This could be the last call for the $8,000 tax credit! If you qualify as a first time home buyer or have not owned a home for the last three years you are currently eligible to receive an $8,000 tax credit on the purchase of a home as long as the purchase closes by November 30, 2009. You should allow about forty five days from the date of the contract to the close of the purchase so there is a very short window of a couple of weeks to find the right home, make an offer and get it under contract. Plus we expect the last couple of weeks of November to be very busy with buyers trying to close purchases to beat the deadline, coupled with the fact that November 30^th is the Monday following the Thanksgiving weekend.

The National Association of Realtors estimates that the tax credit has been responsible for 350,000 home sales this year. Moody’s Economy.com put the number at 400,000. This success has meant the cost has soared to $15 billion, twice the original estimate and now there is a debate going on between those that want it extended and even expanded and the skeptics who call it one of the worst provisions of the stimulus package, on the grounds that the money is a bonus for people who would buy a house anyway. Even the Denver Post, in an editorial in their September 17, 2009 edition, called for an end to the plan saying that “The $8,000 federal credit for homebuyers should be allowed to sunset” and that “Government involvement in the industry is out of hand”.

Obviously the National Association of Realtors and the National Association of Home Builders are others in the industry are lobbying hard for an extension of the plan through to next summer and for an increase of the tax credit to $15,000 plus an expansion to allow all buyers to qualify. Their position is that the tax credit has had a positive impact on the real estate market but this progress could grind to a halt quickly if the credit is not extended and expanded. Mark Zandi, chief economist for Moody’s Economy. Com believes the credit should be expanded to all homebuyers, even investors, through the summer of 2010. “The risks of not doing something like this are too great,” he said. “I don’t think the coast is clear.”

So while the debate goes on, the only way to insure that you get the credit is to plan on buying a home and closing on the purchase within the next sixty to seventy days. That is not a lot of time but it is possible. There is a good selection of homes on the market, both new and resale and most sellers are motivated to get a deal done – even with the prospect of having to move Thanksgiving weekend.

To make sure you qualify, here are the rules:

1. The tax credit is equivalent to 10% of the home purchase price, capped at $8,000.
2. It applies only to first time home buyers, defined as someone who has not had an ownership interest in a principal residence for three years before buying a house.
3. It applies only to those who close on the purchase a home from January 1 to November 30, 2009.
4. The tax credit does not have to be repaid and it is ‘refundable’, meaning qualified buyers can take advantage of it even if they don’t have an $8,000 tax liability. You will get a refund check for anything over what you owe up to the $8,000 limit.
5. The tax credit is subject to income limitations. Single buyers need a modified adjusted gross income of $75,000 or less and $150,000 for married couples. Those earning more may be eligible for reduced credits.
6. Buyers have to own the home for at least three years or, in most cases, the credit must be returned.

If you qualify and you are ready to take advantage of this $8,000 credit you need to get started – today!

 THE LIGHT IN THE TUNNEL!

The light that we saw last month was not the end of the tunnel – it was the oncoming train! Just when we thought we might be building some momentum we got slammed with a lousy August with local home sales down 13.2% from last year. Even more discouraging is the decline in sales from July to August which is normally in the 10% range. This year it is 26%. On top of that we had a record drop in the average selling price, down 10% in August compared to last year. Wow!

We are reminded a bit of the contrarian nature of our market. When real estate sales and prices were going really bad in most areas across the country, we were in pretty good shape with a drop in sales but with a very modest price decline. Now that there are signs that the national market has reached the bottom and there is a recovery going on – the local sales and pricing goes into the tank.

This leaves year to date sales at 1,971 homes and with 75% of the annual sales completed we are on a pace to finish with around 2,600 closed sales, down 16% from last year and the lowest level since 1990. As for the average selling price, last year was the first time in our records going back 33 years that we had a year over year price decrease and it was a very minimal 1.0%. This year we are on a pace for a price drop of perhaps 5% and a $240,000 average selling price would take us back five years to 2004. Combining the projected sales and average selling price equals a total market of around $625M, a drop of 20% from last year and down 36.5% from the peak in 2005.  

The median price was down 1.4% from August last year but for the year to date we are even at $210,000. August closed sales averaged 104 days on the market, up slightly from the 101 last month and 98 last year but still better than the 108 to 135 range for the first six months. And inventory continues to drop with 1,907 homes on the market at the end of August compared to 1,955 at the end of July.

In trying to find a silver lining in the August numbers, we are struck by the mix of homes sold. In August 2008 there were eighteen sales over $500,000 for a total volume of $14.6 million. This August there were six sales for a total volume of $3.8 million so we lost a big chunk of the sales in the higher end. Newly constructed single family homes were also a big reason for the drop in average selling price. There were twenty three last year at an average of $539,087 for a total volume of $12.4 million. This year there were thirteen at an average price of $324,289 for $4.2 million. Looking at the resale home market, while sales were down 19.3% the average price was exactly the same: $248,979 in 2008 and $248,909 in 2009. Multi-family home sales were up 23% in August and the average price was down just 0.7%.

So it is easy to see that, in spite of the headlines, all of the drop in average price can be attributed to the mix of homes sold with new construction prices down 40% coupled with a 67% drop in the number of homes sold over $500,000. 

Certainly a ‘good news bad news’ scenario and a lesson in the various ways to interpret ‘statistics’ but the bottom line is the local residential real estate market in 2005 totaled almost $1 billion and today we are on a pace for maybe $625 million. Most concerning is the fact that new home construction has almost disappeared with sales down 70% from the peak years and a drop in sales value of $125 million. The National Association of Home Builders estimate that the construction of 100 single family homes in one year provides 324 local jobs, $21.1 million of local income and $2.2 million in taxes and other revenue for local government. This 70% drop in new construction activity is equivalent to 700 homes so multiply these figures by seven and it is evident our local economy is getting hit hard. If you want to help, there are 237 new homes currently listed for sale. You will find the sellers anxious to make a deal and, if you are a first time home buyer, the federal government will pay you $8,000. Help the local economy – go buy a home!