What if tax credit expires?

The question of recent weeks that I have been asked by just about everyone is: Where do I see the market in Columbia going if the Federal Tax Credit is allowed to expire?
Well, my answer is somewhat complicated.
First, all signs indicate that the feds are going to allow the tax credit to expire. Every blog and news article that I have read in the past weeks has said such, and even the National Association of Realtors has issued a white paper stating its experts believe the same to be true. So let’s assume this perk is all but gone.
In recent months, new home construction permits in Columbia have increased the most in many, many months. Most of the homebuilders who survived the downturn are scrambling to get their tax-credit buyer homes completed by the June 30 closing deadline. In fact, a builder who I represent has five such homes to get done, two of which he started on this week. I do, however, predict the current rise in building permits to drop off in the next month or so.
I have a twist on the pessimistic perspective of doom and gloom that I hear from most if the tax credit does indeed expire: I feel the majority of the first-time buyer homes are occupied by owners who have lived in their homes less than five years and therefore are not entitled to the tax credits for the new or repeat buyers. So they have yet to enter the buying marketplace. As their homes go under contract by the end of the month, these sellers will become May and June buyers. They will also be upgrading and buying into more expensive homes.
So in May and early summer, we will start to see the $150,000 to $300,000 homes sell. As these homes go under contract, these sellers (if not hurt by the current economy) will become move-up buyers, taking advantage of the great values out there on the upper-end homes. As we move through the summer, we will see many high-end homes that have been on the market for months or even years go under contract and finally transact.
But that’s not all.
For six plus months, every lender I work with has kept saying, “Rates are going to go up” because they cannot go down. Well, I think they all are dead wrong. In fact, my research indicates that if the tax credit does indeed lapse, we might see rates drop into the low 4 percent ranges just like we did this time last year. Couple this with the move up in activity that I mentioned above, and the next four to six months of transacting real estate in Columbia could be quite surprising to most of the half-empty-glass people.