding on to your Purse Strings, Good for You.

How can anyone forget a few days after the terrible tragedy of 9/11, how President Bush spoke to all American citizens?

All of us thought we would hear comforting words but instead, in this saddest moment in American history, the President could only think to say words to the affect, “My friends, what you need to do is go shopping.”

70% of the United States’ GNP is based on American consumer spending. Indeed, the World economy depended on Americans to spend their money buying goods and services. American citizens’ consuming kept the economy going in the United States and Worldwide.

Now, Americans, financially crippled and hurt so badly, have gotten smart, and are being patriotic to themselves, fearful of the economic deception, Wall Street corruption, Madison Ave. slick consume campaigns, bursting of the real estate bubble, not to mention the many perverse or corrupt senators, congressmen and governors.

And from lessons learned the hard way, Americans are, for the first time and correctly so, holding on to their purse strings.

The U.S. Government is pouring billions of dollars into the economy, all borrowed money. That will create such a deficit, that the interest alone on the debt will turn the “dollar” into a quarter, thus causing the worst inflation in American history.

That means that every dollar saved by Americans now may only be worth 25 cents in the future.

Still, 25 cents on the dollar, is 25 times greater than the Americans who now use all of their discretionary money to consume. Those who consume their dollars now will have zero left.

Saving your money now is the very safest way to survive what’s ahead of us.

The options are not promising. Buying durables e.g. cars, appliances, etc., are nice to have, but fall about 20% in value the moment delivered to you. Buying stocks in an insider/player stock market is guaranteed to wipe you out, because of stock market insider/player manipulation.

Indeed, the most favorable position to be in is to have a job or income, and instead of consuming or investing, save, save, save.

Wait for all the cookies to crumble and then, and only then, buy at the very bottom. We are not even close yet to the bottom as recently suggested in talk of recovery, e.g. more existing home sales, slightly increased new home construction.

What has caused recent housing “green shoots” is the amount of foreclosures, short sales and tax credit first time buyer home purchases. The foreclosures and short sales will continue, and unless extended, it’s already almost too late for tax credit first time buyers to close before the deadline. Now, home sales will fall, and prices will fall even lower.

Anyone considering consuming or spending their money, this time around, has a patriotic duty to their wellbeing to wait until January, 2010.

I forecast that between now, September through December, 2009, the U.S. Economy will show it’s true colors. Americans, Keep Holding on to your Purse Strings, Good for You.

Warmest,

Richard Michael Abraham, Founder

The REDI Foundation www.redii.org info@redii.org

Bryan

August 31, 2009 1:22 AM

This whole credit thing is so stupid since the state of CA has a budget problem. Why don't we just give a check to everyone then no one would need a job. The price house is still very expensive and not everyone can afford it.

Bryan

August 31, 2009 1:29 AM

It seems to me that BW works for home builders because every article from this website wants the price of housing to go up. The state of CA has the budget crisis, hello!!!

fjdlajnf

August 31, 2009 12:35 PM

they should lower the price and tax prices

Wes

September 2, 2009 6:24 AM

I hope this is the end of this area of gov't manipulation of housing prices. These tax credits just distort the market and obscure true demand.

Erin

October 15, 2009 7:12 PM

Wow, hot topic!!

I wonder if it might help for people considering using this tax credit for a first home purchase to get some more info before signing the contract.

I've been checking out a new site http://www.firsthomeexperience.com/main/ and it's been pretty helpful.

If you have a minute could you check it out and let me know what you think?

David hogard

October 21, 2009 8:58 AM

I very much great full to you For sharing this .Anyone considering consuming or spending their money, this time around, has a patriotic duty to their wellbeing to wait until January, 2010.


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About

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.

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