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.