John Rebchook is a former Rocky Mountain News reporter with more than 30 years of experience in writing and communications... Do you think the tax credits were a good idea? Vote at the end of this blog.
Home sales in the Denver area in June dropped by 31.4 percent from a year earlier, as the tax-credits that drove brisk activity in the first four months of the year screeched to a halt. It was the largest year-over-year decline for a June on record. June marked the second consecutive month of a huge drop in contract activity. In May, under contracts fell by about 41 percent from April and 27 percent from May 2009.There were 3,885 homes placed under contract in June, down from 5,664 in June 2009. Last month’s activity marked the fewest number of home contracts in a June since 2003, when 3,218 homes were placed under contact, shows the report by independent broker Gary Bauer, based on Metrolist Inc. data.
Tax-credits front-loaded sales
Local real estate experts agree that the $8,000 first-time tax credit and $6,500 for some existing homeowners, boosted sales in the first third of the year. But they disagree on whether the tax credits were a good idea.
“We borrowed from the future and now it has caught up with us,” said Mike Rinner, of the Genesis Group, which tracks housing along the Front Range. He said clearly, a lot of people who might have bought in May and June, signed on the dotted line earlier in the year to get the tax credits.
He also said it’s possible that the strong spring sales, fueled by the tax credits, also will impact sales that would have occurred at the end of the summer and into the fall. “We just don’t know yet,” Rinner said.
In the first half of the year, there were 28,395 homes placed under contract, a 2.2 percent drop from the 39,040 homes placed under contract in 2009. And 2009 was one of the weakest years on record for home sales in the Denver area. Because of the mix of home sold, however, the average price of a single-family home rose to $299,375 in June from $273,285 in May and $283,312 in June 2009. The median price of a single-family home rose to $244,000, from $230,00 in May and $237,500 in July 2009.
Asked if he thought the tax credits represent good fiscal policy, Rinner said: “My whole thing is that markets will heal when they have a chance to clear. We saw that in northeast Denver. It was hit earlier by foreclosures, but the market has since cleared, and now supply and demand are nearly in balance,” although he said home prices are down perhaps 40 percent from their pea.
He said that politicians could feel better about themselves by implementing the tax credits, at a time when the country was suffering from the first nationwide downturn in housing values since the Great Depression.
“It’s like the morning after you had a night out on town and drank too much,” Rinner said. “Do you lie in bed feeling sorry for yourself, or do you get up, exercise a little bit, and try to avoid feeling bad all day? There are no easy answers.”
Credits served their purpose
But Bauer said the tax credits were worth it, despite the huge decline in their wake
“Yes, the frenzy of the first-time home buyer is gone,” Bauer said. ” I definitely think the tax credits were good. I hate to use the term, stimulus, but that the housing market did need help, and the tax credits did help the market. It did help some people get off the fence to buy a home, who might otherwise not have bought. What we are seeing now, I believe, is the beginning of the true prime home buying season.
Chris Mygatt, president of Coldwell Banker Residential Realty Colorado, also thought the tax credits were a good thing.
“I think the hope was that they would create some momentum in the market that could be sustained after they were gone,” Mygatt said. “And I think it boosted sales and would have created momentum. But I think you have to look what happened independent of the tax credits. It may look like we sold eight months worth of homes in the first four months of the year, but you have to consider the financial crisis in Europe and Greece and the oil spill in the Gulf. They seem unconnected to the real estate market in Denver, but they put people on edge. People do not make decisions as big as buying a home when they are worried about the future.”
Mygatt said even more people would have bought homes before the tax credits expired on April 30, but they couldn’t find the right home, because the supply of unsold homes was so low.
The irony is those who did not buy, but are still house-shopping, are in an even more attractive market, Mygatt said. Interest rates are at a record low and there is a larger selection of homes to choose from. At the end of June there were 23,240 unsold homes on the market, 11.4 percent more than the 20,853 in June 2009 an 5.6 percent more than the 22,016 in May.
“People who are looking to buy now are really in a good place,” Mygatt said. “I wouldn’t be surprised if we don’t see some increased activity in under contacts in July.”
Without a doubt, the tax credits pushed home sales to the first part of the year, said Stephanie Prather, a broker/owner with 8z Real Estate, a sponsor of InsideRealEstateNews.
“In my 20 years in the business, I had never seen anything like it- I thought I was going to go crazy,” Prather said. “The phone wouldn’t stop ringing from clients calling who wanted to get the $8,000 tax credit.”
Tax credit folly
But she didn’t mince words about the worth of the tax credits. She thinks they were a mistake.
“I think anything arbitrary is a mistake,” Prather said. “It is a phony thing. The buyers who used the tax credits, would have bought anyway, so it was a waste of taxpayer money. I do not think it was necessary. All it did was provide a brief spark to the real estate market. It did not solve any problems. People just bought a little sooner than they would have. Sure, the tax-credits helped some first-time home buyers to get off the fence, who might have been too frightened to buy without them. But those who were truly frightened, wouldn’t have bought anyway.”
She said she realized many of her fellow brokers may disagree with her, but she said she has to call them as she sees them.
“I’m always extremely honest,” Prather said. “You can’t sugar-coat things.”
But Jeff Bernard, a broker with RE/MAX Alliance and a business consultant, said he thinks the tax credits did help the housing market and the economy.
“The tax credits for home buyers, in my estimation, provided positive stimulus that helped stabilize the housing industry, and help stimulate the local and national economy,” Bernard said. “I disagree with those who say stimulus just pushes the problem down the road. History has proved time-and-time again that stimulus is an effective economic tool.”
Sales drop puzzling
The steep year-over-year drop in under contracts does surprise Bernard, however.
“The home affordability index is still so favorable for potential buyers that it’s counter-intuitive to me that anyone considering a home purchase would not move forward on that decision,” Bernard said. “Low interest rates and bottoming home prices are clearly the prime time to purchase. Maybe it wasn’t logical to purchase a home in early 2008, but it seems illogical to not buy now if it’s a qualified buyer who wants to own a home. I’m a real estate analyst; I’m not selling homes. But I strongly believe one should consider buying a home now if owning a home is on a buyer’s radar screen. So this sharp drop inactivity is puzzling to me.”
Year Under Contacts Closings Unsold homes Median Price of single-family homes
2002 2,773 3,914 21,538 $225,000
2003 3,218 4,875 26,533 $230,164
2004
6,6435,590 28,043 $243,000
2005 6,511 5,511 25,817 $251,500
2006 6,049 5,628 31,900 $261,750
2007 6,136 5,129 30,256 $263,000
2008 6,308 4,845 26,104 $230,000
2009 5,664 4,186 20,853 $237,500
2010 3,885 4,046 23,240 $244,000
Loading ...Contact John Rebchook at JRCHOOK@gmail.com or 303-945-6865.
If we could get the Government to let the free market work and stop spending our money we’d be in much better shape.
Our Government is controlled far too much by political interest groups and lobbyists!
Case in point, AIG and all the other companies who received HUGE bailouts should have received a summons. Those are the very companies that ripped off the american people, the CEO’s oftentimes ripped off the companies and they get to walk with HUGE pension plans.
Now some homeowners wish to walk away from their homes but they are subject to a different set of rules! Some have even been subject to prosecution. The Buy and Bail plan many use in AZ and NV are being pursued in court. Why the double standard. Where was the American people’s BAILOUT?????
Barney Frank needs to be ousted from his position with Fannie. He shoulders a large part of this mess.
Its time to stop this “of the people, by the corporations, for the corporations!”
I still think that the tax credits were a good idea. All things needs time to show their true effect.
“Mygatt said even more people would have bought homes before the tax credits expired on April 30, but they couldn’t find the right home, because the supply of unsold homes was so low.
Oh, Really?!
“The great enemy of the truth is very often not the lie – deliberate, contrived and dishonest – but the myth – persistent, persuasive and unrealistic.” – John F. Kennedy
Enough said!
And, who would know more about how that works than JFK himself.