As of today, the First-Time Homebuyer Tax Credit is still set to expire on November 30, 2009. Of course, there are proposals to extend, and possibly, expand that incentive for at least a few more months, but there is nothing certain, except that purchases completed during an extension period will qualify for whatever incentive is available at that time — if any.
In the meantime, at least two other factors are important for prospective home buyers who have stopped their searches now, frustrated that they may not be able to close by November 30:
— First, in most markets the trend for home prices in the coming months is almost certainly UP. Even 3% increase in the value of a $185.000 house (approximate median in today’s Austin Metro market) will raise the price by $5,550.
— Second, there is already upward pressure on mortgage interest rates, and the Fed is planning to reduce or eliminate its purchases of mortgage-backed securities. Their participation in that market has artifically held interest rates down for many months. A reduced role will cause interest rates to rise.
But back to the Tax Credit: Realistically, it is already too late for most buyers to participate in the current program. If a home isn’t under contract today and scheduled for closing, many/most lenders won’t be able to guarantee closing before the end of November, and title company calendars are already filling up for the last week of November. But …
Buyers who keep shopping now will be able to take advantage of any extension of the tax credit program that is enacted, and by moving sooner rather than later they’ll be able to capitalize on today’s lower prices and interest rates as well. If a buyer is considering a home for $185,000 today and has access to a minimum down payment FHA loan at 5% interest, the payment (P&I) would be $959. If that price rises 3% and the interest rate increases to just 5.5%, that P&I payment would be $1,045 — an extra $86 per month! If the interest rate goes up another 1/2 point to 6%, the monthly payment would be almost $150 per month higher than if the purchase were completed now!!!!
I talk to people almost every day who think, “If I can’t get the tax credit, there’s no point in buying now.” That is absolutely not true. All the reasons that home ownership is better than renting for most people are still valid today. Plus, there is every reason to believe that we are on the growth side of a new market cycle, so buying now offers the greatest opportunity for real equity growth in the coming years.