Wednesday, June 16, 2010
The Post Tax Credit Housing Market (Part 1)
Here we are six weeks after the expiration of the Homebuyer Tax Credit. Armageddon did not take place. Homes are still selling. Certain price points are actually selling quite well. The question remains what will happen to the overall housing market as we proceed through the year. There is still much uncertainty as to what the final result of the stimulus packages will be on the housing industry in the long term. We won’t know for sure for some time yet. We have enough information now to start making some preliminary predictions however.
What has happened in the last six weeks?
There are some market segments that continue to show strength. First time buyers purchasing homes prior to the tax credit expiration created a wave of second time homebuyers (contrary to what some think, not every home sold this year was a foreclosure or short sale). These sellers are in the market right now looking for their move-up home. The luxury market was not affected by the tax credit. Still, properties sold with a selling price of $1 million or more have increased by over 70%.
Not all news is as promising however.
Overall demand has dropped significantly. There is no question that things have slowed down.
RealTrends, an industry bible for real estate brokers, reported:
May written contracts are down 15 to 25 percent from April results according to informal poll conducted by REAL Trends. The decline is similar in many respects to that suffered after November 2009 when the first tax credit expired.
Even the National Association of Realtors (NAR) has acknowledged the slow according to a Wall Street Journal article:
Lawrence Yun, chief economist for the National Association of Realtors, estimated that contracts signed for home resales in May were down 20% to 30% from a year earlier. He expects June and July to remain fairly weak and will be watching nervously for signs of a rebound in August or September. “Housing cannot just depend on [government] stimulus forever,” Mr. Yun said.
The slowdown in written contracts is confirmed by a major falloff in mortgage applications for home purchasers. In its Weekly Application Survey the Mortgage Bankers’ Association (MBA) reported:
“Purchase applications are now 35 percent below their level of four weeks ago, as homebuyers have not yet returned to the market following the expiration of the homebuyer tax credit at the end of April,” said Michael Fratantoni, MBA’s Vice President of Research and Economics.
Purchasers are at least taking a breather from the craziness of a very active spring market. Will this lull in the market continue?