Can low mortgage rates fill up the void for tax-credits in SF Bay Area?

A Business Report appearing in San Francisco Chronicle analyses the above question in detail. Here are some of the interesting points raised:

To refresh memory – federal government announced tax incentives to make way for speedy recovery of economy and enthuse home buyers to engage in buying activity. To become eligible for the tax break – $8,000 for first-time home buyers and $6,500 for those already own a home and buying another to move in – the stipulation was purchasers must have entered into a binding contract with the sellers latest by April 30. The deadline for closing the deal was June 30, but Congress extended it to Sept.30 last week.

Experts say the extension gives buyers time to finish up their paperwork only. It does not create new tax breaks for people, who were not in escrow before May 1, and the housing industry does not plan to press for another credit either.

The tax incentives boosted home sales in all the housing markets, including the 9-county SF Bay Area – no denying. It is reported that after the eligibility for tax credit expired at the end of April, new home sales plunged 33 percent in May. Existing home sales fell a more modest 2.2 percent, but that was worse than expected.

Brad Kemp, director of regional research for Beacon Economics, puts it nicely thus -“A lot of demand was pulled forward by the program”. He compares it to putting a tablecloth on a table and pulling it towards you. It will bunch up in the front, leaving an empty space behind.  He says “That’s where we are now, in the trough behind the incentive program”.

Lucien Salvant, a spokesman for the National Association of Realtors says “It’s time for the housing market to stand on its own two feet.”

Now Freddie Mac reported that the average rate on a 30-year fixed rate conforming loan was 4.58 percent last week, the lowest since it started keeping track in 1971. That was down from 4.69 percent the previous week and 5.32 percent this time last year.

But market analysts say they won’t fill the void in the housing market left by the expired home-buyer tax credit, which is not likely to be revived.

Posted by Amitesh Kumar on Jul 9 2010. Filed under Economy, Housing. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry