Low Rates, Tax Credits Failing to Ignite Housing Market

Reduced home pricesMost market and Congressional factors trying to fire up a stagnate housing market seem to be failing, with 40 days left before significant tax credits for first-time and repeat homebuyers expire – and with key mortgage rates still at or below 5 percent.
The reports in recent days have surprised analysts, frustrated real estate professionals and concerned Obama Administration officials enough to continue with attempts of shoring up foreclosure rescue programs, including the first plan to accelerate normally complex and protracted short sales.
“Unfortunately, despite the high hopes associated with the extended and expanded homebuyer tax credit, housing activity appears to have faced a setback that went beyond the impact of adverse weather conditions,” Fannie Mae reported last week in its housing market analysis. “Continued recovery in housing is the key to a durable economic recovery, and a renewed decline in activity adds downside risks to that outlook.”
The mortgage financing giant added that it believes the housing setback to be a temporary one, but the rebound expected later this year will be “at a lower trajectory than previously projected.”
Sales of existing and new homes either were flat or saw surprises declines in January and February, even after discounting severe winter weather in some parts of the nation. In the meantime, rates on long-term mortgages are holding their own, hovering near the key level of 5 percent.
Zillow.com reports today that the 30-year-fixed rate mortgage slipped to 4.90 percent by mid-afternoon, from yesterday’s 4.92 percent. The record low was 4.71 percent in early December, based on Freddie Mac records dating back to 1971.
Even the number of homeowners refinancing to take advantage of low rates is on the decline.
The refinance share of mortgage activity slumped to 65.0 percent of total applications in the third week of March, from 67.3 percent the previous week – the lowest refinance share observed since late October 2009, according to the Mortgage Bankers Association’s Weekly Mortgage Applications Survey.
But what is probably the most concerning element of the weak housing market is the apparent lack of interest in the first-time homebuyer tax credit that was extended in November to its current deadline of April 30, and expanded to include repeat homebuyers who meet certain conditions.
Fannie Mae gave the most revealing reasoning for the tax credits failing to draw buyers so far in 2010. 
The pool of qualified first-time homebuyers may have “dried up” last year through the program’s first deadline in November, Fannie Mae said. And repeat homebuyers who qualify likely see their financial incentive – up to a $6,500 tax credit – as too low.
First-time homebuyers can qualify for a credit of up to $8,000.
“The 2009 first-time homebuyer tax credit may have dried up the pool of qualified first-time homebuyers,” Fannie Mae said. “In addition, while the tax credit was extended to cover repeat buyers, the amount of the credit was smaller than that for first-time homebuyers.”
The tax incentive of up to $6,500 may not be enough to “induce many homeowners to move, given that current homeowners generally must incur commission costs to sell their current homes, a cost not incurred by first-time homebuyers.”

3 thoughts on “Low Rates, Tax Credits Failing to Ignite Housing Market

  • March 28, 2010 at 8:59 pm

    First off if Obama wants to stem foreclosures he needs to push one thing and one thing only – Jobs. If the President and the Congress would devote themselves to creating jobs in this Country the same way they devoted themselves to Heath Care there would be a recovery. I think that it is wrong for the Government to be involved in foreclosure cases as they have tried to do with HAMP and HARP when these programs do not work. Besides Foreclosure is a civil matter and should be free of government involvement. I live in a State (Florida) that already has foreclosure relief for defaulting borrowers and its called the Judicial Process! a defaulting borrower can live rent free for as many as 12 months before even going to Court. If they cannot fix their problems with the contract that THEY signed and KNEW the consequences of a default why should the American Tax Payer have to assist in these new government incentives to banks to make modifications?

  • March 29, 2010 at 8:33 am

    The goverment needs to let the housing market find a true bottom. All of the programs are costing lots of money for tax payers and will only slow down the market from reaching it’s true state.

  • March 29, 2010 at 10:09 am

    You are exactly right. Although providing more government jobs is socialist involvement of the government as well. But I agree, they should save the tax credits for jobs which in turn create money to pay for mortgages and keep people in their homes or increase home sales etc. Construction workers need to go into a field that consitantly pays like engineering.

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