In my previous post, I wrote about how the government is essentially propping up the housing market with all its programs and stimulus. Well, two of those programs are set to expire shortly.
The $8,000 1st time homebuyer tax credit expires on Nov 30, 2009. It cost $15 billion and is thought to have generated 350,000 of the 1,430,000 first time existing home sales in 2009 – about 25% – according to a National Association of Realtors estimate. Obviously, this subsidy has been a huge boost to the housing market. It could be extended but this is something to watch. According to CNBC real estate reporter Diana Olick, this is why homebuilders expect sales over the next 6 months to drop off from the current levels (see CNBC clip below).
The Fed’s purchase of $1.25 trillion in Fannie and Freddie guaranteed mortgage backed securities is coming to an end as well. According to Olick in a blog post from today, Fannie and Freddie issued $1.25 trillion of mortgage backed securities through the first 8 months of 2009 – and the Fed bought $1.07 trillion of them. If the Fed stops buying these securities, who will? If they can’t be sold, that means higher interest rates.