Real Estate News

Kelly Sweeney, CEO Coldwell Banker Weir Manuel

It has been an interesting two months since the Home Buyer Tax Credit expired. Demand has slowed down but has not come to the screeching halt some had expected. The million dollar question is: “What will happen to demand as we continue through the rest of this year?”

Market demand is stratified into three categories:
1. Entry-level homes: Typically for first-time home buyers
2. Move-up homes: Purchased by sellers of the homes that first-time buyers are purchasing
3. Luxury homes: The high end of the market. These were formerly considered over $1,000,000. Now, anything over $650,000.
Let’s take a look at what will potentially happen in each category in the second half of 2010.

Demand for entry-level homes: There is no doubt that the Home Buyer Tax Credit increased sales in the first four months of this year. Some experts believe that buyers who planned on purchasing in the second half of the year moved up their plans to take advantage of the tax credit.

Business Week quoted Douglas Duncan, chief economist of Fannie Mae, the largest mortgage financier in an article last week: “Temporary tax credits change behavior temporarily. It’s simply shifted demand forward.” CNBC, in an article entitled, “Housing’s Double Dip”, quoted Zillow.com: “While temporary tax credits succeeded in lifting buyer psychology temporarily, they essentially shifted demand forward without having a lasting impact on prices or purchase behavior. We expect some payback in the form of decreasing sales after the final closing deadline at the end of June.”
Although all the above may be true, activity in the entry-level market is somewhat less discretionary than activity at higher price points.

CONCLUSION: There will be a somewhat lower demand for entry-level houses until later this fall. Demand will then resemble what existed prior to the tax credit. It will not be as robust for the next quarter, but there will still be activity.

Demand for move-up homes: This is a category we believe will remain strong throughout the summer. There seems to be a belief in some circles that the only houses selling are those that are distressed properties (foreclosures and short sales). These types of sales do not create a second buyer as the sellers leaving these homes cannot qualify for a new mortgage. More than 70% of the homes sold today are NOT in this category, however. The rush of first-time home buyers created a stream of move-up buyers currently looking for their next home. This group is somewhat hesitant to pull the trigger as they want to make sure the deal on their current home closes before the new September 30, 2010 deadline.

CONCLUSION: This category will remain strong for the next few months. Once the wave of closings created by the first time buyers slows, so will this category. We won’t see another increase in demand until very late this year or early next year.

Demand for upper-end homes: This category has stood alone from the rest of the housing market over the last 18 months. This market was immune to much of the government stimulus and even the artificial lowering of mortgage interest rates had virtually no impact on jumbo loan rates. This market was less affected by the tax credit and therefore will be less impacted by its expiration.
Prices in this segment remain soft and inventories remain high. There is tremendous opportunity here for savvy buyers.

CONCLUSION: We believe, as confidence is re-established in housing and the overall economy and jumbo mortgage rates become more favorable, the upper-end category, especially the luxury market, will continue to gain strength.

This entry was posted on Monday, July 19th, 2010 at 5:46 pm and is filed under real estate. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.