Wednesday, July 21, 2010

Stimulus Money

Everywhere I've driven lately seems to have road construction going on, and it seems to be paid for by Federal stimulus money. You certainly can't tell by driving around that towns and cities are in fiscal crisis! The real estate stimulus money is gone, even though closings that were delayed can still take place through an extension bill passed recently.

I was one of those who thought that giving a tax credit to first-time homebuyers was unnecessary. First of all, they are the people most likely to buy under any circumstances. Secondly, interest rates are very low. And lastly, I thought it was repeat and second-home buyers who needed pushing.

I guess I was both right and wrong. Most buyers didn't even qualify for the full tax credit, or even part of it. Although the second version of the credit allowed repeat buyers to participate, many of them earned too much to get the benefit. However, it's clear that sales plummeted as soon as the stimulus money expired. That indicates that even those who did not get the money back were affected by the offer. And, as we all know, perception is reality. Whatever it took to get buyers off the fence was needed, and the tax credit seemed to help. It moved people who would have bought anyway into an earlier closing, which pushed sales up in the first part of the year, and will have a negative effect in the second half.

There is another kind of stimulus available, however, and that's a perceived bargain. Sellers can make their properties attractive by lowering prices. There's a great deal of evidence that that is exactly what's happening in some segments of the market. Things are selling, but at discounts off the asking prices. Even in New York City, long considered exempt from the housing recession, recent articles have referred to big discounts leading to sales. Until the Federal government acts to spur housing again, we'll have to depend upon owners doing it through pricing. And, given the normal seasonal fluctuations in the market, they'll have to do it soon if they want to sell in 2010.