There's no question the recent extension to the $8,000 first-time homebuyer tax credit will continue to greatly facilitate a rebound in the housing market. However, exactly how much of an impact the newly implemented $6,500 "move up" homebuyer tax credit will have remains to be seen. Although, the bigger question remains: if current mortgage rates are back to near-historic lows, why have mortgage applications declined? Believe it or not, the answer is quite simple.
For the week ending Friday, November 6, mortgage applications for home purchases plummeted an astounding 11.7% from the week prior. This is during a period of time in which homeowners were still awaiting a response from the federal government on whether or not the $8,000 first-time homebuyer tax credit would be extended, leaving little doubt on the reason for the dip in mortgage applications. As it turned out, it was the same week Congress passed the legislation to extend the $8,000 first-time homebuyer tax credit and also implement the new $6,500 "move up" tax credit. As a result, the following week ending Friday, November 13, mortgage applications for home purchases decreased by a seasonally adjusted 4.7%. Although mortgage applications for purchases were still down, they were down significantly less when compared to the week before. Therefore, it can be safely deduced that the data is already beginning to reflect the influence of the extension of the $8,000 first-time homebuyer tax credit, as well as the implementation of the new $6,500 "move up" tax credit.
Analysts believe this new data will likely reflect an increase, however slight, as we move toward the end of the month. It must also be noted that the Thanksgiving holiday is expected to have an influence on mortgage applications, but once we move into the first week of December, purchase mortgage applications are expected to increase considerably.
With current mortgage rates still near record lows, the extension of the $8,000 first-time homebuyer tax credit and the newly created $6,500 "move up" homebuyer tax credit have generated an extraordinary second chance for borrowers still in the purchase market, but failed to pull the trigger earlier in the year.
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