Back when everyone was riding the tax credit bandwagon, you called it right
The sharp downturn in the real estate market we are seeing right now is too often being greeted as a big surprise.
It's kind of amazing given the countless hundreds if not thousands of stories written this past spring about homeowners racing to snag a home, any home, to get that $8,000 stimulus.
But the press and more than a few otherwise smart market observers weren't too interested in looking at how bad things might get after the tax credit expired on April 30th.
Too bad more of them weren't reading the comments on this blog, which, as far back as early December, were calling this one correctly.
Here are some pretty prescient comments made on a blog I wrote on Dec. 9th about increasing signs of "tax credit addiction."
Dreston78 wrote:
"Hate it or love it, the tax credit is increasingly calling the tune in this market."
Yes it has, and when it expires next year, assuming it isn't extended again or replaced with some other form of stimulus, the tune of the market will be one of a continued downtrend. And given that the tax credit will be expiring right about the time that we are getting the first peak in Prime, Alt A and Option ARM resets (the larger peak comes in mid 2011), I suspect that the market will look much, much worse than it does today.
BostonCharles wrote:
yep, the govt is keeping the real estate market afloat, its not just the credit.
Saying this market is healthy is like saying someone in the ICU on a heart-lung machine is healthy. Healthy doesn't immediately blow up if you pull the plug on life support.
And what no one seems to be taking into account is that the govt HAS to pull the plug at some point. Not necessarily on the tax credit, but on all the mortgage support programs.
If the FHA were private, it'd be bankrupt. Take a look at how much of the market its guaranteeing.
If the Fed weren't buying agency bonds, rates would rise. There goes record affordability and a lot of buyers. (Accidental Landlord posted elsewhere that this would be a 1% blip, which is a number that seems plausible, and still would be ugly in a market this fragile).
Remember, affordability hasn't been driven so much by falling prices as by falling rates. If you compare real estate prices now to prices pre-bubble, they are still well higher. That should make people nervous.
Zaphod-Beeblebrox wrote:
As a prospective buyer, I know where my interests lie: I stand to pay a lot less as rising interest rates and the cessation of government housing market bailouts push down home prices further.
Put another way, the risk of potential financial losses for my family is simply too great to consider buying while the entire housing market is propped up by government manipulation.
