Published by New York Times
DES MOINES — Nine hundred days after putting their house on the market,
Andrew and Jane Palestini were beginning to think they might be stuck
in Iowa forever.
The looming expiration of the government’s housing tax credit pushed
them into action. They dropped their price by an additional $10,000, to
$235,000. Somewhat to their shock, a buyer emerged. The house is now
“I can’t feel happy,” said Mr. Palestini, a retired administrative law judge with the Social Security Administration. “Just relieved.”
After several disastrous months for home sales across the country, when
volume dropped by 23 percent, the pace appears to be picking up again.
The number of Des Moines homes under contract in February rose by a
third from the January level. The number of pending contracts jumped 10
percent in Naples, Fla., 14 percent in Houston and 21 percent in
These deals will be reflected in the national sales reports when they
become final, this month or next. There is no evidence that prices have
begun to move in response to the higher volume. Indeed, so many homes
are coming on the market that prices might well fall further.
Real estate agents say buyers and sellers are hurrying to take
advantage of the tax credit, which is worth up to $8,000 for home
buyers. But the last-minute rush is also prompting some foreboding
about what will happen to the market on April 30 when the credit ends —
and whether it is too risky to let it end at all.
James M. Poterba, an economist at the Massachusetts Institute of Technology, calls this “the exit strategy problem.”
“If you have a short-run program to stimulate demand, it’s always
tricky to figure out how you gently remove it without going off a
precipice,” he said.
Arguments for extending the tax credit a second time are just
beginning. Robert Shiller, a professor of economics at Yale and
co-developer of the Standard & Poor’s/Case-Shiller
housing price index, is an early advocate. He thinks the credit was a
bad idea that nevertheless the market cannot do without.
“You don’t make drug addicts go cold turkey,” Mr. Shiller said. “The
credit interferes with the market in an arbitrary way, but ending it
now would be psychologically powerful. People will be in a bad mood
about buying a house.” He advocates phasing it out gradually.
In some states, worries about the housing market are trumping fiscal
considerations. They are adopting or extending tax credits or other
supportive measures in hopes of bringing the market to life.
California last week renewed a $10,000 credit that proved popular last
year, allocating $200 million for it despite a state budget crisis. New
Jersey legislators just introduced a bill that would give buyers a
$15,000 credit spread over three years. South Carolina recently
announced a $7,000 down payment assistance program for teachers, police
officers and firefighters.
As it has been for several years, housing remains the most coddled and
the most troubled sector of the economy. Outside the realm of real
estate, many of the government banking programs created to deal with
the crisis have ended, and credit markets have largely returned to
normal. On March 8, the Federal Reserve held its final auction in a
two-year-old program that offered banks emergency short-term loans.
A few days earlier, however, government regulators extended a
refinancing program for homeowners whose properties had plunged in
value. Originally due to expire in June, the program has been renewed
to the middle of 2011 “to support and promote market stability,” the
Federal Housing Finance Agency said.
On Monday, just three days after substantially expanding its
antiforeclosure programs, the Obama administration announced another
$600 million to finance innovative measures to help defaulting families
in five hard-hit states: North Carolina, Oregon, Ohio, Rhode Island and
South Carolina. The first round of financing, announced last month,
provided $1.5 billion to states including California and Florida.
Supported by an array of government programs aimed at both reducing
foreclosures and encouraging traditional sales, housing was supposed to
be on the road to a solid recovery.
An earlier version of the tax credit created a rush to buy in the fall,
when people thought it would expire Nov. 30. The housing industry
argued that sales would fall off a cliff if the credit were not
extended and broadened, so Congress went along.
Stan Humphries, the executive in charge of data and analytics at the
housing site Zillow.com, said government support was crucial in
breaking housing’s acute fall in 2007 and 2008, but that it had also
obscured the actual weakness of the market.
“Many people got the sense last year that we had bottomed out and were going to rebound in a V-shaped recovery,” he said.
Instead, the sales volume of existing homes declined in December more
steeply than in any month in the four decades that such numbers have
been tracked. Sales dropped again in January and February. Meanwhile,
the sales volume of new homes fell in January to the lowest level since
record-keeping began in 1963, a record broken again in February.
Buyers who want the tax credit must sign a deal by April 30 but would
have until June 30 to close. Consequently, if sales volume is going to
plunge after the credit expires, it will not show up until the numbers
for July are reported. While Mr. Humphries says he does not expect
sales that month to fall by December’s record rate, he predicts a long
period of merely “dragging along the bottom,” with prices to match.
That was just what the Palestinis were worried about.
If they did not sell by April 30, they anticipated having to lower
their price yet again, to compensate any buyer for the credit he would
no longer get. It also meant they would not get a credit themselves on
buying a new home in Philadelphia, pushing down what they could afford
It has been an unexpected ordeal. The Palestinis bought their spacious
ranch house in the Des Moines suburb of Clive for $185,000 in 1995,
after looking for only three days. “My feeling was it would never be a
problem selling,” said Jane Palestini, a retired specialist in adoptions from China. “Ha, ha, ha.”
In early 2007, the house across the street sold in three days, but the
Palestinis spent the summer getting their place ready. By the time they
put it on the market that September for $265,000, prices were falling.
For months, they lived in a state of readiness for prospective buyers.
To minimize clutter, they carted off many of their possessions to
self-storage. They bought new pillows and kept them mounded on the
beds. They bought fresh flowers and baked hundreds of cookies.
The months became years. They know their mistake: They should have kept
cutting the price until they sold. But every dollar they dropped their
price was one dollar less for a down payment in Philadelphia.
Their house is under contract for $225,000. After paying the agent’s
commission and subtracting the cost of remodeling the kitchen, the
Palestinis are at best breaking even. “You just have to ignore how much
it’s going to hurt,” Mr. Palestini said.
At least they have escaped whatever trouble is to come this summer.
Their agent, Jim Heldenbrand, told them he hoped the credit would “get
the momentum going.” But he also mentioned the plans of a colleague in
real estate: As soon as the credit expires, the man plans to get on his
Harley and just keep riding south.