There’s no question. The government’s first-time homebuyer tax credit has spurred a significant amount of sales this year and its positive impact on the hard-hit housing market warrants an extension. Latest estimates show that some 400,000 additional sales occurred this year due to the first time home buyer tax credit, which is about 8% of all sales this year.
The latest news in the saga, The Senate has reached a compromise on extending and expanding the $8,000 tax credit for first-time home buyers. While its passage remains uncertain, the agreement would extend the existing credit for first-time homebuyers, worth up to $8,000, while offering a new credit of up to $6,500 for some existing homeowners. The reduced credit would be available to all homeowners who have been in their current residence for a consecutive five-year period in the past eight years. Lawmakers in Washington also raised the qualifying income limits to $125,000 for single taxpayers and $250,000 for joint taxpayers, from the current $75,000 and $150,000. Under the Senate compromise, buyers must have sales agreements in hand by April 30, but they will have until June 30 to go to settlement, said the sources. The measure still faces votes in the full Senate and the House.
The U.S. Senate won’t vote until next week at the earliest. As soon as they do we intend to create a piece that will allow you to communicate the news to your clients.
Reports show that Senate action has been delayed by a Republican demand that a vote be allowed on an amendment to end the Treasury Department’s Troubled Asset Relief Program at the end of this year. But lawmakers say they want to prevent home sales from slipping as the economy struggles to recover. And as I mentioned in a previous edition of Weekly Market Watch, that is just what may happen if lawmakers choose to let the tax credit expire.
On the flip side, the Democrats, along with the Obama administration are backing it. “The success of the American economy is closely tied to the success of the housing market; by helping to stabilize the housing market, the homebuyer tax credit has helped to shore up the economy as it begins to recover,” said Baucus, a Montana Democrat. “This would enable an even greater number of potential homebuyers to take the credit.”
Thus far it seems to be doing its job. This week, Business Week reported “The broad improvement in the housing indicators in recent months leaves no doubt that the long-awaited housing recovery is finally under way.” The article went on to report: “Policy alone cannot explain the 24% gain in existing home sales since January, nor the 22% increase in new-home purchases, the 40% rise in single-family housing starts, and the recent upturn in home prices. The primary driver is historically high affordability. Fixed 30-year mortgage rates are at 5%, a multi-decade low, and prices have plunged a total of 30% since May 2006, based on the Standard & Poor's Case-Shiller Home Price Index. By that price gauge, homes are well undervalued relative to both rents and aftertax income.”
Next week I hope to report some positive news on the home buyer tax credit front. Until then, let’s take a look at this week in real estate:
- Davis County—Both the North Davis and Bountiful offices have seen a decline in listing inventory over the last couple of months. Some of that may be attributed to seasonality, but the sense of some of our Agent base is that there are more limited services listings being taken. Hmmm...that is interesting to me. Since selling your listing is no easy task right now it surprises me that sellers would want to list with brokerages that provide them less exposure and services. Perhaps because of tight equity positions in many properties right now, sellers are feeling the crunch and are looking to price only to make their decision on who to list with. I guess time will tell. Sometimes it's ok to be the second agent in when a seller does not get the results that they thought they would get from a limited service broker. That will be interesting to watch over the next few months. The end of the $8,000 tax incentive is definitely causing some urgency for first time buyers. Both offices report that many of our agents are working with people who are looking to close soon in order to get in on the incentive.
- Salt Lake County North—The Salt Lake office reports we are seeing some activity in the Previews market because there are buyers that are realizing that prices have hit bottom and are starting to rise, and interest rates are starting to inch up. There has been more traffic at these open houses than in quite some time. The fear of missing out on the lower prices are motivating buyers more than the fear of uncertainty in the market. Open house and web traffic indicate there is a tremendous amount of pent up demand in the market. However, there is still fear and uncertainty surrounding the future of the economy and job security. Once this fear subsides and consumers have confidence in the direction of the market, we should see a robust real estate market if interest rates remain at a reasonable level. Union Heights reports the market is not improving because of uncertainty with legislation pending concerning extension of tax credit. Sugar House reports open houses have slowed a bit.
- Salt Lake County South—We have had a great couple of weeks with opens and closes. Listing base has stabilized. Lots of good first time buyers still taking advantage of the opportunities for the rebate. Open houses seem to be a bit sluggish in most areas, JBJ leads are the source of most business as long as agents ask the people they call for their business. One Agent called 3 people and asked for referrals, got 1 name, that call has generated the possibility of 8 listings.
- Salt Lake County West— In the West Jordan Office we have taken few listings in the month of October than we took in October of 2008. Another difference is the price range of listings taken. The highest listing we have taken, so far in October is $289,900. We are still seeing the market moving in the lower price ranges. Not much activity in our area over $300,000.
- Tooele County—Our Tooele office reports happy day!! All signs point to an improving market. Listing inventory has dropped and closed transactions have increased steadily in the last 2 months. Back to back months of strong sales. My perception is that this might be the result of the expiring government tax incentives.
- Utah County— Inventory continues to decline, dropping 6% in September over August from 4182 to 3960. The percentage of short sales continue to increase from 21% of the inventory to 23%. This increase is in part due to the lengthy time frame short sales are being kept active, which waiting for bank approval. The highest percentage of short sales in Utah County are to be found below 100,000, 26 out of 59 listings or 44% of the properties under 100,000 are short sales. Overall Utah County has a listing inventory of 9.7 months and a significant portion, 23% are short sales, of which have offers pending bank approval. Short sales which are stuck pending bank approval are inflating our listing inventory and may be skewing the numbers. It would not be surprising to see an increase in demand for homes which are not short sales, particularly those below 300,000. Home sales 300,000 and below represent 83% of the buyers for September. Overall sales were down 17% in September over August, from 489 to 406. This decline reflects a normal seasonal trend found in an active market like ours.
- Weber County— Sales have slowed a bit, we think due to seasonality. What is significant is the dwindling listing inventory and the lack of listings being turned in. Also we are seeing frequent withdrawals on listings. South Ogden will be implementing a listing campaign through the end of 09.
Next week I will release the November edition of Reality Check. In it, we focus on the state of the market and include an interview with me. I think you’ll find it helpful and informative in educating your clients and prospects on the current state of the housing market.
Until then,
Make it a great week,
Dan Christensen
Coldwell Banker Residential Brokerage Utah
