Another Federal Tax Credit for Homebuyers?

Real Estate Agent with RE/MAX Dallas Suburbs TX Broker 0513551

Federal Tax Credit - Round 3

Well, just when I thought it was not possible, Shaun Donovan, Secretary of Housing and Urban Development, said that the housing market's July woes were "worse than expected" and that the administration may support a new homebuyer tax credit.

In an interview on CNN, Donovan said the administration is "concerned" about the direction the housing market has taken. He defended the Obama administration's record on supporting the housing market, despite new signs that the market is still in a downward spiral. Donovan did not rule out a further homebuyer tax credit to support the market. Congress passed a homebuyer tax credit to support first-time buyers. The credit has now expired.

While the statistics show that the housing market was recovering late last year and into early spring, once the current tax credits expired in April, the market went back to its downward trend. I based that on the data put out by the National Association of REALTORS® (see below) showing a marked decrease in sales and a corresponding increase in home on the market. 

What I find interesting about the data is that the November 2009 tax credit had a greater impact than the April 2010 tax credit.  I suspect if the government does a third round of credits that the impact will be less than the earlier two credits.  I'm also waiting to see August's data as one month does not make a trend.

While the Federal Tax Credits may have stalled the free-fall of the housing market, I'm not convinced that they brought that many new buyers into the market or that the sales of entry-level homes resulted in an increase in sales of move-up homes as many of the buyers cashing in on the tax credit purchased foreclosures and short sales. 

Further, many people who would like to purchase a home cannot do so because of the extremely tightened mortgage underwriting guidelines so until we loosen those standards just a little I don't expect to see a rash of new homebuyers coming into the market.

It will be interesting to see which position the administration and NAR takes on this issue.

Posted by


Tom Branch and Gina Branch, The Branch Team with RE/MAX Dallas Suburbs, service the greater North Dallas suburbs including Dallas, Plano, Allen, McKinney, Frisco, Lewisville, and Carrollton.  While Gina concentrates on traditional listings and buyer/tenant representation, Tom specializes in assisting distressed homeowners to avoid foreclosure.  Tom and Gina have published two books (Achieving Rock Star Status and The Field Guide to Short Sales) and are available for speaking engagements in the greater Dallas - Fort Worth Metroplex. Subscribe to The Branch Team Blog.

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Gabrielle Nemes
RE/MAX Select R.E. - Auburn, WA
206.300.8421, S King & Pierce County RE Advocate

Tom, it certainly seemed to me that many (I don't know if I can say "most" but it was a lot) of the homebuyers that took advantage of the federal homebuyer credits bought short sales and foreclosures. However, this glut of empty and distressed homes has to be handled in some manner. Perhaps the tax credit could focus specifically on puchasers of these sorts of homes.

Until these houses are off market, home prices will continue their downward spiral and move-up buyers just can't buy new. They have to sell their own homes first. And those home prices are drastically affected by short sale and foreclosure properties.


Aug 29, 2010 06:21 PM #1
Melissa McKinney
McKinney Realty Group - Fayetteville, NC

Tom~ Thanks for the information! I have to agree that there will probably less action in purchasing a home with a third round of credits compared to the first.  But I still think it would help some, people like to feel like they got a deal, somethings never change...  :0)

Aug 29, 2010 06:22 PM #2
Will Handley
Progressive Inspection Service - Dana Point, CA
Certified Master Inspection Services

Will this madness never end?  Remember in November!

Aug 29, 2010 06:23 PM #3
Brittany Stewart
Luxe Realty Group - Plano, TX
Making Dallas Home

Thanks for sharing..honestly, are we surprised??  Everyone would ask me if the market was getting better and my response was, "we will have to wait until after the tax credit".

Aug 29, 2010 06:24 PM #4
Tom Branch
RE/MAX Dallas Suburbs - Plano, TX
Broker, CDPE, SFR, ACRE, Plano TX Ambassador


One of the reasons the second round of tax credits included move-up buyers was because of the lack of trickle-up from round 1.  I'm nether for or against another round of tax credits although I think we would be far better off putting people back to work.


Aug 29, 2010 06:25 PM #5
Paul Francis
Francis Group Real Estate - Las Vegas, NV
Las Vegas Real Estate Agent - Summerlin Homes

The Federal Government helped create the mess of artificially high home values to begin with and any further help... is only delaying the inevitable. If it was not for all the meddling and hundreds of billions of Taxpayer dollars wasted.. we would be MUCH further along in a truly sustainable recovery.

The flip side of your analysis of the charts... after the credit ends... Home values and sales still drop.

Do a third round.. prices will still drop when it's over...

Do a fourth round... prices will still drop when it's over...

Values will stop dropping when they hit a number that correlate to the state of the economy.


Aug 29, 2010 06:26 PM #6
Paul Francis
Francis Group Real Estate - Las Vegas, NV
Las Vegas Real Estate Agent - Summerlin Homes

"I think we would be far better off putting people back to work."

Well Stated... And Private Corporations are sitting on Trillions of Cash not wanting to spend it or hire because they have no clue where this wishy washy incompetent Congress is going next.

Aug 29, 2010 06:30 PM #7
Tom Branch
RE/MAX Dallas Suburbs - Plano, TX
Broker, CDPE, SFR, ACRE, Plano TX Ambassador

#6 - I don't disagree with you.  I think the two rounds of tax credits may have prevented a total free-fall in the market, but they come at an expense (in addition to the cost)...the rebound effect. What we don't have is enough data at this point to finish the analysis.


Aug 29, 2010 06:30 PM #8
Bob Souza (925) 513-3400 & Leilani Souza (916) 408-5500 Souza Realty - Real Estate Broker in Placer County, California
Souza Realty - Roseville, Rocklin, Granite Bay, Loomis, Penryn, Newcastle, Lincoln, Auburn, Meadow Vista (Placer Coun... - Roseville, CA
Homes & Land, Real Estate Investments and Rentals

Tom, this is quite an interesting possibility...guess we'll all have to wait and see what happens. :)


Aug 29, 2010 06:32 PM #9
Lori Mode & Bruce Durham
Keller Williams Realty - Elk Grove, CA Homes for Sale - Elk Grove, CA
Real Estate Made Simple

Tom - hard to believe that our current government officials do not seem to understand that they need to leave well enough alone.  A third round of tax credits will only delay the inevitable.

Aug 29, 2010 06:42 PM #10
Tim Lorenz
TIM LORENZ - Elite Home Sales Team - Mission Viejo, CA
949 874-2247

It is interesting to note that the credit is not as helpful and providing jobs to the buyers and seller.  That would create a real boom.

Aug 29, 2010 06:56 PM #11
Paul Francis
Francis Group Real Estate - Las Vegas, NV
Las Vegas Real Estate Agent - Summerlin Homes

@ Tom,

I don't agree that they ended a free fall to nothing value. (Not sure if that is what you are suggesting.)  Buyers were coming back into our market before any buyer tax credit subsidies were put in place and for some certain neighborhoods that I know VERY well that were allowed to correct... prices in these neighborhoods have been stable since late 2008. (After being brutalized.) I now see weakness in others that have somewhat held on until now...

All the local little sub-markets of Las Vegas real estate aka ground zero for distressed real estate. 

For example... newer neighborhood homes built in 2006 where the builders played the opportunity like a fiddle and sold at the highest prices possible took a beating in 2008. Sellers got out and moved on... these neighborhoods have now come back to life. Happy new Homeowners with some pride in what they own and don't think they got screwed over. Other little sub-markets of Las Vegas have now come to reality and are just now getting hit with foreclosures... not a pretty scene.

If you take a look at the markets at or above the 27% average of the latest reports of the decline in home sales after the latest round of homebuyer tax credits expired.... you'll notice that they are not markets that had significant declines such as markets like Las Vegas, Phoenix, Sacramento, etc.... Markets that were decimated in value before the Govt. got involved trying to prop up something that was artificially inflated in the first place....

THE REAL STORY in the latest news is how many of the markets contributing to all of the latest bad news were not allowed to correct in the first place...

Something I'll be working on...



Aug 29, 2010 07:28 PM #12
Tom Branch
RE/MAX Dallas Suburbs - Plano, TX
Broker, CDPE, SFR, ACRE, Plano TX Ambassador


Clearly the values would not free fall to nothing.  What I think they did was to change the "angle of attack", making it a shallower dive.  But in the end the market will prevail and prices will level off.

I agree with you that your market is paying the price for the insane run-up in prices.  My market is far more stable because we did not have the hyper-inflated prices.

Consumer tax credits treat a symptom rather than the cause. 


Aug 30, 2010 04:31 AM #13
Peter Clay - NoCo Home Team
Fort Collins Realtor @ C3 Real Estate Solutions - Fort Collins, CO
Sell Smart, Buy Wise & Live Well in Nrthn Colorado

Tom - I'm going to stay well away from the political implications here but do agree that we would see a far greater impact on the housing market if more of our populus was employed.  A credit only helps if you can afford to purchase and I'd be surprised if there are that many 'on the fence' buyers that would step up for a credit.  Especially if you consider how low interests rates are and how much of an incentive that is on it's own.  Let's get people working again and create a bigger buyer pool instead of throwing better bait into that pool.

Aug 30, 2010 06:41 AM #14
Chris Alston
Chris Alston (Keller Williams Realty, Silicon Valley, California) - Campbell, CA
Silicon Valley, California

Every buyer we stimulate, means it will hurt more when it goes away.  I am not a fan of any credits.  We are only borrowing tomorrows buyers.

Aug 30, 2010 06:48 AM #15
Kay Van Kampen
RE/MAX Broker, RE/MAX Solutions - Springfield, MO
RealtorĀ®, Springfield Mo Real Estate

Tom, pumping more tax money back into the market is only putting a bandaid on the problem.  I'd like to see the market rebound on it's own. 

Aug 30, 2010 01:53 PM #16
Loreena and Michael Yeo
3:16 team REALTY ~ Locally-owned Frisco TX Real Estate Co. - Frisco, TX
Real Estate Agents

I hope NOT! This is not good for our national bottom line and if only politicians do what's best for us instead of thinking what will continue to keep them there. I've decided that this is now a political issue rather than an economic issue.

If it happens, I'll continue to bust my butt, it will only make it that much closer to my financial goal.

Aug 31, 2010 12:29 AM #17
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