Will the so-called First Time Home Buyer Credit be renewed….and will the ‘credit’ be increased?

For those of you who have short attention spans…the answers to those questions are:

Yes and Yes.

Here is what will probably happen:

1) A form of Senator Isakson’s proposed bill will….pass.

2) We do get a $15k credit. Thats an increase over the current $8,000 credit. So, all those procrastinating buyers will be rewarded.

3) The FHA makes available 90% mortgages at low rates. The FHA now offers 96.5% LTV mortgages.

Here is another indication of what is going to happen….On September 17th the IRS came out with this headline:

First-Time Homebuyer Credit Provides Tax Benefits to 1.4 Million Families to Date, More Claims Expected

From SeekingAlpha.com: ……

It is reasonable to assume that the $8,000 credit could result in 2mm homes being sold in just nine months. Based on this, what is an estimate for the number of homes sold with the $15k incentive that is open to all? I think 4 million is a good number. Let’s use 3 million to be conservative.
* The average price of a home is $200,000 (also conservative). Using all of these assumptions you get some very big results.

* This translates into a total sale value of $600 billion.

* The direct cost to the government would be $45 billion.

* The total equity required by the private sector net of the subsidy would be $15 billion. The equivalent of only 2.5% down.

* FHA would guaranty an addition $540 billion in new mortgages.

Based on the assumptions the following positives may occur:

• This would be a back door bailout of the GSE’s. It would give them an opportunity to off load some of their REO. It would also reduce costs of short sales that will come in the next year. This only lessens the loss however.

Excellent point: if there is increased demand for homes….and home values level out…or maybe even appreciate (hey, a boy can dream!) the lenders would lose less on their Short Sale and REO Sales. For the sake of Short Sales..we would expect to see the lenders putting even more effort towards ‘encouraging’ their borrowers to sell via a Short Sale vs foreclosure. Agents, learn how to do Short Sales. Become a HREU Certified Short Sale Specialist. Watch the FREE Agent Short Sale Secrets video and download your FREE Agent Short Sale Secrets book.

• The FHA would have an explosion of new activity. This premium income would dramatically increase their cash cushion. It would temporarily avoid a bailout of the FHA. It would insure that the ultimate bailout costs will be much higher.
• The economic activity related to the sale of 3mm homes will contribute to GDP. For example; the RE commissions will be $30 billion,

30 Billion! Agents…especially those of you who don’t think this market is all about helping others and making money….does the prospect of grabbing your portion of the potential 30 billion in real estate commissions motivate you?

• the mortgage brokers will get $6 billion, The lawyers will collect another $6b in closing costs. This is how America makes money. This class of beneficiaries just takes commission as part of the creation of debt. There is zero residual value to this. It is just pumping up current consumption.
• You have to assume it would benefit the big, publicly traded, homebuilders. How much clout does this group have? Plenty. Senator Isakson’s family owns one of the largest private RE brokerages in the country.

If the tax credit isn’t renewed….expect the housing market to suffer the same fate that has fallen on the auto industry at the end of the cash for clunkers program.

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