Discounting Schmechanism

Home sales have gradually become weaker since the original first time home buyer tax credit expired. The credit was renewed but but the original offer stole demand from the future and sales have dipped anyway. The current credit expires in April and will not be renewed again.

There was a surge in home sales as the original tax credit was reaching expiration. Under the new tax credit contracts must be signed by the end of April and the deals must close by the end of June in order to qualify.  This could cause another wave of home sales, albeit not as large as from the original offer.

It is quite obvious to me that as the tax credit expires we will see a pickup in home sales.That should lead to a drop off once the tax credit expires that puts as at lower levels of home sales than current rates.

The stock market was once rumored to be a discounting mechanism that looks through these type of events. I am not certain that is the case any longer. If the better home sales in the coming months is celebrated and not seen as a one time event I believe that strength could be shorted.


Anonymous said...

Tsachy, where do you think the market is heading over the next month and into earnings? Thanks.

Chaos! said...

Tops are a process. We've been in the "process" for a week.
All the numbers align.
Past tops have taken 5 to 7 days to complete. We are in day 5.

Tsachy Mishal said...

I think we get a small correction now and one more rally after. Then comes the real correction.

dukebravo said...

Just FYI, the credit is available but tiered lower until the end of the year. Here's a web clip:

First-time home buyers who bought after January 1, 2009 (original date of credit term) and close before April 1 2010, would get the full $8,000. For homes purchased after April 1st 2010 to December 31st 2010 the credit is still available, but it's value would be reduced by $2,000 in each successive quarter until expiry at the end of 2010.