Incentive Enough
A consumer survey released in April by a large nationwide real estate firm—combined with recent trends in local sales—helps explain why home buyers continue to flood into our market, anxious to buy; not at all deterred from doing so by having missed the April 30th deadline for the first time home buyer tax credit. Nearly two-thirds of the current home shoppers questioned in the survey said that the expiration of the tax credit will have little or no effect on their determination to move forward with an eventual housing purchase.
To be sure, the tax credit helped re-ignite the real estate market; even as it benefited quite a few buyers with added savings or the ability to bid-up on desired properties. Locally, it helped unleash a backlog of pent-up demand that not only chewed-up a sizeable portion of our swollen inventory of properties priced below $300,000, but also helped stabilize free-falling prices. The inventory of available properties is now at its lowest level since late summer 2005.
All these benefits were what the government had in mind when it first launched—then extended—the popular tax credit. But let’s face it. No incentive on earth, however well-intentioned, is going to motivate people to buy overpriced properties; or ones they don’t really want or need. The tax credit simply sped-up purchases of desired, well-priced properties that probably would have sold anyway. For this reason, we should not be surprised to see a dip in sales in the months immediately following the end of the tax credit. Buyers who absolutely needed the credit in order to move forward are gone. But the absence of the tax credit—in and of itself—won’t stall our market’s recovery the way an unusually large glut of new foreclosures might.
Clearly there are more powerful incentives in play that explain why buyers in such relatively large numbers are still jumping into the post-tax credit market with the same sense of urgency that was felt during its waning days. For one thing, consumer confidence—not just in the real estate market, but in the broader economy as well—is much higher than it was when the tax credit was first announced. Although the job market has yet to improve noticeably, far fewer people are fearful of losing their jobs; and are therefore more comfortable making big-ticket purchases. But even with confidence way up, more fundamental forces are presumed to be stoking recent sales.
Happily, the final 60 days of tax credit eligibility coincided with what we now recognize (in perfect hindsight, of course) was the bottoming of our market’s lower price tiers. At Michael Saunders & Company, where our agents bring buyers to the table more often than our next two competitors combined, we think the tremendous uptick in recent sales has much more to do with buyers actively pursuing bottoming prices and historically low interest rates than any sort of tax credit. It was nice while it lasted, but the recovery will endure without the tax incentive.
Truth be told, price alone is reason enough to buy these days; with rising prices on homes under $300,000 suddenly offering the greatest incentive to act quickly. Sarasota County’s median home price in March 2010 was 20 % higher than in February and 15 % higher than March 2009. Even so, the March 2010 median of $150,000 represents nearly a 60 % rollback from its boom-time high of $362,000, recorded in December 2005. Prices like these have not been seen locally since late 2000/early 2001. (Source: Trendgraphix). Properties priced above $300,000 are no different. In order to sell to today’s value-obsessed buyers, prices for luxury homes must also be rolled back to accurately reflect their value to these buyers in today’s highly competitive marketplace.
Interest rates are also expected to rise before the end of the year, as they really have nowhere else to go. According to the survey, more than nine out of ten recent purchasers indicate that interest rates weighed heavily on their decision to purchase; with 14 % expecting rates to rise by a point or more, 53 % expecting a rise of less than a point; and 31 % expecting them to stay about the same. 98 % believe today’s interest rates are unlikely to go any lower.
At least one national real estate brand is presently encouraging its sellers to “keep the momentum of the government tax credit going” by offering buyers a refund of 3% on the accepted offer price—up to an $8,000 credit. Presuming the brokerage has helped price the home correctly, as is its fiduciary duty, we think this is asking the seller to shoulder more than their fair share of the transaction; especially since the fine print informs that no portion of the real estate broker’s commission is offered as part of the credit incentive. If the property’s price is among the most competitive in its class, a buyer will emerge without such promotional gimmicks being necessary; much less costing the seller extra proceeds from the sale. As most serious buyers are well aware, buying now at today’s corrected prices is incentive enough.
Editors note: Members of the military and certain other federal employees serving outside the U.S. have an extra year to buy a principal residence in the U.S. and qualify for the first time home buyer tax credit. Thus, an eligible taxpayer must buy, or enter into a binding contract to buy, a principal residence on or before April 30, 2011. If a binding contract is entered into by that date, the taxpayer has until June 30, 2011, to close on the purchase.
photo courtesy of http://www.homelistingsmatch.com
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