photo: sea turtle
The home buyers’ federal tax credit may have given a temporary boost to the market, but its expiration only caused an accelerated housing slide that presents purchasers with a paradox. Despite low mortgage rates and affordable prices in many areas (or expectations that there’s still room for further decline in others), jumping into the market now is more dufficult than ever.
The final tinkering over the $8,000 federal tax credit for first-time home buyers was hashed out in Congress earlier this month, with an extension that gives buyers who entered into binding contracts before April 30 until Sept 30, 2010, to close. Housing experts figure it will help about 180,000 people who might have lost out under the original June 30 deadline.
For the rest of the market, now may still be a great time to buy a house. But even if the odds line up in your favor: you found a home you can afford and you’ve got a secure job with a income stream, getting a mortgage remains difficult. And judging by the number of mortgage applications, consumers are still largely weary of even trying.
In the way of housing recovery: shaky employment
Despite rates averaging 4.68% on a 30-year fixed-rate conventional mortgage, the Mortgage Bankers Association most recently reported yet another weekly drop in new mortgage applications, down 15% from a month ago and nearly 30% compared with the same period a year ago.
“Incoming data on the job and housing markets were weaker than anticipated,” says Michael Fratantoni, vice president of research and economics at the Mortgage Bankers Association.
That’s not much of an incentive to make a big purchase. “There’s still a lot of uncertainty about the direction of this economy, and prospective buyers are scared of getting into a position of being overleveraged again,” says Jack McCabe, an independent housing analyst and president of McCabe Research & Consulting in Deerfield Beach, Fla.
That fear will only go away when the unemployment rate drops, at it’s still uncomfortably high at 9.5%, says Sean Fergus, an analyst at John Burns Real Estate Consulting in Irvine, Calif.
“People don’t make major home purchases when they’re concerned about getting a paycheck next month,” he said. “When people start to get jobs, they’ll eventually buy. That’s really the catalyst we need for and kind of long-term recovery.”
The distorting effect of the $8,000 credit
Before buyers begin returning to the housing market, it needs to sort out the distorting effects of the tax credit program, which disrupted regular buying patterns.
“The sales that happened under the tax credit didn’t really increase the buying pool, but it sure moved a lot of them into the first quarter, not spread out over the next three,” says McCabe.
Factor in the seasonal behavior of a normal market, and it will come as no surprise that sales will stay weak through the summer.
DeAnna Rieber, a broker at Halstead Property in New York, says even relatively low prices won’t do much for activity in her market. “Summer is not, historically, a busy real estate buying season in the New York City area,” she says. “Fall market sales begin to pick up in September.”
Nationwide, sales may not pick up even then, unless banks start lending or the government steps in and provides more support. “We need the banks and other conventional sources of mortgage loans to open up,” says McCabe. “Regardless of the public relations work they’ve been doing, saying they have plenty of money to make loans and are ready to make them, they haven’t been making loans.”
More help wanted?
Still, there are some encouraging signs, says Fergus, particularly in the markets that were hit worst in the housing bust: Las Vegas, Phoenix, and southern California. Real estate investors – not house flippers, but folks who’ll hold these properties for five to seven years, have started coming back to the market, and that’s having positive effects.
“Private mortgage insurance companies are coming back into the market a little bit, and that will slowly open up other avenues for financing, but it’s going to be a slow road,” he says.
That’s not to say the housing market is ready to recover on its own. ”If it wasn’t for FHA financing and the home buyer’s tax credit, we really wouldn’t have had much of a housing market for the last year and a half,” McCabe says. “That’s really what created sales.”