no this is not a trick or treat type of joke – I’m serious! If you’re in the market for real estate, wait until after the tax credit ends. Why? I will give you a few moments to think it through……………………………………………..
OK enough time? You got the reason? Here’s why…
According to Bloomberg, car sales dropped 23% after Cash for Clunkers expired. Cash for Clunkers and the $8,000 tax credit for new home buyers are both what my old business school professor would call “gimmicks.”
CFC was a much higher percentage of a car price than the home buyer credit is of a home price, so this should exacerbate the issue. In a nutshell, some people will frantically rush around to get a house before the credit expires – this will cause some people who might have waited a little longer, to buy sooner. This frenzy (highlighted on some TV news shows and which Congressmen even say it works only because it creates a ‘sense of urgency‘), will cause home prices to rise a bit along with the increased demand.
But what do you think will happen the day after the credit expires? yeah you got my drift – there will likely be a demand vacuum and I would hypothesize that you could get more than $8,000 off of an asking price AFTER the credit ends, when fewer buyers are around – especially if it’s offseason. It looks like they might expand the credit until June 2010 – just as the Spring home buying season ends – therefore, next summer might be a good target time to start making offers, unless we have the usually awful and slow winter (when I bought my home).
If you don’t want to be broke, don’t make broke people decisions – buy when others don’t. BE A CONTRARIAN! I hear so many sheep (people) say they will buy in the Spring – how dumb is that? How DUMB is that? I’ll give you an example. A few years back, a nice house listed in Medford, MA for $540,000. It did not sell as the market was growing weaker – all through the summer, fall, and winter it did not sell as the seller lowered the asking price all the way to $460,000! The seller took the listing off the market in February the following year, then relisted in late March and sold it for $540,000. Some fool could’ve had the house $80,000 cheaper but perhaps this buyer didn’t “go out looking” until Spring – a costly mistake.
Go against the grain – if you can find a great deal with the credit, great – but I would guess you’d find an even better deal after the credit expires. By the way, to be an ultimate contrarian, you may want to avoid real estate altogether. We may need another 15% to the downside to factor in future rate increases and further unemployment. Just a thought…