The big story lately has been the tax credit for first time homebuyers. In October the National Association of Realtors recorded an unprecedented ninth consecutive month of increases in the number of signed contracts. Although these are not closed sales, and some deals can fall through, signed contracts are a good indicator of where the housing market is headed. October NAR’s Pending Home Sales Index rose 3.7% to 114.1 from 110 in October from September’s sales. But the index is 31.8% higher than a year ago, when it was 86.6. That’s the biggest year-over-year gain in the history of the index. The tax credit has unleashed a pent-up demand from a large pool of financially qualified renters and many agree that it’s more than bringing forward sales that would have happened anyway. With some home price stability, along with historically low interest rates, and the $8000 tax incentive, these savvy renters have jumped into the market and have made a big impact on sales volume. The tax credit had been due to expire on December 1st 2009, so many of these buyers had been timing their purchase to close escrow prior to that date. The tax credit has now been extended and broadened to include move-up buyers as well. We may see a dip in activity over December and January, with another nice wave of volume hitting in late winter and early spring. Typically it takes several months for buying decisions to materialize. This next surge could take slightly longer given that move-up buyers will need to sell their existing homes as they move-up to their next home.
Another positive outcome of this spike in sales is the decrease in available home inventory in San Diego County. Detached home inventory has more than halved in the past year, which has contributed to price stability and in some cases, multiple offers on attractively priced homes. This news is muted somewhat by the huge increase in entry-level home sales and the relative stagnation of the luxury market. Where the under $300k market was virtually non-existent in 2007, for the past two years it has dominated the October sales numbers for detached homes. Probably the biggest opportunity over the foreseeable future is for those homeowners looking to move up to the luxury market. There is a relatively good sales market for low or medium priced homes and an extremely soft market in the luxury category, where buyers can dictate the terms and benefit from the move-up tax credit. This will put move up buyers in luxury homes at the bottom of the luxury market and help them enjoy the relatively larger appreciation gains on the way back up.
Tags: Home prices, interest rates, luxury home prices, tax incentives, timing the market
