Life after the Home Buyers' Tax Credit

When I last wrote, I commented that it has been hard to quantify the impact of the Federal Home Buyers' Tax Credit Now that we have sales numbers, it's easier to measure. The results are very exciting.

Overall, sales volume in the Greater Lafayette residential market area through 4/30/10 were up by 38% from the same period of 2009. As I suggested in my prior post, the increase in activity was not equally spread across all price points. Although designed to assist home buyers at a multiple of price ranges, the value was found to be the highest among first time home buyers. Sales volume below in homes priced below $150,000 was up by 64%. On the other hand, volume between $150,000 and $300,000 was only up by 13%. But the important work in that sentence is "up". A very interesting occurrence took place in the market between $300,000 and $450,000, where volume rose by 80%. That is amazing.

On a more troublesome note, the softness in demand in houses priced above $450,000 continued to be slow. Sales volume in the first four months was 88% below the same period in 2009. Take a look at the link I created that shows the quality of homes for sale above $450,000.
Homes for sale above in Lafayette/West Lafayette above $450,000.

In the weeks that followed the 4/30/10 expiration of the tax credit eligibility, we saw a significant decrease in the number of showings of our listings. This is comes as no large surprise. There is no doubt that the attractive terms of the tax credit accelerated some demand that might have occurred otherwise later in the year. However as a group of real estate professionals, we would be remiss if we did not remind all members of our community that now, more than ever, is an excellent time to purchase a new home.

• Interest rate are very attractive.
• Our major employers are calling employees back to work.
• The Lilly to Evonik sale is complete and jobs are saved.
• There is an abundance of well priced homes for sale.
• Greater Lafayette continues to be a national leader in the stability of property values.

There is still more than enough time to identify and purchase a home before the 2010/2011 school year begins.

P.S. The Barn is at Historic Prophetstown in the Prophetstown State Park.

Spring in Residential Real Estate

We have made it through another winter and are enjoying the good weather and final days of the Federal Home Buyer Tax Credit program. The current program provides up to an $8,000 federal income tax credit to eligible first time home buyers and up to a $6,500 credit for eligible non-first time home buyers. In order to qualify, an accepted offer must be in place by April 30th and the sale must close by June 30th. Our office is very busy. Many agents are working late into the evening and often seven days a week.

It is hard to truly measure the impact the program has had on demand, but most of us would suggested it has been considerable. Year to date unit sales of existing homes in Tippecanoe County through March 31st are 17% higher than the same period last year. However, as I have mentioned in other writings, the strong demand has not been enjoyed by all price points. Here is a break down of 3/31 year to date unit sales in Tippecanoe County by price range compared to the timeframe last year.

1. Unit sales of home price less than $200,000 grew by 21% from 214 to 260.
2. Unit sales of homes priced between $200,000 and $400,000 grew by 4% from 44 to 46
3. Unit sales of homes priced above $400,000 dropped by 40% from 5 to 3.
4. Total unit sales grew by 17% from 263 to 309

These numbers would indicate that: 1) the middle price and upper price ranges are still soft and 2) the Federal Tax Credit is driving demand in the typical first and second time home buyer price ranges. It will be interesting to learn in early May what happens to our demand after the first eligibity deadline has passed. We are all hoping that the natural momentum of spring buyers season and the pleasant weather will support much of the demand we are enjoying. I'll report back in mid-May and report what we find.

Recent modest increase in fixed rate mortgages

I've shared in some earlier posts that in March, 2009 we began to experience a favorable trend in buyer activity. It was not just a seasonal increase, but an improvement compared to the same time frames in 2008.

Initially, our company saw an increase in the number of showings scheduled on our listings (I am not able to measure showings scheduled on listings with other companies, but I am confident the experience of others was similar ours). Next we saw an increase in the number of earnest money checks we collected (an indicator of an accepted offer...again, I can only measure those collected within our own office, but I sense our competitors enjoyed the same experience). Specifically, the number of earnest money checks collected in March, April and May exceeded the number collected in the same months in 2008. Finally, April residential unit sales throughout the market (not just at our company), exceeded April, 2008.

In late May, we began to notice a lull in activity. Specifically, in the last two weeks of May and in the first week of June, the number of showings we scheduled on our listings were measurably less than the same weeks in 2008. However, the situation improved last week when the number of showings was only 5% below 2008. In my mind, the change in the level of buyer activity ties almost exactly to the increase in fixed rate mortages we say in the middle of May. Fixed rate mrtgages rose by 50 to 75 basis points in less than two weeks.

Let's put this in perspective by looking at the history of 30 year fixed rate mortgages over the last year and a half.

Month - - - - - - - - - - - - - - - - - - Average 30 year fixed rate mortgage*

Jan, 2008 - - - - - - - - - - - - - - - - - - - - - - -5.77%
Feb, 2008 5- - - - - - - - - - - - - - - - - - - - - -5.87%
March, 2008 - - - - - - - - - - - - - - - - - - - - -6.62%
April, 2008 - - - - - - - - - - - - - - - - - - - - - -6.54%
May, 2008 - - - - - - - - - - - - - - - - - - - - - - 6.56%
June, 2008 - - - - - - - - - - - - - - - - - - - - - - 6.88%
July, 2008 - - - - - - - - - - - - - - - - - - - - - - -6.94%
Aug, 2008- - - - - - - - - - - - - -- - - - - - - - - 7.00%
Sept, 2008 - - - - - - - - - - - - - - - - - - - - - - 6.65%
Oct, 2008 - - - - - - - - - - - - - - - - - - - - - - -6.85%
Nov, 2008 - - - - - - - - - - - - - - - - - - - - - - 6.69%
Dec, 2008 - - - - - - - - - - - - - - - - - - - - - - -6.01%

Jan, 2009- - - - - - - - - - - - - - - - - - - - - - - -5.80%
Feb, 2009 - - - - - - - - -- - - - - - - - - - - - - - -5.83%
March, 2009 - - - - - - - - - - - - - - - - - - - - - 5.66%
April, 2009 - - - - - - - - - - - - - - - - - - - - - - -5.48%
May, 2009 - - - - - - - - - - - - - - - - - - - - - - - 5.49%
June 16, 2009 - - - - - - - - - - - - - - - - - - - - - 5.94%

Source: HSH Associates, Financial Publishers (Pompton Plains, NJ)
*The rates are an average of conforming and jumbo mortgages from 2,000 lenders surveyed weekly.

I can't help but believe that the reduction in buyer activity around and after the Memorial Day holiday was driven by the jump in fixed rate mortgages. However, when put into prespective our current interest rates are nearly 70 basis points below the level we saw last Thanksgiving and a full point below August, 2008.

Let's hope ,as US consumers we can quickly become accustomed to the "new normal" interest rates and recognize they are still at a level that is far below what we have seen in the last decade.