Watching $8,000 Go Bye Bye

Forecasting With Tax Credit Expiration Approaching

Yesterday’s piece noted builder confidence and how they have steadily improved over the summer. With the expiration of the $8,000 federal tax credit looming, though, it remains to be seen if that sentiment will continue to build. In fact, single-family homes dropped for the first time since January last month, off 3% from the previous month.

If the tax incentive really is not extended (some appear to be counting on an extension) that will leave two main factors to drive recovery. One is the fact that homebuyers and investors who are in solid shape can pick up good value for their money. The other is that mortgage rates remain favorable. Some analysts argue that those two factors are enough to encourage activity, as many people fear missing out either on locking in a low rate or the ability to afford more house than previously anticipated.

Opportunity:

Even with sufficient demand in the market, supply is almost assuredly going to remain high until foreclosures come back down to normal. Given that, it is hard to imagine values spiking higher in any meaningful way in the short term. Sellers will be forced to find a balance between having a house presentable enough to sell in an oversaturated market versus losing their investment in the process.

Buyers, on the other hand, have an opportunity to gather property while values are as low as they are. Those who can buy and hold stand to gain in the long run, as investor willingness to snap up foreclosures showed already in 2009.

More of the same could be on tap for 2010.

Watching $8,000 Go Bye Bye