TEXT OF INTERVIEW
Tess Vigeland: The government’s $8,000 first-time homebuyer tax credit expires on Friday. If you haven’t entered into a contract to buy a house by then — you’re not getting anything back from Uncle Sam. But you very well may get something back from one of the nation’s biggest real-estate companies.
Coldwell Banker says it will make the credit an option for sellers participating in its “Buyer Bonus Sales Event.” Homebuyers would have until July 31st to take advantage of the offer. For some insight we turn to Leonard Zumpano. He teaches finance at the University of Alabama. Good to have you with us.
Leonard Zumpano: My pleasure.
Vigeland: You know, before we get to what Coldwell Banker is doing, let’s take a bit of a broader picture of the housing market. Did the homebuyer tax credit actually make people buy homes?
ZUMPANO: It has. The National Association of Realtors does an annual home buying and selling survey, and their numbers indicate that the tax credit was responsible for approximately 800,000 home sales. To put this in perspective, it includes the original $7,500 refundable tax credit, the $8,000 first-time homebuyer credit, and the extended credit that allows for credit for existing home sales.
Vigeland: Well, 800,000 people sounds like a lot.
ZUMPANO: It is a lot in absolute numbers. But during that same time period, there were five million homes sold. That’s about 16 percent, which is not insignificant. Of all the reasons for purchasing a home, the tax credit was singled out by 16 percent of those homebuyers.
Vigeland: 800,000 people saying that the credit factored in, you know, the fact that it is now ending would presumably prompt a little bit of panic on the part of the realtors then.
ZUMPANO: One would expect that the availability of the credit and having a limited life expectancy ending at the end of the month put people that might have been sitting on the fence over the fence. So I think there will probably be a decline in future home sales in the next couple of months, assuming nothing else changes, like employment and mortgage rates. I think part of the most recent push from homebuyers who were watching interest rates beginning to rise.
Vigeland: Well, certainly for Coldwell Banker this is quite the unique marketing technique. Hey, you know, if Uncle Sam isn’t going to help you out, we will.
ZUMPANO: Yeah, that’s exactly right. But how profound is that going to be and what kind of incentive does it create? It’s difficult to forecast because it may in fact cause other real-estate companies to do basically the same thing.
Vigeland: Right, that just means we’re back in 2004-2005, right?
ZUMPANO: Right, exactly. There is evidence that the market is beginning to firm up. The most recent numbers I’ve seen for part of 2009 show that those states that suffer the worst in 2007, like California, are coming back. Buyers are being induced back into the market, and that’s happening also in cities like Miami, which had a glut of condominiums just two years ago. With employment beginning to stabilize, the prospects for a housing market recovery are there. You’re not going to see the kind of appreciation we saw between 2000-2005, but I don’t ever want to see that again because that was simply unsustainable and everybody knew it.
Vigeland: Leonard Zumpano is a professor of finance with an emphasis on real estate at the University of Alabama. Thanks so much for chatting with us today.
ZUMPANO: My pleasure.
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