There has been a extensive dialogue this week on the National Association of Realtors group on LinkedIn.com about whether/how the tax credit for first-time homebuyers should be extended after its currently scheduled expiration of November 30. 2009. The general consensus is a preference for little or no government manipulation of market forces, but now that this distortion has begun it should be phased out sensibly over a period of a year or so.
No Realtors(r) who participated in this discussion favored unlimited goverment involvement. Brokers and agents in the areas where most of the significant market corrections have taken place (California, Nevada, Arizona, and Florida) felt more need for the progam to be extended, and expanded, but even in those states there was general agreement that this incentive should not be allowed to become a permanent feature in the real estate market. Most agreed that the tax incentive should continue beyond November 30, but with a scheduled phase-out — perhaps 10% for three months, 8% for the next three months, 5% for the next quarter, and 2% or 3% for the final quarter. This would allow consumers to make informed decisions, and allow the market to adjust in an orderly way to the known, predictable change. The currently scheduled alternative is a homebuyer demand “cliff” on December 1 — during what is usually a slow season anyway. The pre-announced phase-out would allow all market participants to adjust over a 12-month period.
I agree with the general shape of these ideas. My preference is for markets to be allowed to seek their own levels. I strongly oppose allowing this kind of incentive to become a permanent feature in the real estate business, the way that rebates and financing incentives became permanent in the car business.
However, since the tax credit incentive has already begun, and since housing is such a significant contributor to overall U.S. financial well-being, it makes sense to phase out this support in a pre-announced, predictable schedule. This will allow consumers to make informed decisions, and markets to adjust gracefully, to expected changes in overall demand.