As we draw closer to the November 30th Deadline for taking advantage of the $8,000 First Time Home Buyer Tax Credit, the chatter about extending it is reaching a fever pitch. While this topic of conversation is very popular, I believe the extension will not be coming anytime soon for 3 reason: Urgency, Credibility, and Politics.
The first issue I bring up is urgency. One of the first rules of Marketing for the purpose of increasing sales is to create a sense of urgency. Any incentive to purchase that never expires is really not an incentive at all, but rather a normal feature of that business. Limited availability of a significant savings or reward is intended to spur people into action, and that is what the Tax Credit was designed to do. The "Cash for Clunkers"program is a prime example of this response to limited availability.
This brings me to my second point - Credibility. Remember the original First Time Home Buyer Tax Credit that was part of the initial Stimulus Bill? That is the one where the credit was for $7,500, and took the form of a no interest loan repaid through taxes over a 15 year period. Buyers that purchased under that program are not exactly thrilled that they have to repay their tax credit when those who waited are getting more money, and don't have to make any repayment. The last thing we need is for potential buyers to start holding out for a better deal in the "next stimulus."
Finally, there is the political angle to all of this. Politicians are some of the best sales people on the planet, and they are in a position to maximize their returns. Right now, they can point to this program, and take credit for the positive results in the housing market's increased sales year over year. That is also the reason they chose an expiration date of November 30th rather than the end of the calendar year. What typically happens to home salesat this point of the year? They decline of course, which is why we have "seasonally adjusted" housing statistics. Our elected Representatives will get to go home on their holiday break, and "listen to their constituents" who will point out that sales are down (as they are every year at this time). Then they will be able to return to Washington DC, playing the role of Hero by either extending the Tax Credit, or creating another all new one in order to "jump start" housing again as we head into Spring.
In the end, the tax credit has been an effective tool in helping to boost home sales, but the housing market is far from cured. The result is that we do need some ongoing help(especially in the" move up" market), but hopefully we do not become viewed in the same light as the local retailer that has had a "going out of business - everything must go now" sign in the window for the last 3 years.
Comments(5)