Lil' Buddy's Blog: As Fed Homebuyer Tax Credits Set To End, Many In Real Estate Say, "Now What?"

THE CHICAGO IL REAL ESTATE MARKET, AND OTHER THINGS CHICAGO, FROM THE POINT OF VIEW OF A LITTLE WHITE DOG!

Hey, you dogs! Scary, scary times are about to hit the already-queasy Chicago Real Estate Market. And it's unsure how the home buying human public will react.

If you follow the financial markets closely, you may have noticed that Average 30-Year Mortgage Interest Rates have climbed quite a bit this week. On some loans, average rates have topped 5.30% - up from less than 5% just about a week ago, according to an AP Story by Reporters Adrian Sainz and Alan Zibel, published in the Chicago Tribune.

Contributing to the increase, according to observers - an improving U.S. Economy, coupled with a curtailment of the Fed's program to buy Mortgage Backed Securities. That controversial program has had the effect of keeping average rates low for over a year. Some feel it has done little to turn around the U.S. Housing Market.

At the end of April, a popular government stimulus program to credit first-time homebuyers, as well as select repeat buyers, up to $8,000 against their taxes, will likely end. There is little sentiment in Washington to extend this program once again, as it had been extended the last time it was to have expired in November, 2009.

Historically, as Mortgage Interest Rates rise, those "on the fence" buyers hustle up and purchase once of the homes they may have been considering, before rates potentially rise even higher. As the government stipend appears to reach its end, our Team here in Chicago has noticed many qualified buyers hastening their own purchase decisions, so they avoid missing out on the sizable Fed incentive.

Assuming this act-now buyer behavior is indeed true - what will Real Estate Sales look like next month, in May, when interest rates are predicted to climb even higher, and the government incentive to buy becomes history?

Many are jittery! Will an already fragile housing recovery derail? Faced with reduced buying power due to higher rates and no incentives, will on-the-fence buyers jump back to the wrong side of the fence?

As reported in the Chicago Tribune by Real Estate Columnist Mary Umberger,many experienced Real Estate Practitioners expect a bit of a let down after the Fed Homebuyer Incentive Programs - an $8,000 non-refundable tax credit for first-time buyers, and a $6,500 credit for select current homeowners - are pulled off the table at the end of April.

Few Washington observers feel Congress has the stomach to extend these costly incentives, as they were extended last November, when the First Time Buyer Credit was extended, and a new credit for current owners who have lived in their homes for at least eight years.

Remember the "Cash For Clunkers"program geared to help Automobile Manufacturers move more fuel-efficient cars ended last year? Although car sales have since rebounded a bit, the first few months after the program expired saw moribund sales in the auto sector.

Many in Real Estate feel the credit was a potent incentive, and that home sellers will need to cut prices further to keep prospective buyer interest peaked.

In Chicago, however, the positive impact of the home buyer credits appears somewhat muted. Last February, for example, the Chicago Metro Market edged out Miami FL as the metro area with the slowest turnover of houses for sale. Market wide, Chicago-area houses were on the market an average of 220 days that month, versus 219 days in Miami.

Within our Team, our clients of a year ago were eager to take advantage of the first time buyer credit available last year. This year, interest is less intense. Even our participation in a "Nationwide Open House" event promotion this past weekend drew a great number of tire kickers, but, as of yet, few written offers.

Even promotional incentives, such as a Century 21 "List Your House In April and Win $8,000" contest,is drawing steady, but not overwhelming response. Other franchises are making the homebuyer incentives, and the impending April 30th deadline for qualifying for them, prominent in their tv, online, and print advertising. Their true impact on sales this month - at this point, hard to figure.

In fact, some prospective home buyers may be repelled by what they consider "pushy" tactics to buy now. One agent in Washington State tells how he gained a client after a previous agent seemed, in their minds, a bit too aggressive at promoting a fast home purchase.

So, I don't know, you dogs! Everyone - human or canine - wants to save a buck, you know. But the short-term credit, and it's extension, may not be the strongest medicine for turning around a housing market with high levels of unsold inventory, and uncertainties about the prospects for the job market.

Enjoy the weekend, folks! But, if you get the urge . . . BUY SOMETHING!

Please check out my post today via BlogChicagoHomes.com.

YOUR ACE REPORTER ON FOUR PAWS,

BUDDY HOLLY MOSS & DEAN'S TEAM CHICAGO