I don’t disagree that home ownership isn’t for everyone. And the pool of people who might be better off as permanent renters is growing each year. Mainly because life has changed and we’ve become so mobile. You no longer get a job at the plant and work there 20 years. The average person owns a home 5 to 7 years, many for a much shorter time.

This is why it’s so important that buyers analyze the purchase also from a strictly financial/investment perspective and make sure they can afford the worst case scenario.

Steve

Current buyers are not the same as previous sub-prime buyers. Underwriting requirements are back where they should have remained all along and loans are being provided only to buyers who demonstrate a properly documented ability to handle to loan payments.

These are good buyers who recognize the opportunity of 1) historic low interest rates and 2) $8K cash rebate.

It’s night and day from the loans that were given to unqualified buyers in the past. And yes, a qualified buyer is better off buying in Austin right now than waiting and renting longer. Waiting for what and renting for what purpose?

I’d advise waiting for anyone not secure in their job or who can’t keep the minimum three year occupancy commitment required by the $8K rebate.

Steve

Perhaps you should have followed your own advice from the previous blog post and advised them to find a cheaper property, or hold off until they’re more financially stable.

Hi Jim, I’ll have to disagree. We’ve closed a number of deals now wherein the the tax credit was the deciding motivation. We currently have two buyers under contracts, both renters, who would not otherwise be in the market right now.

Finally, there is absolutely no way the market would be producing the stats I outlined above in mid-October were it not for the demand being generated by this incentive.

Zach – Agreed. South Austin is enjoying a bump that’s different from the outlying areas. Not sure why that subset of buyers is most active, or, put another way – why do most of the qualified first time buyers posses sensibilities that lead them to better located areas? I don’t know why that is.

Todd – yes, but those same beneficiaries make be suffering the post-rebate slack as well, so I’m not sure it’s a lasting benefit.

Thanks for your comments eveyone.

Steve

I would guess that the biggest net beneficiaries of the $8K program, are those who benefit from the volumes of transactions – realtors, title insurers, appraisers, etc.

I do agree that there is a lot of competition for homes in the SMALL area of South Austin. I recently had a buyer make several offers before finally being accepted for the 4th property.

For her, the location was more important than the $8,000 credit.

HOWEVER, If you go anywhere else (East of 35, Buda/Kyle, North of Austin, etc), the credit seems to have little effect.

It’s a great “bonus” for those that plan to buy. However, for the most part, I feel that these people would be buying whether there was a credit or not.

The credit allows up to 10% of the purchase price or $8,000 max.

So in theory, the buyer would benefit most from purchasing an $80,000 home. Not all areas of the country have homes prices near this range, but imagine getting an $80,000 home for $71,000 and locking in a low interest rate. You could always move out in a few years and hold the home as a rental property.

A $160,000 home is basically getting 5% off the price.

A $200,000 home is 4% off.

$8,000 is a lot of money, but the higher you go, the lower percentage of price it accounts for.

The fact remains, there are still many houses that do not sell or take a long time to sell in South Austin. These are the homes that are run down, have foundation issues, or are hard to access, etc.

The home still must comply with strict appraisal guidelines. So the idea that the purchaser is going to be paying above market is unlikely.

I think that the area would be a fast moving area with or withOUT the credit.

As far as WHO Really benefits:

The Seller – Gets his/her home sold
The Buyer – Gets to buy a home
The Seller (again) – Buys another home or rents (thus allowing another seller to buy/rent, etc chain reaction)
The Listing Agent – Makes a commission
The Buyer Agent – Make a commission
And not to mention everyone else that is involved in the sales process – Title companies, inspectors, appraisers, etc.

This means that the tax credit is NOT increasing the pool of potential buyers, it’s merely encouraging them to buy now instead of waiting. In that sense, the prices aren’t inflated by any means. South Austin is a desirable area and in a tough economy people want good value, which those homes provide. They just weren’t willing to commit.

I think this tax credit is intended to prevent the kind of market crashes that result from lack of confidence, where prices fall really low, buyers get even more nervous, and prices end up falling even lower and a bunch of sellers get foreclosed on.

Whether the current buyers are overpaying is a different story, but that’s their fault for not doing the math, not the government’s

I like Dale’s auto blog. Well written and good info. Thanks for the link.

I really hope they don’t extend the tax buyer credit. We need to start letting the market run its course, for better or worse. I don’t mind that we had the program, but I fear these incentives are causing too much of an imbalance in normal buyer behavior. The auto industry has suffered from this for years now, as they’ve allowed buyers to become addicted to only buying when a special deal is available. We don’t need that to become the case with houses.

Hi Mary, yes, perhaps buyers are buying in to the last, best opportunity to get as close in as they can afford with good interest rates and the bonus on top of that. Time will tell.

Steve

http://www.dalepollak.com/

I’d highly recommend it if you’d like to see how this could potentially play out. The big difference in the two markets is that the federal government is not bulldozing a house for every house that is sold ala cash-for-clunkers, so there won’t necessarily be real scarcity in December. That said, pretty much everyone who’s planning on selling a house in that range could have dumped it on the market right now, and there could be a drought of homes in that price range until next summer. Time will tell.

In South Austin at least, the seller is getting a higher price without concessions. The seller is benefiting from the $8,000 tax credit, in many instances, more than the buyer.

I won’t have full stats on the price hikes until mid-December after all the tax credit closings have been posted in the MLS. At that time I’ll have solid numbers. At present, I can only report what I observe.

Thanks for your comments.

Steve