Housing Data and the Federal Housing Tax Credit

The Federal Housing Tax Credit expired in May 2010. In order to qualify, homes had to be purchased and loans closed by the end of May. For that reason, the data from the beginning of the year has looked generally gloomy when comparing it to the same month last year. Nearly every media story covering housing data has stated disclaimers to discount the drop from 12 months ago. New home sales, existing home sales, pending home sales all have been worse this year than last year. Now, that’s about to change.


Since the Federal Housing Tax Credit created an artificial demand for housing during the first five months of 2010, the results for the rest of 2010 were unnaturally bad.  Buyers who were considering buying at anytime during 2010 rushed to complete their deals early in the year in order to qualify for the generous tax credit.  What we’ve learned since the expiration of the housing stimulus is that it didn’t create new buyers, it merely pushed buyers into an earlier timeframe.  The number of sales dropped off significantly starting in June 2010.  Now that we have reached June 2011, the comparisons to last year are suddenly going to appear very rosy.  But just as we cautioned that the first five months of last year were influenced by the tax credit, so must we recognize that the next five months were also impacted.

For example, in today’s Austin American-Statesman, they stated that existing home sales for May were down 8% compared to May 2010.  They also provide the caveat we discussed above – that May 2010 marked the end of the stimulus program so the results were expected to be higher that month than any other, making the results from May 2011 look worse than they otherwise would have. 


Later in the same article, they claim that “the market may be turning”.  As evidence, they show how pending home sales (contracts are written and signed, but the sale has not closed) are up 53% from the previous year.  But, as we look at the data from last year, sales in June tumbled from the early months of 2010 because the tax credit ended. Therefore, pending sales in May 2010 would have dropped off significantly as those deals would no longer qualify for the stimulus.  It’s no wonder that pending sales from this May far outperformed pending sales in May 2010 – it is still because of the tax credit.

We love the Statesman and we generally find their reporting of the real estate market to be fair and balanced. Yet, we must point out that good news in the housing industry for the next few months is still the product of the Federal Housing Tax Credit. We will cheer any news of more sales or stronger demand, but we’re going to be cautious in interpreting that as a sign that the economy is turning or the market is ‘back to normal’ until we are further past the effects of the stimulus package.


For those who are considering buying, what is important to consider is this: here in Austin and throughout most of Texas, the time to buy is now.  Home values have not dropped and they shouldn’t. They’ve slowly increased making the same home cost a little more each month. Meanwhile, mortgage rates are still hovering near their historic lows. Demand is beginning to increase and the national foreclosure mess is not a problem here. Prices won’t go down and rates won’t stay down. So, for the savvy buyer or investor, this is the time to ‘buy low’.  There isn’t a better time to buy than right now.

Mission Mortgage has been providing residential lending in Texas for over 25 years.  Our goal is to help each buyer understand the options they have when considering a home purchase and providing the necessary assistance to get the loan closed and the purchase complete. If you are considering a home purchase in the next 12 months, speak with an experienced loan expert now so you can properly prepare for the journey ahead. Our loan officers average over 15 years of helping home buyers and we’re ready to help you next.

Call us at 512.328.0400 or email info@missionmortgage.com to get started.

To read the Austin American-Statesman story, please click here.


About missionmortgage

A full-service professional mortgage banker providing lending in Texas for over 25 years. Our main office is located at 901 S. Mopac Expwy, Barton Oaks V- Suite 120, Austin, TX 78746 with branches in Lakeway, Houston, and Sealy. Mission Mortgage has been ranked as a Top 10 Mortgage Company in Austin for the past 7 years (Austin Business Journal).
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