Reality Check: Tax Credit Expiry Slows May US Home Resales

iMarketNews.com
By Claudia Hirsch
June 18, 2010

NEW YORK, June 18 (MNI) - U.S. existing home sale deals stuttered in May following the end of a federal tax incentive, bringing an early summer lull to the still-beleaguered housing market, according to real estate executives. Real estate sales agents said the one-year-old tax credit of up to $8,000 for first-time buyers goosed sales in some price categories until the April 30 in-contract deadline loomed near. (The current deadline for closing is June 30, and Congress may extend it to Sept. 30).

Since then, buyers' hesitance has reappeared. Uncertainty about home-price direction and insecurity about employment seem to be holding sway at the moment, realtors said. Closing deals has become trickier because of financing issues and discrepancies between sale prices and appraisals.

Though foreclosure rates appear to be slowing in some markets, sales agents said the worst is not necessarily over. They expect distressed sales, including short sales, to accelerate going forward.

"Buyers are in no hurry," said Bonnie Roberts-Burke, a sales agent with Evers & Co., in Washington, DC. "I'm feeling some commitment-phobia. They're waiting for prices to come down further."

Prices in the city and close-in Maryland suburbs lost about 10% to 15% of their value over the course of the housing downturn, a fairly tame decline compared to many U.S. markets, she said. Local statistics show that home price decreases have slowed to near-zero, she said.

"It seems in D.C. that summer has hit in June," Roberts-Burke said, adding that her spring had been quite busy. "Usually we see this in August. I have all these listings, and nothing is really selling right now."

High-end homes, priced about $900,000 and above, are languishing on the market. Many of those sellers bought at high prices in the froth of 2005 and 2006, and are insisting on listing prices that are too rich for today's buyer, she said. By contrast, those who underestimate the value of their homes can generate multiple bids that push the selling price above asking.

"The market rewards modesty," she said, and added that many buyers are still grappling with job insecurity and wild swings in the stock market.

"I don't think we're going to see price increases for at least another six or eight months," said Roberts-Burke, a veteran in the D.C. real estate market. Her business year-to-date is below that of a year ago, when she briskly sold condominium conversions in a fashionably located historic building.

A longtime real estate agent in the hard-hit housing market of Las Vegas said her business has eased a little since the end of April among the 35% of her buyers who aren't investors.

"It has quieted down since the government program ended," said Stacey Vitto, of Realty One Group. "I don't think we've really come out of the recession here, though the rest of the economy has peeked its head above it. Our unemployment is still really high."

All-cash investors, however, are out in force buying up condos and townhouses at bargain prices of $150,000 and below, Vitto said. Some of these properties are even generating multiple bids.

"I have a lot of cash buyers from Japan and China," she said. "The resale market here is still incredibly unstable, but the long-term rental outlook is good because you have so many displaced homeowners who defaulted and need a place to live."

Just about all her listings are either bank-owned foreclosures or, increasingly, short sales.

"There are six short sales to every one bank-owned," Vitto said. "The banks are shifting their model. They don't want houses foreclosed on, because it's expensive. They want to do a short-sale instead. That takes all kinds of documentation and a very long time."

And often, while buyers are waiting the typical 90 days to close a short sale, complications crop up -- buyer impatience, sellers filing for bankruptcy or not qualifying for a short sale -- that ultimately kill the deal. As a result, Vitto's volume this year has fallen a little short of her 2009.

"If you have nine short sales in escrow, you'll close maybe four," said Vitto, a lifetime Vegas resident. Existing inventory has been whittled down some. But she expects short-sale inventory to expand, as banks grow weary of defaulted homeowners' mortgage non-payment while waiting to be foreclosed upon. Vegas-area prices are roughly even with last year, in many cases about half of what they were at the height of the market, Vitto said.

"My high-mark now is $250,000 and $300,000," she said. In 2005, that range would have been around $600,000.

On the East Coast, a sales agent in Montclair, NJ, a desirable New York metro-area community, said she also expects distressed sales to expand, as long-unemployed or under-employed homeowners in middle price ranges drain the last of their financial resources.

"We're seeing a smattering of them now in Montclair, and previously they'd only been in outlying areas," said Kate McDonough, sales agent and broker associate with Prominent Properties Sotheby's International Realty. The spring has been active in the $500,000 to $800,000 range, she said, as pent-up demand met with prices that were a good 30% off their 2006 highs. But asking prices closer to $1 million, and especially above $1.5 million, are increasingly difficult to move.

"The high end is stagnant," McDonough said. "Even people who can afford it don't want big houses because they now want to be perceived as more fiscally conservative. Others are unsure about whether they'll keep their jobs. They all want smaller homes and back yards, closer to town and the train."

McDonough said the combination of buyer uncertainty and high-end sellers' anger over the loss of value in their luxury homes may prevent recovery in million-dollar-plus homes for quite some time. In the middle range, some sellers are stubbornly sticking to listing prices higher than the sales agent recommends for fear of trading for less than the amount they owe. And even inked deals don't necessarily close, foiled by appraisals, financing and "raging" home inspection arguments, she said.

McDonough's business has been lively throughout the spring season, and, in a community where entry-level homes start at $500,000, it wasn't much affected by the tax credit.

A Northern California franchisee of Parsippany, NJ-based Century 21 said business inside San Francisco has been consistent but underwhelming this spring, but the tax credit expiration did hit sales activity in less-expensive communities outside of the city.

"Nobody is beating a path to anybody's door right now, despite availability, affordability and low interest rates," said Ben Coleman, owner of Century 21 Hartford Properties, in San Francisco.

Outside the city by the bay, the tax credit pushed fence-sitters into buying, he said, but since the end of April, activity there has "dropped off significantly." Loan qualification and job security remain big factors, as well. Prices are stabilizing at low levels, he said.

In San Francisco itself, market conditions appear healthier, Coleman said. Foreclosures and short-sales are slowing some, particularly among single-family homes. They account for about half of the condo market under $800,000, compared to 60%-70% at its worst. Both inventory and time on the market are slimming. Home prices in the city began to edge upward at the beginning of the year. Coleman said the recent buyer of his neighbor's property flipped within a year of purchase and booked a nice profit.

"The challenge is closing a property," Coleman said. "We're seeing appraisals getting kicked back and sellers losing 10% of the value. That kills the deal." A sales agent in Northeastern Ohio said the tax credit didn't make much difference to her investor buyers, and she has seen a typical seasonal pickup in business since March.

"The majority of our non-investor buyers are not qualifying for loans, and that's the challenge at closing," said Deborah Loughborough, of Century 21 Twin Oaks, in Akron. "If they do qualify, they're doing the happy dance. We've got low interest rates, lots of inventory and sellers that will serve them cookies at the door to come look at their property."

Inventory has been whittled down some, to about 3.5 months' worth, but Loughborough expects more to come later this year. She's worried about the so-called "shadow" inventory of properties currently being held back from foreclosure. The supply of homes in good condition, she said, is surprisingly low.

About 90% of her business is with bank-owned properties, and the average selling price for one of these three-bedroom-one-bath foreclosed houses is around $40,000. County-wide, however, the average price is about $130,000, compared with $110,000 in 2009 and 2008, Loughborough said. Prices have dropped about 20% since their 2006 high.

The National Association of Realtors is scheduled to release May existing home sales data on Tuesday at 10:00 a.m. EST.

Editor's Note: Reality Check stories survey sentiment among business people and their trade associations. They are intended to complement and anticipate economic data and to provide a view into specific sectors of the U.S. economy.