“It’s time for the housing market to stand on its own two feet,” says Lucien Salvant, a spokesman for the National Association of Realtors. The tax credit, which was expanded and extended multiple times since the program began in 2008, “did what it was supposed to do,” Salvant says. “Home buyers, mostly first timers, bought lots of distressed properties, which helped to clear the inventory, which in turn helped to stabilize home prices. Right now we don’t have any plans to ask for another credit.” It helps that mortgage rates are falling to new lows. Freddie Mac reported that the average rate on a 30-year fixed-rate conforming loan was 4.58 percent last week, the lowest since it started keeping track in 1971. That was down from 4.69 percent the previous week and 5.32 percent this time last year.
Salvant says the biggest thing that lures buyers into housing is a cheap mortgage. It’s more important than low prices, tax credits or good inventory, he says. Yet he doesn’t think low rates will fully compensate for the loss of the tax credit.
That’s mainly because some of the same factors driving interest rates lower — weak unemployment reports and fears of a double-dip recession — are keeping people out of the housing market.
Salvant disputes the idea that tax incentives drew buyers from the future. He says they drew buyers from the past, stimulating people who had been on the sidelines. “We believe there was pent-up demand from buyers afraid to get into the market,” he says.
With lenders demanding high credit scores and big down payments, low rates are not helping “a huge swath of the population,” says Keith Gumbinger, a vice president with HSH Associates.
Like Kemp, he says tax incentives “borrowed demand from June, July and probably August. There has been no way to restock the pool” of potential buyers, he says.
“The only support available now is low interest rates. The job picture has not improved; underwriting is not easier, home prices haven’t turned around. When prices are rising, people want to jump in. If prices are weak or declining, there is no pressure. Where is the spark for housing?”
That doesn’t mean this is a bad time to buy. “The longer your time horizon, the more likely that you will see not only a full recovery (in home prices) but probably reasonable appreciation. If you have a shortish time horizon, five years or under, there is a reasonable risk you could lose money. Trying to time the bottom of the market is almost never a good thing unless you are an experienced pro and willing to lose.”
Kemp says this is a “phenomenal time to buy,” as long as you look at a home as forced savings, not an investment. “It’s putting money into a piggy bank.” If you earn some interest, in the form of appreciation, that’s nice, “but don’t think of it as an investment that’s going to return you a large percentage profit.”