Posted May 18 2010, 7:06 AM PDT by Matthew Gardner, Chief Economist, Windermere Real Estate

Life After The Homebuyer Tax Credit

Posted in Market News by Matthew Gardner, Chief Economist, Windermere Real Estate

Much has been said about the expiration of the homebuyer tax that occurred at the end of last month. Everything from a move to extend it through 2010 (a very bad idea in my opinion, but one that didn't stop the state of California from extending their own $10,000 credit through this year), to arguments saying that all we are doing is stealing future demand. So what will actually happen?

Certainly, if we look at the U.S. as a whole, it is clear that the expiration of this credit has been followed by a substantial slowdown in market activity as evidenced by mortgage purchase applications declining by 9.5 percent in the first week of May. With more than a year of the federal government’s involvement in stabilizing the U.S. real estate market, we are now re-entering the free market system. I am sure that as we readjust to a market without assistance, I do expect to see turbulence hit some markets across the U.S.

So what will be the effect on local markets?

Any recovery will be localized and not broad based. Data in the Seattle area for example, for the first two weeks in May is still showing improving numbers for pending sales over the same period last year, suggesting that we appear to be somewhat resilient and were not wholly dependent on the credit.

If you’ve been thinking about buying, I believe you may start to see stability in transactional prices and list prices coming more into line as seller’s expectations are becoming more realistic. This stability has led to improving sales and I anticipate this continuing through the summer.

That being said, there is an issue on the horizon though that is worthy of mention. It is starting to look as if we are getting low on overall supply in the more affordable price ranges, especially in neighborhoods close to our job centers. This is an issue as it may stave off increased transactional activity as buyers fail to find houses that they can afford. This in turn may leave us with increasing supplies of higher priced product and sellers fighting for fewer buyers. Time will tell.

I believe that the tax credit worked and did function to stabilize the housing market at a crucial time. I, myself, am happy that it was allowed to expire as markets need to find their own balance. If we did steal from future demand we will not really know this until later in the summer when the peak buying season is behind us. I do, however, remain firm in my belief that, if we see the job growth that I am predicting, we will continue to see sales move along at a reasonable pace through 2010 – tax credit or no tax credit.


6 Comments

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  • Mr. Gardner, I appreciate your insights into the for-profit housing market. I agree that there are many areas where the “free market” provides good allocations. I work in the field of affordable housing, however, and that’s one area where markets are completely inadequate. It is virtually impossible for the market to provide safe, decent, and affordable housing to households with incomes less than about 50 percent of the area median. On Bainbridge Island, the problem is more acute, in that the local government and the community do not even support the idea that people who work on the island should be able to live there, too. I find this sad because I think a diverse community is both stronger and more interesting to live in, and ultimately self-defeating. Did you know that Bainbridge’s emergency plan for handling the aftermath of a major earthquake includes sending volunteeer boat owners over to Bremerton and the Kitsap Peninsula to bring back police, firefighters, medical staff, and their families, to help stricken islanders handle their local problems?
    +1

    Posted May 25 2010, 10:37 AM by Benoit

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  • Here is a great video that everyone should watch.... http://video.foxbusiness.com/v/4210331/making-sense-of-the-housing-numbers

    Posted May 25 2010, 4:32 AM by Maryanne Coffman

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  • Moderately priced housing is available in many areas. I know of a condo unit listed in NE Seattle, that is just a little over $100,000. The building is nice, the unit is nice -- yet it isn't sold, nor does it seem that there "something wrong" with it. I've seen this listing, and am surprised it isn't sold. (It's not my listing, so I won't quote the address here.)

    There are many examples in our local market where things we think should be "sold" just languish. I realize it's not always easy to find what you want, where you want it -- but there really are more moderately priced, decent housing units that are for sale.

    I sometimes think that the media and our own conversations make people believe there simply isn't any moderately/affordably price housing around.

    As always, the best message to buyers who aren't finding what they want: consider whether "where" you want to live is truly affordable, and if not, go 5 miles then 10 miles further to see what opens up for choices.

    Looking isn't the same as lowering your standards - it's simply examining your choices.

    Posted May 20 2010, 8:00 AM by Leanne Finlay

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  • Mr. deChadenedes:

    I wholeheartedly agree that as a nation we suffer from acute shortages of affordable housing and nowhere is this more prevalent then here in the Puget Sound. With our topographic and regulatory constraints on land, we suffer here more than many areas. I am consulting with numerous groups who are looking to implement new technologies (mainly modular) to try and address this serious problem. It remains very hard from a cost perspective;, however, I am hopeful that, at some point, we will have the ability to provide much needed support in the affordable housing arena.

    MG

    Posted May 20 2010, 1:45 AM by Matthew Gardner

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  • [...] Tweet This Our local real estate economist, Matthew Gardner has posted his predictions on what will happen to the local real estate market now that the tax credit has expired: click here [...]

    Posted May 20 2010, 1:31 AM by The homebuyer tax credit is gone, now what? : Badgley & Badgley

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  • Mr. Gardner, I appreciate your insights into the for-profit housing market. I agree that there are many areas where the "free market" provides good allocations. I work in the field of affordable housing, however, and that's one area where markets are completely inadequate. It is virtually impossible for the market to provide safe, decent, and affordable housing to households with incomes less than about 50 percent of the area median. On Bainbridge Island, the problem is more acute, in that the local government and the community do not even support the idea that people who work on the island should be able to live there, too. I find this sad because I think a diverse community is both stronger and more interesting to live in, and ultimately self-defeating. Did you know that Bainbridge's emergency plan for handling the aftermath of a major earthquake includes sending volunteeer boat owners over to Bremerton and the Kitsap Peninsula to bring back police, firefighters, medical staff, and their families, to help stricken islanders handle their local problems?

    Posted May 20 2010, 1:23 AM by John deChadenedes

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