A Sure-Fire Fix For The Housing Market

Today marks the end of the Homebuyer Tax Credit for people who still want to take advantage of the stimulus money that the government felt would cure a wounded housing market. Nobody can argue that the stimulus did not stimulate, but it certainly did not fix the heart of the problem. It seems as if we need to get a few “numbers people” involved in this solution.

Housing Market Needs To Stimulate Move Up Home Buyers

For the sake of simplicity in this article, we will break potential buyers into two distinct groups. First time homebuyers (they do not currently own a home) and move-up buyers (they currently own a home and could include down-sizing buyers).

It appears that nearly 100% of the effort in the housing stimulus program has been designed to attract the first time home buyer. It was a smart move to get things rolling, but apparently no real plan has come together for maintaining the momentum that has been created by these programs. After all, we have seen the first time homebuyers percentage of the market skyrocket, so it’s not like this source can go on forever.

Ultimately, we need to consider how to motivate the move-up buyer. Historically, this is accomplished with a healthy economy and increased earnings. Unfortunately, there is another major factor in motivating this move-up buyer that historically exists but is not available in today’s housing market.

Move Up Home Buyers Have No Down Payment

Historically, the majority of move-up buyers had a healthy amount of equity in their homes and they were able to capture that equity when they sold their house, and they used it for their down payment.

I have seen reports that showed that while over 80% of first time homebuyers used “low money down” loan programs, more than 60% of move-up home buyers put 20% or more down on the purchase of their home.

The falling real estate values have taken away this top source of down payment funds for the move-up home buyer. I believe we are going to see a stall in the recovery of the housing market, as people who want to move will not be able to move.

They might be able to sell their homes, but they will not be able to find financing for the home that they wish to buy. The equity that they would normally have in their home is gone, and unless we develop a plan to resolve this issue, the housing market has a very long recovery in store for its future.