Sooner or Later the First Time Home Buyer Tax Credit Will Die

Sooner or Later the First Time Home Buyer Tax Credit Will Die

The two most important "unknowns" facing the mortgage industry are these: what will happen to interest rates when the Federal Reserve stops buying GSE MBS and will the expiration of the $8,000 first time home buyer tax credit hammer the real estate business?

Currently — as most mortgage bankers can attest — profit margins are the best they've been in years and plenty of "newbie" home buyers are dipping their toes in the water, believing now is the time to pounce because bargains abound and rates may never be this low again. (I've heard those last two arguments many a time in my 20-plus years in the business.)

It's no secret that both Realtors and mortgage bankers have been heavily marketing the FTHB, warning that time is running out on this $8,000 federal giveaway. At press time it was still unclear whether the White House and Congress would, in fact, extend the credit beyond the November 30 sunset date.

Budget hawks and selected fiscal conservatives alike believe that this "benny" needs to die now before it gets even more expensive than the $15 billion it has already cost.

By now you've heard the arguments from the various trade groups: thousands of consumers have used the FTHB and without it they wouldn't have bought. Maybe so. But eventually this tax give away needs to end.

The problem with holding a "sale" for too long (and let's face it the FTHB is indeed a sale the only different being that Uncle Sam is paying for it and not Macy's) is that after a time it becomes "institutional." Consumers expect it. They consider a birth right.

And maybe Uncle Sam should allow the FTHB to expire as planned at the end of next month. The Mortgage Bankers Association wants it extended for seven more months. The home builders want it for another full year. And both think the credit should be made available to all buyers not just newbies.

This is what will happen if the FTHB dies on schedule: home buyer traffic will decrease, applications will fall and lenders and Realtors alike will cry foul. But if the economy is truly improving perhaps the foot traffic will only slow for a few weeks before reviving.

There are two components to home affordability: rates and home prices. If rates stay low (which they will through February) then for volumes to keep pace sellers might have to drop their prices further. The lower the price, the lower the monthly mortgage payment. Such a scenario speaks to affordability.

Sooner or later, the housing and mortgage industries will have to swim without a life preserver. Now may be the time, as painful as it may be.

—By Paul Muolo

CAMILO MORENO

Mortgage Professional

Purchase Money Specialist

Great western Bancorp Inc.

6033 W. Century Blvd # 700

Los Angeles CA 90045

310 216 1700 ext 116

310 216 1750 Fax

www.gwbmortgage.com