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:
- Boulder/Longmont—The Boulder office reported new listings in Boulder county remained steady this week, but sales fell 17% from last week. This caused available inventory to climb. Showings on our listings fell about 4% but our top ten listings averaged one showing per day over the past week. The sales to list ratio in the Boulder/Louisville market remains steady at 98% (not including the over $1,000,000 market). The Longmont office reported the push is on for the "$8000 tax credit buyer" to be under contract. Lenders are pushing to get buyers qualified. Entry level homes are being shown almost exclusively. Our listing inventory for move-up homes is stagnant. The Colorado weather is adding to the uncertainty. Snow and cold early this Fall season makes the buyers less likely to venture out. Colorado is still looking good for employment possibilities. Our rate of unemployment is not reaching the levels seen on both coasts. This is a great time to start a real estate portfolio.
- Evergreen/Conifer—No information reported.
- Denver Central – Our under contracts for October continue to remain high. There has been an increase in first time home buyers looking for property and wanting to take advantage of the $8,000 tax credit. With the deadline fast approaching and the possibility of an extension not occurring buyers have to act quickly. Congress did extend the deadline for military service individuals. We continue to see inventory shortages in the Denver market which has created offer situations in the lower end market. The inventory is substantially lower than its highpoint in 2007. Over 50% of the home sales in the Denver metro area are under $250,000. If you're looking to sell a home priced under $300,000 this is a great time & take advantage of one of the better markets to move up into a higher priced home. We've seen many move-up buyers entering the market recently. Overall, we are very encouraged and excited about the future of real estate in Denver.
- Devonshire— No information reported.
- Douglas County—No information reported.
- El Paso County—No information reported.
- Larimer County— Showings are steady and primarily at the first time buyer price point, $250,000 or less. We've seen a slight upswing in new inventory coming on the market since last week. Unfortunately the cold weather has kept some buyers at home, but this only allows inventory to build. A word to the wise, if you are still looking to take advantage of the 1st time home buyer tax credit you may want to stay away from short sale transactions. We've had several agents report that short sales are still taking longer to complete. With any luck, the tax credit will be extended & those who are under contract but in danger of not closing prior to the Nov 30th deadline will still have a chance to get in on this great opportunity.
- North Metro— No information reported.
- Parker –No information reported.
- Southeast Metro— The surge of first time homebuyers continues! We're experiencing multiple offer situations in several price points and specifically homes over $250,000. Some of the homes that have been in multiple offer situations have been on the market for awhile & are a direct result of the time crunch for the tax credit. We've placed 120 properties under contract this month & we'll close over 150 units. November is looking great with 100 units already schedules to close! Despite the unpredictable weather, open house traffic continues to be strong & serious buyers are out there!
- West Lakewood— Activity is starting to taper off. Listings are dropping off. Under contracts are still steady and showings are dropping off perhaps because of Halloween weekend coming up
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,
Chris Mygatt
Coldwell Banker Residential Brokerage Colorado
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