Housing Market - Post Stimulus

When I first heard of the home buyer tax credit extension in November, 2009, I thought it continued to define the term “stimulus”. I believed at the time, and still do today, that the stimulus was necessary to continue to offer incentives to a housing market in need of any support possible. The tax credit did exactly what it was designed to do, and has even been voted to be extended to allow borrowers to maximize its effect due to mortgage company delays in processing loan files by 6/30/10.

As I shared in my 6/25 post, many economic forecasts were predicting rising interest rates around the time of the tax credit sunset. That surprised and concerned me more than anything. How could an economy grow or expand in any positive way with high/ rising unemployment numbers, rising consumer debt, housing inventory surplus, etc… if rates are increased? Quite simply, rising interest rates would have undermined any momentum the markets had gained and would have pushed it backwards. Housing is 20% of the GDP and is vital to lead any sustainable recovery. Studies have shown $63,000 is put into the local economy with every home sale. How could that be compromised? Why would it be compromised?

To further illustrate my beliefs why interest rates would not increase at the tax credit expiration, the S&P/Case Shiller home price indexes show today that U.S. single-family home prices climbed in April from March, driven by a final sales push before tax credits expired, but signs of a sustained recovery have yet to emerge. "Inventory data and foreclosure activity have not shown any signs of improvement," says David Blitzer, chairman of S&P index committee, which publishes the price indexes. "Consistent and sustained boosts to economic growth from housing may have to wait to next year." With the expiration of tax incentives, existing home sales fell 2.2% in May and mortgage applications to buy homes hover at 13-year lows.

What needs to be remembered here is that affordability is tremendous. Lower listing prices combined with mortgage rates lower than they were when the market was being “stimulated” by tax incentives should start creating some more positive trends. Take advantage of the opportunities that are available today. We have learned that traditional benchmarks and indices are not as reliable as they once were. Please guard against complacency…4-5% interest rates should not be considered the norm.