180,000 Buyers May Miss Tax Credit Deadline

A: So naturally, they are begging for an extension of this credit program. Its very simple: the NAR, realtors, brokerage firms and buyers who signed a contract before April 30th to take advantage of the program all are screaming for an extension. Pretty much everyone else is saying, 'when does it end?'. And as is usual with government stimulative programs like this that ultimately fail, many people got caught up in it for both good and bad reasons. And I'm sure many people that should not have bought a home, did so, only to take advantage of this perceived 'gift' from government. Now the system is being blamed; as if someone duped them into signing a contract and sending in a deposit only because of this tax credit. This is what happens when we give away stupid shit to artificially prop up housing prices using taxpayer funds.

The tax credit money was never yours to begin with, yet people feel like they are owed the money even if they don't qualify for the terms of the program. Since last fall, buyers knew that the terms of the program called for simple deadlines of:

1) Sign a contract before April 30th, AND
2) Close the transaction before June 30th

There were other terms but these were the deadlines and they were very clear. As we approach the closing deadline, buyers that may not be able to pull of the deal in time are screaming 'foul'. Umm, no! This is part of the real estate market, a market that is illiquid and takes time to close a transaction. In today's world banks have tightened underwriting standards signifcantly and new rules call for outside appraisers to complete the process before a loan commitment is granted. The process in general is tighter and takes noticeably longer than it did during the boom when a 21-yr old unemployed gambler could get a $500,000 loan. As it should. We tried the easy credit + exotic products to stretch affordability road and it failed miserably. Now its back to the way it was before the boom; so get used to it and adapt.

Of course there will be innocent victims here - those that signed in March and are seeing delays in securing financing (low appraisals, not enough docs, etc) and those that signed a short sale (without knowing the intricacies of these types of transactions) in January and are experiencing delays with the selling bank approving the deal. But hey, that is how the real estate market works. It doesn't mean we should extend the tax credit program once again. We did that already, and once again these guys are asking for more. When does it end?

The weeks before the contract signing deadline, I discussed how I got numerous calls from prospective buyers so nervous and ancy about getting a deal done within 2 weeks to qualify for the program. 90% of these buyers should NEVER have considered buying a house, and they only did so because of this program.

The WSJ reports, "Race Is on to Grab Housing Tax Break" where this couple's only reason for signing a contract was the tax credit:

Kevin Malvey with his fiancé,...signed a contract days before the April 30 deadline in order to qualify, and he said that if he missed out on the tax credit, he wouldn't buy the house unless the seller reduced the asking price. "If he can't work with me, I will have to back out of the deal," said the 27-year-old facilities maintenance worker.

Are you kidding me? So, your ONLY reason for buying a house was a $8,000 tax credit??? Folks, do you see the problem here while others call me out for not being sympathetic to another extension? How many times do we need to discuss the future unintended consequences of these types of policy actions taken to stem the crisis we just faced? Everyone parties when new stimulus is announced and bitches when it ends. This is one of those times and many buyers won't be able to handle it; so they will lay blame everywhere and anywhere but on themselves. And no doubt the NAR will use this as a PR stunt to attempt to add credibility that they are 'for the people'.

As discussed back in May, "Tax Credit Expires: Good Riddance!", the only thing this program did was:

1) Pull future demand forward
2) Incentivize low quality buyers to jump in
3) Artificially prop up housing markets
4) Increase the deficit / allow fraud

And now here we are, with the complaints rolling in.

We are a stimulus addicted society, used to bailouts and free lunches resulting in expensive decisions regarding debt and leverage that are not as rational as they should be. This ingrained cultural behavior is dangerous and extending the deadline once again will only re-enforce the behavior of 'if you scream loud enough, we will give you what you want'. Well, its time we pull the drugs away from the addicts. Enough is enough!