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Published: August 27, 2009
My father's been a real estate investor for more than 30 years.
He typically buys old, dilapidated homes, repairs them and then
rents them out.
After being around the business so long, I was surprised when he
told me right now is one of the slowest periods he's ever seen.
While there are always one or two of his apartments available,
he told me now he has six open.
So what's causing this rental slowdown? Sure the economy is
rough, but I think Uncle Sam's to blame.
A Good Deal For Renters Turned Homebuyers
You may have heard about the first-time homebuyer's tax credit.
This is an $8,000 bonus being extended to first-time buyers who
close on a home by November 30th. The program is pretty simple
-- buy a home, and the government will give you up to $8,000
come tax time. If your loan is backed by the Federal Housing
Administration (FHA), that amount can even be applied upfront to
your purchase.
This tax credit is bringing all sorts of buyers out of the
woodwork. The person my dad might have rented to is now opting
to buy a house instead. It's not surprising that existing home
sales have risen for three consecutive months, and according to
several sources, real estate agents are seeing a frenzy of
first-time buyers. Most of these buyers are pushing to close by
the November 30th deadline.
Over the next few months, don't be surprised to continue seeing
a spike in home sales, and I bet first-time buyers will make 50%
or more of sales as we approach the November 30th deadline.
So why do I think you should wait until after the tax-credit
deadline has passed to buy your home (especially since I think
mortgage rates are going higher in the future)?
Too Popular a Program to Stop
The answer is simple. If you're a
first-time buyer, you can buy now,
but you're likely to get a second
chance at the $8,000 credit anyway.
If you aren't a first-time buyer, I
think you're about to get a
sweetheart deal of your own.
If you don't believe me, just look
to recent history. The government's
"Cash for Clunkers" program has been
a resounding success. It took only a
week to race through the first $1
billion allotted.
The program has been adored by the
public, and Washington was more than
happy to allocate more funds to the
program -- and actually be lauded
for the money it was spending. It
only took a few days for $2 billion
more to be funneled to the program.
We're seeing the same scenario
unfold in the housing market. The
tax-credit has no doubt been popular
and done exactly what it was
designed to do -- stimulate the
housing market. The chances of
ending such a popular and successful
program look slim as long as there
is still strong demand.
Meanwhile, those looking to buy a
home but who aren't first-time
buyers have been left out in the
cold when it comes to incentives,
and that's a lot of folks (the home
ownership rate in the United States
is about 67%).
As a result, less-expensive homes
(which are normally bought by
first-time homebuyers) are seeing
brisk sales, while pricier homes
(typically bought by buyers who are
"moving up" the real estate ladder)
aren't moving.
With the proven success of the tax
credit, you can bet the pressure
will soon be on Washington to help
jumpstart the entire real estate
market, not just the lower end. And
what better time for these
incentives to start than on December
1st, when the likely extension on
the credit for first-time homebuyers
will also be enacted?
The result should mean great
incentives for all homebuyers, but
only those who wait just a few more
months.
-- Tanner Callais
Staff Writer
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