Conducting adult education seminars for would-be home buyers gives me an opportunity to stay ahead of the curve in my practice of real estate law. Boom times or bust, I am always curious about what future buyers are thinking, so at a recent class, I wondered if attendees were actively in the market, determined to be in contract to buy houses before the April 30th tax credit deadline?
Seeming almost synchronized, the men and women in my classroom all simultaneously shook their heads and shrugged their shoulders. Since these students enrolled in a course designed to build home buyers' confidence, why was there so much ambivalence? Weren't they feeling pressure to snap up homes before the market's triple threat (substantial tax credit, affordable interest rates, and declining home prices) vanished?
As they answered my questions, I discovered each had a similar mindset; I call it the "Macy's Mentality." Each week, another mailing arrives from that department store, announcing that goods are now 15 or 20% lower, or enclosing a $25 coupon. I toss the ads in the trash, musing: why buy this week, when next week is sure to bring an even better bargain? Now here were potential purchasers who viewed buying a house the same way I pondered picking up a new sweater: next week's bargains will surely be better.
One future buyer said he wasn't going to make a hasty purchase just to get the $8,000 first time home buyer credit. Houses in the areas he desired had dropped their listing prices by 15% or 20% already, and he was fairly certain that at least one would decline another $25,000 by the time June rolled around. Planning to put down 20% and finance the rest, patiently awaiting the next plunge meant he'd shell out $5,000 less on the price, save around $1,000 in closing costs, and repay $20,000 less in monthly mortgage interest. On top of all that, he knew the lower sales price would reduce his property tax assessment and thus his real estate taxes.
What if interest rates increased while he waited, offsetting some of his savings? That didn't seem to faze him; he was certain some sellers would be desperate enough to drop prices even lower to compensate for the market change.
The tax credit was likely to be renewed, said a woman in the class. Like my expectation that sale coupons were always on the way, she figured the government wouldn't let the deals die. I asked if she had heard a renewal was planned, and though she had not, she volunteered that she still wasn't going to rush. Sellers will have to sweeten the deals to stir up the market in the absence of a federal incentive, she reasoned.
I have zero desire to convince anyone to buy a house if the timing isn't right or they are under-funded, so I picked up my course notes. But one more question came to mind for the group: if an $8,000 credit plus low interest rates aren't alluring enough reasons to buy houses at prices lower that we've seen in years, what will it take for these prospective purchasers to take the plunge?
"Even better bargains," piped up a woman in the back. Like last season's must-haves now crowded into clearance racks, some buyers just won't make their moves until the "final markdown" signs start appearing on the lawns of houses for sale.