Cash for Clunkers Succeeds But Bucks for First-time Home-buyers Fails

By
Real Estate Agent with Coldwell Banker Residential Real Estate SL3277959

It seems that the cash for clunkers program has been a big success.  Manufacturers and local dealers were all advertising the program.  The program has been so successful that the government added additional funds to keep it running.

The U.S. Government's bucks for first-time home buyers (the $8,000 tax credit) has not been so successful.  Although some first-time buyers in the real estate market expect to take advantage of the program, this is a rare group indeed.

While both programs were aimed at stimulating the economy, the cash for clunker program may in the final analysis have done more for the automobile industry than the bucks for first-time buyers program will have done for the real estate industry.  There are several ways in which these programs differed that may have made the difference in their respective success and lack thereof.

First, the car companies figured out how to give buyers the incentive at the dealership when the buyer purchased the car.  While the real estate companies didn't figure out how to give home buyers the incentive at the settlement table.  Getting the incentive at the "table" in a world of instant gratification versus having to wait to file your income tax is a much better solution.  Instant versus deferred.  Now or at tax time. Draw your own conclusions.

Second, the cash for clunkers rebate - between $3,500 and $4,500 - must be used to purchase a vehicle less than $45,000 - that's a $1 to $10 ratio.  Should that same incentive been offered to first-time home buyers, $4,500 would have barely made a dent in the cost of residential real estate - which is what $8,000 barely does.  In Baltimore-metro regional area where the average price of a home was $297,948 in July 2009, a $4,500 credit would have been equal to a $1 to $66 ratio.  If the credits were leveled, a first-time home buyer might have received $29,795 at the settlement table - that could have easily covered closing costs and down payment with a little left over for new living room furniture!!!  Kind of like $4,500 does for a car ... $2,000 down, tax and tags, and maybe a leather interior upgrade!!!

Third, anyone - with the right car - could take advantage of the cash for clunkers program but not so with the bucks for first-time home buyers.  It seems like almost anyone might have a car that would meet the clunkers program quidelines, while it seems less likely that someone hasn't owned a home in the last three years in order to secure a $8,000 tax credit incentive for buying a home.

Since the cost of a new car is between $20 and $30 thousand dollars and a home is between $200 and $300 thousand dollars, cars are simply more affordable right now than homes - certainly so with such a large incentive.  So the way I read it is that consumers spent their money buying new cars rather than buying new homes.  What's it going to take to get buyers off the sidelines and into a new home?

Posted by

Stephen Howell, Sales Associate, Coldwell Banker Residential Real Estate, Sarasota, FloridaIf you are interested in buying a home in Sarasota, Florida or the surrounding area and want to tour any property currently on the market, or if you have a home to sell in Sarasota, Florida and want a professional consultation on current market conditions, please contact Stephen Howell at 941-870-4141 or e-mail him at showell@livethesarasotalifestyle.com or visit his website at LiveTheSarasotaLifestyle.com.

Stephen Howell came to Sarasota to enjoy the Gulf Coast in 2013. What he discovered was a whole new lifestyle. Ever since Stephen Howell has been successfully helping others make the most of Sarasota. You'll find that with the right professional by your side, you can Live the lifestyle and live, work and play in Sarasota Florida.

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Ambassador
1,102,073
Melissa Zavala
Broadpoint Properties - Escondido, CA
Broker, Escondido Real Estate, San Diego County

I'm not taking sides here. Of course, being in real estate, I'd like more people to be taking advantage of the 8k. But, it does make sense that it is easier to uy a car than a house; it always has been that way. As you say, the car is cheaper!

Aug 22, 2009 08:10 AM #1
Rainer
53,462
Kim Curran
RE/MAX Unlimited of Northern Virginia - Bristow, VA

On paper the numbers certainly don't add up as you have pointed out. For many dealers they have still yet to see their money from the government program and many fear that the program may have already run out of money and dealerships will be left holding the bag or trying to get the rebate back from the car buyers. Either way it isn't exactly a great deal for the dealerships who were already hurting to have to cover all those $3500-4500 rebates.

It would be great to do a program where the buyers could get some help at the table BUT, as many have pointed out, part of the housing crisis stemmed from no downs and buyers having "no skin in the game" so to speak. Not having anything to lose is not much incentive to try and make the numbers add up. It's easy to walk when there is very little at stake.

Aug 22, 2009 08:12 AM #2
Rainmaker
1,005,294
Gary L. Waters, Broker Owner Waters Realty of Brevard, LLC
Waters Realty of Brevard, LLC - Melbourne, FL
Personal Service, always.

I guess it was easier to have C4C succeed as it did not take the investment a home would require.

Aug 22, 2009 08:16 AM #3
Rainmaker
334,890
Stephen Howell
Coldwell Banker Residential Real Estate - Sarasota, FL
Sarasota FL Homes For Sale 941-870-4141

There can also be little at stake with a car.  It's just as easy to walk away from a vehicle as it is from a home - maybe easier.  And, it's certainly simplier to repo a car than foreclose on a house.  So, what have we really learned from these programs?  That we're more in love with buying new cars than buying a home?

And, whin as they might, the automobile industry cut a pretty good deal with the Feds.  I don't remember the real estate industry being bailed out.  Do you seriously think that dealers will be left "holding the rebate bag"?

Aug 22, 2009 08:22 AM #4
Rainmaker
570,044
Bill Gillhespy
16 Sunview Blvd - Fort Myers Beach, FL
Fort Myers Beach Realtor, Fort Myers Beach Agent - Homes & Condos

Morning Stephen,   Actually, the numbers of people taking advantage of the $8k hasn't been all that bad in our area.

Aug 22, 2009 08:43 AM #5
Rainmaker
1,387,316
Charles Stallions
Charles Stallions Real Estate Services - Pensacola, FL
800-309-3414 - Pensacola, Pace or Gulf Breeze, Fl.

If they and us would stop all the incentaives, ie. cash for this and that, coupons at the grocery store, 3cents off a gallon of gas if you buy here etc, and just roll back prices to, aw lets say the 70's and leave the pay scales alone then the folks would buy.

All these programs do is raise prices in the long run to pay for what we have done in th past.

Aug 22, 2009 08:44 AM #6
Ambassador
529,346
Konnie Mac McCarthy
Realty Direct, LLC/Realty Direct, Inc. - Mc Lean, VA
Associate Broker - VA & MD

that is because the people in the government sit in their ivory towers with theories...but they don't pay attention to how they translate into practice..just like the making homes affordable program is a JOKE.

Aug 22, 2009 08:56 AM #7
Rainmaker
334,890
Stephen Howell
Coldwell Banker Residential Real Estate - Sarasota, FL
Sarasota FL Homes For Sale 941-870-4141

I'm glad to hear that the program is working ... but ... the bucks for first-time home-buyers hasn't gotten nearly as much notoriety as the cash for clunkers program has.  I still think that if real estate brokers had figured out how to get the cash to the buyers at the settlement table, we would have seen more first-time home-buyers trying to find a way to purchase a home.  Consumers are not into delayed gratification ... and even if you can wait until you file your taxes in April 2010, you won't know if you'll actually get anything back until you calculate your tax bill.  Now, I don't know about you, but, I don't have a really good idea of how much I owe the IRS until I sit down and go though everything.  But, $4,500 at the table, that obvious, while $8,000 at tax time has a lot more uncertainty.

Aug 22, 2009 08:59 AM #8
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Rainmaker
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Stephen Howell

Sarasota FL Homes For Sale 941-870-4141
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