By the time I write this, just a few days after President Obama signed the extended, expanded homebuyer tax credit into law, it’s already old news. I was fielding calls from reporters looking for industry insiders to quote before the ink on that thing was dry. It’s already been covered every which way but loose, so I won’t purport to "educate" you about the bullet point provisions it contains.
However, I submit to you that whether you were pro or con on the credit’s extension, there are some behavioral-economic impacts it will have on the real estate market that have managed to escape the popular media’s scrutiny.
The real estate industry party line on this thing was, of course, that the credit should be extended and expanded for its proven ability to stimulate sales.
However, there was a not insignificant number of vocal dissenters — both within and outside of the industry — who believed that the 2009 credit had already sufficiently stabilized the real estate market and that free-market forces (which we all know by now is decidedly not free, even in the best of times) should be allowed to play out as they might.
Well, it’s here now. And indications are that this will be the last extension of the credit — in fact, the White House wasn’t super keen on it this go-round. So let’s drill down into four new takes on the tax credit, from a behavioral economics perspective. (Advance warning: these are my personal predictions, not fact — we’ll all have to see how they play out!)
1. Calmer, more experienced buyers. From its literal terms, it’s clear that the expansion of the credit will flush new sets of buyers onto the market — the non-virgin homebuyers who are now eligible, and folks who make more than the previous $75,000 (single) and $150,000 (married) income limits but fall within the new $125,000 (single) and $225,000 (married) guidelines. What is not so obvious is what this will mean about the makeup of the homebuyer population, qualitatively speaking.
My sense is that these newly credited buyers will be somewhat more experienced, less fearful and panic-prone, more sedate and more conservative. Even adding in the first-timers, we’re looking at buyers who are slightly more sedate, patient and deliberative — after all, they’ve waited until now versus having taken advantage of the two previous years’ tax credits.
This is good for the market, as it strikes me that the atmosphere, while it will undoubtedly become competitive, will be slightly less frenzied and dangerously inflationary than the multiple-offer bonanza we saw in many markets this summer among lower-income first-time homebuyers trying to cash in on the credit.
These higher-income buyers are not going to have their deals made or broken on the basis of the $6,500 or $8,000 from the credit — they’ll see it as just a nice perk for doing something they’d wanted to do anyway, perhaps with a little more urgency than they would have done it otherwise. …CONTINUED