The Federal Tax Credits for First Time Home Buyers and Move-Up Home Buyers expired on May 1st.  I am writing my market reports for several cities in Gwinnett County, as well as the one for Gwinnett County, GA.  And there are a lot of theories on how the expiration of the tax credits will affect the market.

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Image by lane.bailey via Flickr

The problem is that solid numbers take a while.  In fact, it takes about a month for the numbers to solidify.  In the case of the recently expired tax credit, the actual closings (sometimes called ‘close of escrow’) may not be complete until the end of June… that means that until the beginning of August, we will be looking at sales that were brought about by the tax credit.  We won’t have ‘post tax credit’ sales to report until we are looking at July numbers, and that won’t be until the first week of September.

So, will sales be up or down?

That is the $1m question.  And there are two schools of thought as to which way we will see the housing market move in the wake of the tax credits.

  • Sales will be up because the tax credit ‘kick-started the market’ and boosted demand.
  • Sales will be down because the support created by the tax credit will erode as the credit dries up.

Frankly, I fall into the second group.  As I look at the numbers in my market report, I try to use them to look forward.  I also try to see the patterns looking at the past…

As the deadline for the credit that expired last year approached, there was a HUGE rush in sales.  November closings were up anywhere from 30% to 85%, depending on the specific location and price range.  But then in December, sales crashed… as low as 35% below the previous year.

Sales ratcheted up after that… slowly.  March sales are actually looking pretty strong.  But, how much of that is tax credit and how much is market recovery?  How many of the sales were ‘borrowed’ from the future… and thus, lowering upcoming sales?

My personal belief is that the housing market won’t recover until jobs recover.  We have tens of millions fewer jobs now than we had just a couple of years ago.  When people are working again, they will buy homes.  Until that time, they won’t.  While people are worried about the prospects of losing their job in a few months, they aren’t making 30 year plans to buy homes.

We won’t know for a while…

BUT…

When the market is soft and everyone is looking the other way, there is opportunity.  The last few weeks there has been competition for entry level properties.  Much of that competition is gone now…  that means that sellers might be a little more willing to strike a deal.  We are expecting interest rates to rise, though.  And rates can actually impact affordability at least as much as price… at least for buyers getting a mortgage.

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